Norfolk Southern Sells Off Following Bank Of America's Upgrade

Norfolk Southern Corp NSC shares traded in the green after Bank of America Merrill Lynch upgraded the stock from Neutral to a Buy rating and boosted the target price from $97 to $110. The firm cited the expected savings of about $650 million and operating ratio plan of 65 percent to support its investment thesis.

By the turn of 2020, analysts Ken Hoexter and Ariel Rosa see the company gaining about $1.44 a share from cost savings resulting in over 25 percent growth to its EPS estimate of $5.52 for the current year.

The analyst met the company's management where it was highlighted that Norfolk could continue incremental enhancements pointing out the savings of $42 million in the first quarter and $26 million in the second quarter. The company expects to save about $30 million in the second half of the current year equating to $88 million in total savings thus exceeding the initial target of $80 million.

"Nevertheless, Messrs. Squires and Shaw noted that one of the biggest changes it is engaging in is adjusting the culture of the company, as evident by the recent reduction in capital expenditures as volume fell. The shock to the system showed that business processes are changing," the brokerage said in a research note.

The analyst expects the rail transporter to provide more details early next year on the ways to achieve the targets set for the year 2020. The lead analyst boosted EPS estimation for third quarter by one percent from $1.45 to $1.47 and for the year 2016 from $5.50 to $5.52. For the year 2017, EPS forecast is lifted from $6.05 to $6.10.