By Michael Elkins
Wolfe Research upgraded Norfolk Southern Corp. (NYSE:NSC) to an Outperform rating (from Peer Perform) and set their price target for the stock at $255.00 following the rail transportation company’s recent underperformance.
Since the major Ohio derailment about two weeks ago, NSC’s stock is down almost 10% vs. the other U.S. rails down 4%. However, according to analysts, near-term trends are looking more favorable for the company, with volumes up 3% QTD, above their expectations and best among the U.S. rails. At the same time, met coal prices have rebounded from 2H levels and are now at their highest level since last June.
They wrote in a note, “Historically, the rail with the worst OR has outperformed materially, and in the rare instances when the rail with the worst OR also traded at the lowest valuation, the stock outperformance was even more material. The gaps are obviously tighter today, so perhaps we can’t expect the same level of outperformance. But for a group that feels a little tougher to own right now without a clear story, let’s get back to basics. With the worst OR and the lowest valuation, we see a more compelling entry point for NSC and we’re raising our rating from Peer Perform to Outperform.”
Shares of NSC are down 1.47% in afternoon trading on Tuesday.