On Friday, Stifel maintained a Hold rating on Norfolk Southern (NYSE:NSC) but raised the price target to $244 from $233. The adjustment follows Norfolk Southern's preliminary quarterly results, which showed an adjusted operating ratio (OR) of 69.9%.
This figure falls short of the railroad's ambitious near-term target OR of 64-65% expected by the second half of the year. The company had previously aimed for a 100-150 basis point annual improvement in OR but has now set more aggressive targets to align with its peers.
Norfolk Southern's preliminary results have cast doubts on its ability to meet the 400-500 basis point improvement required for its OR target. Despite the lackluster performance, the ongoing proxy battle is seen as a potential catalyst for change, potentially leading to improved results and the establishment of meaningful targets.
The market is anticipating a reasonably higher chance of success in Ancora's efforts to overhaul the board and management, a move that is expected to be well-received by investors.
The company's stock is currently trading at a multiple of 21 times Stifel's estimated 2024 earnings per share (EPS), compared to its competitor CSX (NASDAQ:CSX), which trades at 18 times.
This premium is attributed to market expectations of a turnaround for Norfolk Southern, a prospect that has been anticipated but not realized for many years. The market has factored in some of the potential upside, as evidenced by Norfolk Southern's year-to-date outperformance in 2024.
In the event that the proxy fight does not succeed, there is a belief that Norfolk Southern's shares could lose much of their relative gains. Stifel's revised price target reflects a balance of these factors, acknowledging the long-term potential for improvement while also recognizing the near-term risks and uncertainties surrounding the company's performance and management changes.
InvestingPro Insights
As Norfolk Southern (NYSE:NSC) navigates through its operational challenges and the unfolding proxy battle, investors are closely watching key financial metrics. According to InvestingPro data, the company has a market capitalization of $56.41 billion and is trading at a Price/Earnings (P/E) ratio of 31.17. While this P/E ratio may seem high, it's important to note that the company has been profitable over the last twelve months, with an adjusted P/E ratio for the same period standing at 20.86. Moreover, Norfolk Southern has demonstrated a strong commitment to shareholder returns, raising its dividend for 7 consecutive years and maintaining dividend payments for 43 consecutive years—a testament to its financial resilience.
InvestingPro Tips suggest that while Norfolk Southern is trading at a high earnings multiple, analysts predict the company will remain profitable this year. The company's stock has also experienced a significant price uptick, with a 26.13% six-month price total return. For investors looking to dive deeper into Norfolk Southern's financials and future outlook, InvestingPro offers additional insights and tips. To access these, consider using coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With a total of 8 additional InvestingPro Tips available, investors can make more informed decisions backed by comprehensive data analysis.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.