Norfolk Southern (NYSE: NSC) is scheduled to report its Q4 2021 results on Wednesday, January 26. We expect the company to likely post revenue in-line and earnings slightly above the street expectations. That said, overall revenue will likely see y-o-y growth in low double-digits, led by an expected increase in coal transportation as well as a rebound in merchandise freight. However, the margins in Q4 may face some pressure due to inflationary headwinds and rising labor costs. Not only do we believe Norfolk Southern will post Q4 earnings above the street expectation, we find NSC stock to have more room for growth from its current levels of $276. Our interactive dashboard analysis on Norfolk Southern’s Pre-Earnings has additional details.
While NSC stock looks poised for more gains going forward, it is helpful to see how its peers stack up. Check out how Norfolk Southern’s Peers fare on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
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(1) Revenues expected to be in-line with the consensus estimates
- Trefis estimates Norfolk Southern’s Q4 2021 revenues to be around $2.8 billion, in-line with the consensus estimate.
- Norfolk Southern will likely see higher freight revenues from all of its segments – Coal, Intermodal, and Merchandise, driven by economic growth.
- The company’s 14% revenue growth in Q3 was driven by a 32% jump in coal freight, 16% growth in intermodal, and a 10% rise for merchandise freight.
- The company’s largest segment – merchandise freight – likely saw steady growth in Q4 given the economic growth, compared to the prior year quarter. However, this segment also includes automotive shipments, which are on a decline, given the impact of semiconductor chips shortage on the overall production.
- Our dashboard on Norfolk Southern’s Revenues offers more details on the company’s segments.
2) EPS likely to be above the consensus estimates
- Norfolk Southern’s Q4 2021 earnings per share (EPS) is expected to be $3.08 per Trefis analysis, four cents above the consensus estimate of $3.04.
- The company’s net income of $753 million in Q3 2021 reflected a 32% growth from its $569 million figure in the prior-year quarter.
- This can be attributed to higher revenues and a 630 bps drop in operating ratio to 60.2%.
- Looking forward, inflationary pressure and rising wages likely impacted the company’s operating ratio in Q4, weighing on overall earnings growth.
- Norfolk Southern’s peer CSX also reported a rise in operating ratio for its recently announced Q4.
- That said, for the full-year 2022, we expect Norfolk Southern’s EPS to be higher at $13.83 compared to $7.84 in 2020, and an estimated $12.08 in 2021.
(3) Stock price estimate above the current market price
- We estimate Norfolk Southern’s Valuation to be around $305 per share, which is 10% above its current market price of $276.
- This represents a P/EBITDA multiple of under 14 for the company based on Norfolk Southern EBITDA for the last twelve months.
- That said, there are near term macro risks. With the U.S. Federal Reserve monetary policy-setting meeting coming up on January 26, there are rising concerns of tighter financial conditions that may weigh on the overall markets at large.
While NSC stock may have some room for growth, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Canadian Pacific Railway vs. D R Horton.
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|S&P 500 Return||-7%||-7%||97%|
|Trefis MS Portfolio Return||-10%||-10%||252%|
 Month-to-date and year-to-date as of 1/25/2022
 Cumulative total returns since the end of 2016