Norfolk Southern stock looked set to vault past a buy point on Thursday, after The Wall Street Journal reported that an investor group led by Ancora is working to shake up the railroad's management.
Wealth management firm Ancora group has built a stake in Norfolk Southern worth about $1 billion and nominated a slate of directors to Norfolk Southern's board with the aim of ousting CEO Alan Shaw, the Journal reported. The director slate includes former Ohio Gov. John Kasich.
Norfolk Southern Lags Competitors
The news follows a disappointing earnings outlook issued on Jan. 26. In a note last Monday Barclays analyst Brandon Oglenski cut his price target for NSC stock to 235 from 240. He noted that Norfolk Southern margins appeared likely to lag that of competitors as management takes steps to improve safety and service.
However, investors have a low tolerance for poor management at railroads, Deutsche Bank analyst Amit Mehrotra wrote in a Tuesday note.
"Very simply, no Rail in recent years has been allowed to underperform by this much for this long," Mehrotra wrote.
Anticipating "heightened pressure on management to deliver," he named NSC the firm's favorite stock in the group, following a rally by prior favorite Union Pacific.
Mehrotra called it "very possible" for Norfolk Southern to raise earnings and free cash flow by between $500 million and $1 billion. That would add $15 billion to equity value, equivalent to 30% of the current market cap.
NSC Stock
NSC stock surged 7.7% to 251.89 in early Thursday stock market action. Norfolk Southern stock has a 238.24 buy point from a saucer-with-handle base, according to a MarketSmith analysis.
UNP stock, which broke out of a cup-with-handle base on Dec. 13, is near the top of a buy zone.
