Can Norfolk Southern Beat 2019 Earnings Consensus?

Norfolk Southern (NYSE: NSC) will release its Q4 and full-year 2019 results on Wednesday, January 29, and we expect it to beat the full-year earnings consensus figure of $10.03. For full-year 2019, Trefis estimates that the company will report:

• Revenues of $11.6 billion, reflecting 1.2% y-o-y growth, primarily driven by the company’s merchandise freight segment. Our revenue forecast is higher than the consensus estimate of $11.3 billion.
• EPS figure will likely grow to $10.51, primarily due to higher revenues and lower share count, partly offset by modest growth in expenses, as compared to the previous year. Our EPS figure forecast is much higher than the consensus estimate of $10.03.

While we believe that the company will post better-than-expected earnings for full-year 2019, any significant move in stock price is unlikely. Our forecast indicates that Norfolk Southern’s valuation is $199 a share, which is slightly below the current market price. Our interactive dashboard analysis on Norfolk Southern’s Pre-Earnings has more details about our expectations, parts of which we highlight below.

(1) Revenues Expected To Be Higher Than The Consensus Estimates

• Trefis estimates Norfolk Southern’s 2019 revenues to be $11.6 billion, slightly higher than the consensus estimate of $11.3 billion.

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Merchandise        $6.9 Bil (59%)
Intermodal           $3.0 Bil (26%)
Coal                       $1.8 Bil (15%)
TOTAL                 $11.6 Bil
Consensus           $11.3 Bil
Surprise               $0.3 Bil

• Total revenues have increased at an average annual rate of 7.6% from $9.9 billion in 2016 to $11.5 billion in 2018, primarily driven by the company’s intermodal segment.
• However, we expect it to see only 1.8% growth in 2019, primarily due to lower coal freight revenues.
• We provide an interactive, in-depth view of the company’s revenues along with our forecasts in ‘Norfolk Southern Revenues – How Does NSC Make Money?’
• Key for 2020: Norfolk Southern’s revenue will likely grow in low-single-digits on average over 2019-2020, led by its merchandise freight segment.

(2) EPS Likely To Be Slightly Higher Than The Consensus Estimates

• Trefis expects Norfolk Southern’s 2019 earnings per share (EPS) to be $10.51 per Trefis analysis, higher than the consensus estimate of $10.03 per share.

Total Revenues        $11.6 Bil
– Total Expenses      $8.8 Bil
———————————-
Net Income              $2.8 Bil
÷ No. of Shares       264 Mil
———————————-
EPS                            $10.51
Consensus                $10.03
Surprise                    $0.48

• Adjusted EPS expected to grow over 10% from $9.51 in 2018 to $10.51 in 2019, led by growth in revenues and a lower share count.
• As we forecast Norfolk Southern’s revenues to grow 1.2% and expenses to increase only 0.3%, this will result in a 60 bps expansion in the company’s net income margin figure from 23.3% in 2018 to 23.9% in 2019, as detailed in our dashboard for Norfolk Southern’s Pre-Earnings.
• Also, we provide an interactive, in-depth view of the company’s expenses and earnings margins in a separate dashboard, ‘Norfolk Southern Expenses – How Does NSC Spend Its Money?’
• Key for 2020: We believe that revenue will continue to grow in low-single-digits, while expenses could grow at a slower pace compared to revenues, resulting in the net income margin figure to increase to 24.6%. We currently forecast Norfolk Southern’s 2020 EPS to be $11.61.

(3) Stock Price Estimate Slightly Below The Current Market Price

• Trefis’ forecast for Norfolk Southern’s full-year 2019 earnings is slightly higher than the market expectations, but P/E multiple is marginally lower than the consensus, working out to a fair value of $199 for Norfolk Southern’s stock, which is slightly below the current market price.
• A trailing P/E multiple of 19x looks appropriate for Norfolk Southern’s stock, which is slightly lower than the current implied P/E multiple of around 20x. Norfolk Southern’s trailing P/E multiple is higher than CSX’s but lower than that for Union Pacific.
• The decline in P/E multiple in 2017 for all three companies in the chart below was due to higher GAAP earnings generated after the implementation of the Tax & Jobs Cut Act.
• We use our full cash flow model for Norfolk Southern to arrive at a P/E multiple of 19x for a price estimate of $199
• Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year.

Additionally, you can input your estimates for key metrics in our interactive dashboard for Norfolk Southern’s pre-earnings, and see how that will affect the company’s stock price.

See all Trefis Price Estimates and Download Trefis Data here

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