NEW YORK (TheStreet) -- Norfolk Southern (NSC - Get Report) stock is falling 6.45% to $87.10 on Friday morning after its board unanimously rejected Canadian Pacific Railway's (CP) $28.4 billion takeover offer, but TheStreet's Jim Cramer encouraged investors to own the stock on CNBC's Squawk on the Street this morning.
"What the heck is Canadian Pacific even thinking about?" Cramer wondered. "The only people who benefit from this [deal] are a couple of shareholders at Canadian Pacific if they can steal Norfolk Southern."
The U.S. government should just stop this deal right now, Cramer added.
He pointed out that some investors will think Norfolk Southern's rejection of the deal is "shocking," but it is more shocking that investors' misplaced bets on the deal pushed the stock as high as it went.
"Let's just say a lot of people made the wrong move," Cramer said, noting that Norfolk Southern is an "incredibly well-run" company that happens to be facing problems with the falling costs of coal.
He contended that Norfolk Southern might be the best of all the rail companies.
"Own Norfolk Southern because it's a very good company that happens to be temporarily stymied by a strong dollar and a decline in coal, which will not get better, but they will fix it because they always do," Cramer stated. "They always surprise to the upside."
Separately, TheStreet Ratings team rates NORFOLK SOUTHERN CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
We rate NORFOLK SOUTHERN CORP (NSC) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio is somewhat low, currently at 0.81, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that NSC's debt-to-equity ratio is low, the quick ratio, which is currently 0.65, displays a potential problem in covering short-term cash needs.
- 40.80% is the gross profit margin for NORFOLK SOUTHERN CORP which we consider to be strong. Regardless of NSC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 16.66% trails the industry average.
- NSC, with its decline in revenue, slightly underperformed the industry average of 9.4%. Since the same quarter one year prior, revenues fell by 10.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- NORFOLK SOUTHERN CORP's earnings per share declined by 16.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, NORFOLK SOUTHERN CORP increased its bottom line by earning $6.39 versus $6.04 in the prior year. For the next year, the market is expecting a contraction of 17.4% in earnings ($5.28 versus $6.39).
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, NSC has underperformed the S&P 500 Index, declining 18.56% from its price level of one year ago. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- You can view the full analysis from the report here: NSC