Norfolk Southern Down 33% vs. 22% For S&P. Will It Continue To Underperform?

by Trefis Team
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Norfolk Southern (NYSE:NSC) has underperformed the broader markets through the current coronavirus and oil price war crisis, with the stock currently down by about 33% since early February, after the WHO declared a global health emergency. In comparison, the S&P 500 is down by about 22% (through March 17). On the face of it, railroad companies, such as Norfolk Southern have much to lose in the current crisis. Exports are expected to take a hit, and the consumer demand in the current environment is expected to be low, resulting in lower shipments. More importantly, the oil price war will likely result in lower oil production in the U.S., thus impacting its transportation. Furthermore, natural gas prices have seen over a 15% decline so far this year, which will result in lower demand for coal, thereby impacting the coal shipments for railroad companies, including Norfolk Southern. While these factors explain Norfolk Southern’s underperformance over the past few weeks, in this analysis, 2007-08 vs. 2020 Crisis Comparison: Norfolk Southern Stock Compared with S&P 500, we take a look at how the company’s stock reacted to the economic crisis of 2008 and compare its performance with the S&P 500.

  • On Thursday, March 12, the stock markets saw their biggest sell off since 1987’s Black Monday. While the markets saw a sharp recovery on Friday, March 13, it again saw a sharp decline of around 13% on Monday March 16, marking one of the biggest declines ever for the U.S. markets. Markets recovered around 6% on Tuesday, March 17, on expectations for massive federal stimulus to address the ongoing economic crisis.
  • There are two distinct trends driving the sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 30% after Saudi Arabia increased production.
  • Norfolk Southern stock fell 20% over the last 7 trading sessions, (between March 9, and March 17), and 33% since early February, considering the impact that the outbreak and a broader economic slowdown could have on the company’s business.
  • Going by the trends seen during the 2008 economic slowdown, it’s likely that NSC stock could see strong recovery, and it will likely outperform the broader markets, when the crisis winds down.
  • In the time of crisis, stocks that are highly leveraged typically don’t fare very well. If we look at railroad companies, Norfolk Southern’s cash-to-debt ratio stood at 0.33 in 2019. This compares with 0.18 for CSX and 0.12 for Union Pacific. These ratios indicate that Norfolk Southern is less leveraged when compared to the other two railroad companies.

Norfolk Southern Stock vs. S&P 500 Over 2020 Coronavirus/Oil Price War Crisis

  • Norfolk Southern’s stock declined by 20.1% between March 9, 2020, and March 17, 2020, and the stock is down by 32.7% since February 1, after the WHO declared a global health emergency.
  • The S&P 500 declined by 14.9% between March 9, 2020 and March 17, 2020 and it has fallen by 21.6% since February 1st.
  • In comparison, CSX’s stock has declined 29% and Union Pacific by around 22% since February 1st.

View our analysis for 2007-08 vs. 2020 Crisis Comparison on CSX Corporation, and Union Pacific.

We also compare the current coronavirus crash to 4 other market crashes here.

Norfolk Southern vs. S&P 500 Over 2007-08 Financial Crisis

  • NSC stock grew from levels of around $39 in October 2007 to $56 in September 2008 (the pre-crisis peak). It declined to $24 in March 2009 (as the markets bottomed out) and recovered to levels of about $41 in early 2010.
  • Through the crisis, NSC stock declined over 56% from its approximate pre-crisis peak. This marked a decline largely in line with the broader S&P, which fell by as much as 51%.
  • NSC stock saw massive recovery from the lows, rising by over 69% between March 2009 and January 2010. The growth was much higher than the S&P, which rose by about 48% over the same period.

Conclusion

  • While Norfolk Southern stock has declined due to the coronavirus and oil price war crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back strongly, when the crisis winds down, and the growth from lower levels could potentially be higher than the broader S&P.

For more detailed charts and a timeline of the 2008 and 2020 crisis for different stocks, view our interactive dashboard analyses on coronavirus.

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