Norfolk Southern on track for strong holiday season
Rail traffic is likely to benefit from surge in retail and online sales.
Elevated fuel prices and limited truck capacity have also altered the way goods are transported, benefiting railroads, which provide a sustainable solution to carrying goods at reasonable rates.
According to the AAR report, U.S. railroad carloads increased by 2.3% and intermodal traffic was up 3.8% in November 2011 compared to last year. Around 13 of the 20 commodities tracked registered gains, with motor vehicles and parts, crushed stone, gravel and sand, and coal recording 18.7%, 12% and 1.3% gains, respectively. As one of the major carrier of auto and vehicle parts, Norfolk is gaining from pent-up demand.
As delivery companies such as UPS and FedEx use rail carriers to move packages over long distances, we believe this may expose railroads to the cyclical nature of consumer demand. Given the uncertain economic climate and shaky consumer confidence, this exposure may be unwelcome to carriers that mainly ship more stable demand goods such as coal, industrial and agricultural products.
Our price estimate for Norfolk Southern is $91, which is around 25% ahead of the current market price.
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