(The Associated Press circulated the following on April 5.)
NEW YORK — Two analysts on Thursday said a profit warning from Norfolk Southern Corp. comes from poor railroad industry conditions and the impact of severe weather, rather than deeper company problems.
The company on Wednesday said first-quarter earnings per share will likely fall about 3 percent as the railroad operator hauled fewer goods and booked lower gains on property sales.
Norfolk also blamed weaker demand from the automotive and housing industries, and more extreme winter conditions in the recent quarter compared with relatively mild weather in 2006.
Stifel Nicolaus analyst John G. Larkin in a client note kept a “Buy” rating and $63 target price on the railroad. He said he expected the industry issues but was surprised to hear about lower property sales.
Larkin noted that freight pricing remains strong, which means first-quarter results could be flat with the comparable 2006 period.
“We expect the company’s shares to trade down Thursday as the Street does not appear to us to have fully taken the dual challenges of a weak freight market and severe winter weather into account when formulating its 1Q07 EPS estimates,” wrote Larkin.
Larkin still likes the stock, saying the company is one of the best operators in the industry, has a strong balance sheet, is well-positioned to return to growth when the environment improves and is relatively cheaply compared to its peers.
Bear Stearns analyst Edward M. Wolfe in a client note kept his “Outperform” rating and $59 target price on Norfolk Southern.
“We suspect some investors might be relieved that the miss all things considered was not terrible and we don’t expect any material EPS reductions going forward,” wrote Wolfe.
Merrill Lynch analyst Ken Hoexter rates NSC “Neutral” and was a bit cooler on the stock.
“We believe this valuation discount is warranted in light of its decelerating volumes, which have constrained the company’s ability to control costs as effectively as some of its peers, reducing our year-over-year EPS growth targets,” wrote Hoexter.