Most transportation officials agree that the United States' transportation infrastructure - - highways, roads, bridges, mass transit systems - - is in need of a major upgrade in order to meet the nation's transportation needs of the 21st century.
The nation's public officials will begin to address the above concern in the years ahead, as public funds become available, but until they do, and due to crude oil's sustained high price, an opportunity has emerged for another transportation form: you guessed it, the railroads. And Norfolk Southern Corp. (NYSE: NSC) is a railroad worth a review.
Norfolk Southern provides rail transportation in the eastern U.S. and Canada, operating a 21,000-mile rail network. It's an elaborate intermodal and coal service network that also has a large freight business.
Analysts really like NSC's intermodal business, which accounts for 21% of revenue and will be the company's fastest-growing revenue stream, long-term. And the reason is obvious enough: burgeoning international trade requires that containers be moved and rail offers a substantial cost savings over trucks.
In general, analysts see Norfolk's revenue growing 6%-8% in 2008 with modest pricing power; margins should widen slightly. The Reuters F2007/F2008 EPS consensus estimates for NSC are $3.64/$4.05.
The risks? Continued sluggish conditions in the automotive sector will hurt NSC's results, as the railroad transports a large amount of vehicles.
Still, provided the U.S. economy performs reasonably well, Norfolk will maintain its near-decade-long momentum as part of the U.S.'s resurgent railroad sector. Given the nation's congested highways and current high oil prices, the rails offer a great way to move goods around.
The First Call mean rating for NSC is: Buy. [16 firms.] Mean 2008 target: $60.50. [high: $65, low: $53.]
Stock Analysis: Norfolk Southern is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 1 year should be rewarded from NSC's shares. Sell / Stop Loss if you were to purchase shares in this company: $33.
