Norfolk Southern Stock Looks Reasonably Priced As It Nears Q4

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Trefis
NSC: Norfolk Southern logo
NSC
Norfolk Southern

Norfolk Southern (NYSE: NSC) is scheduled to report its Q4 2022 results on Wednesday, January 25. We expect NSC stock to trade sideways, with the company expected to post results marginally below the street expectations. Although the company should continue to benefit from a shift toward lower-cost transportation alternatives, higher costs will likely weigh on its overall performance. Furthermore, our forecast indicates that NSC stock is fairly valued, as discussed below. Our interactive dashboard analysis of Norfolk Southern’s Earnings Preview has additional details.

(1) Revenues expected to align with the consensus estimates

  • Trefis estimates Norfolk Southern’s Q4 2022 revenues to be around $3.2 billion, reflecting a 12% y-o-y growth in line with the $3.2 billion consensus estimate.
  • Higher inflation has resulted in some shippers turning to low-cost alternatives, such as railroads.
  • With rising costs, the company should be able to expand its average revenue per carload, boding well for its top-line growth.
  • Looking back at Q3, the company reported a 17% rise in revenue to $3.3 billion, led by a solid 20% rise in average revenue per carload, while the total volume of carloads was down 2%.
  • Our dashboard on Norfolk Southern Revenues has details on the company’s segments.
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(2) EPS likely to be marginally below the consensus estimates

  • Norfolk Southern’s Q4 2022 earnings per share (EPS) is expected to be $3.40 per Trefis analysis, slightly lower than the consensus estimate of $3.44.
  • The company’s net income of $958 million in Q3 2022 reflected a solid 27% growth from its $758 million figure in the prior-year quarter, led by substantial revenue growth and lower taxes.
  • The company’s operating ratio of 62.0% in the last quarter reflected a 180 bps rise from the 60.2% figure in the prior year’s quarter.
  • For the full-year 2023, we expect the EPS to be higher at $14.80 compared to the EPS of $12.11 in 2021 and an estimated $13.88 in 2022.

(3) NSC stock looks reasonably priced

  • We estimate Norfolk Southern’s Valuation to be around $260 per share, aligning with its current market price of $256.
  • However, if the company reports upbeat Q4 results and provides a 2023 outlook better than the street estimates, NSC stock may see higher levels.
  • The demand for railroad business can primarily be linked to economic growth. The current high inflationary environment, rising interest rates, fears of slowing economic growth, and weakness in the broader markets have weighed on railroad stocks, including NSC.

While NSC stock looks appropriately priced, it is helpful to see how Norfolk Southern’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for CSX vs. Amerco.

With inflation rising and the Fed raising interest rates, among other factors, NSC stock has fallen 7% in the last twelve months. Can it drop more? See how low Norfolk Southern stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Jan 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 NSC Return 4% 4% 137%
 S&P 500 Return 5% 5% 80%
 Trefis Multi-Strategy Portfolio 10% 10% 245%

[1] Month-to-date and year-to-date as of 1/23/2023
[2] Cumulative total returns since the end of 2016

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