Norfolk Southern - Railroads in America II (BUY - 220)

Norfolk Southern Corporation, together with its subsidiaries, engages in the rail transportation of raw materials, intermediate products, and finished goods. The company transports industrial products, including chemicals, agriculture, and metals and construction materials; and coal, automobiles, and automotive parts. It also transports overseas freight through various Atlantic and Gulf Coast ports; and provides commuter passenger services. As of December 31, 2018, the company operated approximately 19,500 route miles in 22 states and the District of Columbia in the United States. Norfolk Southern Corporation was founded in 1883 and is based in Norfolk, Virginia.

Share price, revenues, EBITDA and correlation & beta against the SP500

Top Holders

Institutional ownership compromises in total 32.93%, a significantly high number suggesting that this stock is favoured by larger institutions. Obviously the reasons for these are numerous; increasing EBITDA, revenues all point towards a higher share price.

The true reason lies in the business model of Norfolk Southern, as it does with our previous article on Union Pacific. Railways were built almost two centuries ago, and have since then increasingly expanded whilst the amount of companies have consolidated into an oligopoly, keeping a firm grip on the sector in the U.S.

If Union Pacific had its railway network in the western parts of the U.S, Norfolk Southern has it railway network in the eastern parts of the U.S, as the picture below points out;

Norfolk Southern - system overview 
Clearly Norfolk Southern controls a major portion of freight in the eastern parts of the U.S, providing them a unique competitive advantage, and strengthening their position as a leader in the freight industry as new railways are not planned on being built anytime soon.

EBITDA projections - Norfolk Southern
EBITDA is set to increase the following years, and the stock should follow suit as well. Potential risks exist if a slowdown occurs in the broader industrial sectors as the company's customers are primarily heavy industries in the eastern U.S.

However, we at East Invest believe these risk to be quite small, and would place a BUY on Norfolk Southern, with a target price of 220$ for Q1 of 2020.