Will Norfolk Southern Stock Move Higher Following Q1 Results?

Norfolk Southern (NYSE: NSC) is scheduled to report its Q1 2022 results on Thursday, April 28. We expect the company to likely post revenue in line and earnings above the street expectations. A strong pricing environment likely buoyed Norfolk Southern’s Q1 revenue growth. The company should be able to pass on the rising costs to the end-users with minimal impact on its operating ratio. Not only do we believe Norfolk Southern will navigate well through Q1, but we also find NSC stock to be undervalued at its current levels, as we discuss below. Our interactive dashboard analysis of Norfolk Southern’s Earnings Preview has additional details.

(1) Revenues expected to be in line with the consensus estimates

• Trefis estimates Norfolk Southern’s Q1 2022 revenues to be around $2.8 billion, aligning with the consensus estimate.
• All three – merchandise, intermodal, and coal freight – will likely see revenue growth, primarily driven by a favorable pricing environment, economic recovery, increased industrial output, and higher coal production.
• Factory output was up 8.1% annualized rate in Q1.
• However, automotive shipments may remain lower in the near term, given the production woes.
• Looking at Q4 2021, the company saw its sales grow 11% y-o-y to $2.9 billion. This growth was driven by a 15% rise in overall revenue per unit, offsetting a 4% decline in volume.
• Our dashboard on Norfolk Southern’s Revenues has more details on the company’s top-line trajectory and its comparison with peers.

(2) EPS likely to be above the consensus estimates

• Norfolk Southern’s Q1 2022 earnings per share is expected to be $2.98 per Trefis analysis, above the consensus estimate of $2.92.
• The company’s net income of $760 million in Q4 2021 reflected a 13% rise from its $671 million figure in the prior-year quarter. The sales growth was driven by higher revenues and operating margin expansion.
• The company’s operating margins rose 134 bps y-o-y to 39.6% in Q4.
• Our dashboard on Norfolk Southern’s Operating Income has more details.
• For the full-year 2022, we expect the EPS to be higher at $14.00 than the EPS of $11.83 in 2021.

(3) NSC stock looks undervalued

• We estimate Norfolk Southern’s Valuation to be around $325 per share, which is 26% above its current market price of $259.
• This represents a forward P/EBITDA multiple of 12.5x based on our Norfolk Southern EBITDA estimate.
• That said, if the company reports upbeat results, with sales and earnings growth and 2022 guidance better than the street estimates, the current P/EBITDA multiple will likely be revised upward, resulting in higher levels for NSC stock.