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Zacks Analyst Interview Highlights: Norfolk Southern, United Parcel Service and CSX Corporation

Posted on: Tuesday, 12 February 2008, 06:00 CST

Zacks.com releases the latest Analyst Interview. Today's interview is with senior analyst Ann Heffron, who discusses Norfolk Southern Corporation (NYSE: NSC), United Parcel Service, Inc. (NYSE: UPS) and CSX Corporation (NYSE: CSX).

A synopsis of today's Analyst Interview is presented below. The full article can be read at http://at.zacks.com/?id=2678.

Are you forecasting a turnaround for, say, the second half of 2008 at this point, or is visibility lacking for such an outlook?

Well, I am hopeful that the economy will begin to improve in the second half of the year. However, there are a lot of moving pieces--the presidential election, the price of oil and its impact on the economy as a whole, and the subprime crisis and its effect upon the consumer. It's not clear to me at this point how long these events will take to play out. However, the trucking industry is an important economic bellwether, as roughly 70% of retail goods are shipped by truck.

Any favorite Buys you'd recommend in the transportation space?

I have a couple of Buys--one on Norfolk Southern Corporation (NYSE: NSC) and one on United Parcel Service, Inc. (NYSE: UPS) and a Sell on CSX Corporation (NYSE: CSX).

Virginia-based Norfolk Southern Corporation provides rail transportation through Norfolk Southern Railway Company, Norfolk and Western Railway Company, and various other subsidiaries. NSC shares are trading at significant discounts to the industry median P/E ratios for 2008 and 2009, and it is the cheapest stock in the rail industry on this basis. We do not believe the market is giving credit to NSC's many strengths, including above-average profitability, operating margin, and dividend yield. NSC just increased its quarterly dividend 12% to $0.29 per share from $0.26 per share previously, and has grown the dividend at a 41% compound rate over the last two years. It has an ongoing share repurchase program that should enhance EPS growth over the near term.

Based in Atlanta and incorporated in 1907, United Parcel Service is the world's largest express carrier and package delivery company. The company also provides specialized transportation and logistics services. Superior operating efficiency, balance sheet strength, and ROE justify a premium valuation to the peer group. Moreover, the board of directors increased the company's share repurchase authority to $10 billion in January 2008 from $2 billion in October 2007, of which the company estimates that it will repurchase roughly $5 billion in 2008 and the remaining $5 billion in 2009. UPS just increased its quarterly dividend in January 2008 to $0.45 per share from $0.42 per share Therefore, we expect valuation to expand from currents levels.

Based in Jacksonville, Florida, CSX Corporation provides rail freight and intermodal transportation through its subsidiaries CSX Transportation, Inc. and CSX Intermodal, Inc. We recently cut our rating on CSX Corporation to Sell from Hold due to valuation. We believe CSX's share price is being driven up by unfounded speculation regarding a potential recapitalization or buyout, as proposed by several hedge funds that have ownership interests in CSX. Because of this, CSX is the most expensive rail stock we cover as measured on a PEG basis (P/E divided by estimated future growth rate), which is not supported by its fundamental outlook.

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About Zacks

The performance of the Zacks Rank portfolios for annual and year-to-date periods are the linked monthly total returns (price changes + dividends) of equal weighted hypothetical portfolios, consisting of those stocks with the indicated Zacks Rank, assuming monthly rebalancing and zero transaction costs. These are not the returns of actual portfolios. The hypothetical portfolios were created at the beginning of each month from January 1988 forward based on the values of the Zacks Rank available to Zacks' clients before the beginning of each month. The portfolios created monthly from 1988 through September 2006 exclude ADRs and are comprised of stocks that have the indicated Zacks Rank and were covered by at least two analysts at the time of the stocks inclusion in the portfolio. Starting in October 2006 and going forward, the portfolios are comprised of all stocks with the indicated Zacks Rank and do not exclude ADRs, which is more reflective of the list of stocks that customers will find on the Zacks web sites. These performance numbers have been audited from 1995 through 2003 by Virchow, Krause & Company, LLP.

Source: Business Wire

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