Readers of this space know that one of the preferred sectors is the railroad sector. The once near-rust-belt level sector has experienced a revival at the start of the globalization age, and compelling economic trends document the commerce-based underpinnings of this revival.
Most transportation officials agree that the U.S. transportation infrastructure -- highways, roads, bridges, mass transit systems -- is in need of a major upgrade in order to meet the nation's vehicle 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 (NYSE: NSC) is a railroad worth an evaluation.
Norfolk Southern provides rail transportation in the eastern United States, operating a 21,000-mile rail network in the eastern United States and Canada. 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 more than 20% 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% to 8% in 2008 with modest pricing power; margins should widen slightly. The Reuters F2008/F2009 EPS consensus estimates for NSC are $4.05/$4.62.
The risks? Continued sluggish conditions in the automotive sector would hurt NSC's results, as the rail company transports a considerable number of vehicles.
Still, so long as the global economy continues to grow at an adequate pace, Norfolk will maintain its decade-long momentum in the U.S.'s resurgent railroad sector.
The First Call mean rating for NSC is: Buy [13 firms]. Mean 2008 target: $66.00 [high: $74, low: $59].
Stock Analysis: Norfolk Southern is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from NSC's shares. Sell / Stop Loss if you were to purchase shares in this company: $33.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
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