What Does Billionaire Ken Griffin’s Citadel See In Norfolk Southern Corp. (NSC)?

Other large publicly traded railroads include Union Pacific Corporation (NYSE:UNP) and CSX Corporation (NYSE:CSX). CSX is in a somewhat similar situation to that of Norfolk Southern: revenue and earnings showed little change in its most recent quarter compared to the same period in the previous year, though the market’s expectations for the company are low going by the trailing P/E of 14. That’s even with where Norfolk Southern Corp. (NYSE:NSC) was trading, and given its recent performance CSX isn’t that exciting to us. Union Pacific has been doing better, recording decent growth on both top and bottom lines. However, the $73 billion valuation already incorporates a good deal of future growth as the stock’s trailing and forward earnings multiples come out to 18 and 14 respectively.

We can also compare Norfolk Southern Corp. (NYSE:NSC) to Kansas City Southern (NYSE:KSU) and to Genesee & Wyoming Inc (NYSE:GWR). These companies carry premium valuations to their peers, possibly as investors speculate that they could be acquisition targets for a public competitor or Berkshire Hathaway’s Burlington Northern Santa Fe. Kansas City Southern’s trailing and forward P/Es are both over 20, and while net income was up strongly last quarter compared to the first quarter of 2012 revenue grew only 1% and so we’d doubt that high earnings growth is sustainable. The most recent quarterly report from Genesee & Wyoming was quite strong, with large percentage increases in revenue and earnings. However, with a valuation of 44 times trailing earnings we’d hold off on buying at least for now.

The railroad industry in general doesn’t seem to be a great opportunity right now. Citadel, and other investors in Norfolk Southern Corp. (NYSE:NSC), are apparently counting on the company managing to turn around its weak performance from the first quarter of this year. We suppose that if the business can do so, it would make for a value opportunity given that the market is expecting more or less flat numbers going forward. However, we wouldn’t want to depend on management delivering earnings growth and so we’d avoid the stock- as we would its peers, though Genesee & Wyoming Inc (NYSE:GWR) could end up being a growth stock if it continues to experience strong growth in the next quarter or two.

Disclosure: I own no shares of any stocks mentioned in this article.