Why Norfolk Southern Will Keep Chugging in 2014

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Norfolk Southern (NYSE: NSC  ) gained slightly this morning after Wells Fargo upgraded the railroad giant from market perform to outperform.

So what: Along with the upgrade, analyst Anthony Gallo reiterated his valuation range of $101-$104, representing as much as 12% worth of upside to Friday's close. While contrarians might be turned off by the stock's strong action over the past year, Gallo thinks there's more room to run given Norfolk's seemingly increased earnings visibility and limited downside risk in 2014.

Now what: According to Wells, Norfolk's risk to reward trade-off is pretty attractive at this point. "[W]e find NSC's better-than-peer performance on expense control appealing," noted Gallo. "In turn, we think this expense performance coupled with a modest improvement in volumes provides improved earnings visibility. Lastly, we think downside EPS risk from further deterioration in coal or potential adverse crude-by-rail regulations will not be material, all else being equal." More important, with Norfolk shares trading at a reasonable forward P/E of 12 and sporting a 2% dividend yield, there's decent room left to buy into that bullishness. 

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