Norfolk Southern Says Economy Chugging Right Along

Norfolk Southern

reported

that absolutely blew out estimates, and shares are motoring along today up more than 7%. The Virginia-based railroad company reported third quarter earnings of $1.59 per share on $2.89 billion in revenues. Wall Street analysts were looking for earnings of $1.41 per share on $2.87 billion in revenues. Earnings were helped out by a land sale which added 5 cents to earnings, share buybacks which helped earnings by 3 cents. A higher tax rate hurt earnings by 1 cent. "Norfolk Southern produced another outstanding quarter, setting all-time records for income from operations and earnings per share, while also establishing third-quarter records for net income and operating ratio," said Norfolk Southern CEO Wick Moorman in a press release. "We continue to see modest improvement in most of our business groups, and we remain focused on the long-term enhancement of our franchise." Wall Street was particularly bullish on the report, with a slew of analysts raising their price targets.

up from $73. Jefferies raised their

and

and

also raised price targets. With so many research firms raising price targets, that is definitely a bullish sign for not only Norfolk Southern, but the railroads as well. Union Pacific

reported extremely strong third quarter earnings

, which shows that the U.S. and global economies are not slowing. This morning, we saw third quarter GDP come in at 2.5%. This confirms what Union Pacific, Norfolk Southern, and to a lesser extent, CSX

said in their earnings reports. The economy is growing, a little better than stall speed, but nothing extremely robust. Perhaps as we get more economic news, such as October PMI, ISM and the employment report, we will see the continued trend higher than we have seen in recent economic reports. Norfolk Southern was able to grow its revenues 18% year-over-year, and volume growth was up 3%, which is extremely important to see. Yield growth for Norfolk Southern is extremely strong, at 14%, the best among its competitors. Norfolk Southern trades at thirteen times 2012 times earnings and sport a 2.5% dividend yield. Return on equity is one of the best in class, at just over 16%, showing that Norfolk Southern management, led by CEO Moorman, have done an excellent job managing growing revenues and getting the best return on invested capital. Over the past 52 weeks, shares have returned almost 20%, trouncing the return of the S&P 500 during that time. With metrics like this and the potential for them to continue into the foreseeable future, Norfolk Southern shareholders may be saying "all aboard" for some time to come.

Traders who believe that the railroads will continue to act bullish might want to consider the following trades:

Traders who believe that rails are going to continue in their bull market may consider alternate positions: