It has been an absolutely brutal time to be in the railroad industry. Concerns over global economic output and commodity demand have hit this space hard and made it one of the worst major performers. Now, investors also have to contend with a sluggish U.S. economic outlook too, making it a very risky time to be in the space.
And while investors have already seen big losses here, there are plenty of reasons to think that more pain could be ahead. After all, the industry rank here is in the bottom 5% of the overall market, suggesting that even companies like Norfolk Southern ( (NSC – Analyst Report) could be in for more turbulent trading in the weeks ahead.
NSC in Focus
Norfolk Southern is one of America’s leading railroads and was certainly in-focus at its latest earnings report. The company reported a very soft quarter though, as EPS was down over 26% year-over-year, while revenues plunged double digits too.
A big reason for this hit was slumping coal volumes as this key area of the business fell more than 20% (year-over-year). However, the general business wasn’t looking too hot either as this fell 9.3% when compared to the year ago period. The coming quarters aren’t looking much better, at least if take a closer inspection of NSC’s recent earnings estimate revisions from analysts.
Thanks to the tough competitive environment, analysts have been racing to slash their estimates for NSC stock. Not a single analyst in our consensus has raised estimates in the past two months for either the next year or current year periods, compared to several lower.
This is having a big impact on the consensus estimate too, as this has really been falling as of late. The full year consensus has declined by 6.8% in the past sixty days while the next year consensus has slumped by about 7% in the same time frame.
With numbers like this, it shouldn’t be much of a surprise that we are looking for more difficult trading in the weeks ahead for NSC. In fact, we currently have a Zacks Rank #5 (Strong Sell) on the stock putting into the bottom five percent of all companies we look at, not exactly the place you want to be in today’s uncertain market.
While the railroad market is brutal right now, there is actually a single stock that has a Zacks Rank #2 (Buy) rating. That company is USD Partners ( (USDP – Snapshot Report) a tiny stock that at least has rising earnings estimates and Value/Growth scores of at least ‘B’.
While this will surely be more volatile than NSC, it is one way to play the railroad segment that isn’t looking awful right now. Just be careful in this space as more pain could certainly come before this key area of the U.S. economy gets back on track.
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