Will Norfolk Southern Stock Trade Higher Post Q1?

NSC: Norfolk Southern logo
Norfolk Southern

Norfolk Southern (NYSE: NSC) is scheduled to report its Q1 2023 results on Wednesday, April 26. We expect NSC stock to trade higher, with its revenue and earnings expected to be slightly above the street expectations. Although the company should continue to benefit from better price realization, higher costs will likely weigh on its operating ratio. NSC stock is down 14% this year, underperforming the broader indices, with the S&P500 up 8%. After its recent fall, we believe that NSC stock has room for growth, as discussed below. Our interactive dashboard analysis of Norfolk Southern’s Earnings Preview has additional details.

(1) Revenues expected to be slightly above the consensus estimates

  • Trefis estimates Norfolk Southern’s Q1 2023 revenues to be around $3.2 billion, reflecting an 8% y-o-y growth marginally above the $3.1 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 Q4, the company reported a 13% rise in revenue to $3.2 billion, led by a solid 15% rise in average revenue per unit.
  • Our dashboard on Norfolk Southern Revenues has details on the company’s segments.
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(2) EPS likely to be above the consensus estimates

  • Norfolk Southern’s Q1 2023 earnings per share (EPS) is expected to be $3.18 per Trefis analysis, higher than the consensus estimate of $3.12.
  • The company’s net income of $790 million in Q4 2022 reflected a 4% growth from its $760 million figure in the prior-year quarter, led by substantial revenue growth, partly offset by a 300 bps rise in operating ratio.
  • For the full-year 2023, we expect the EPS to be higher at $13.98 compared to $13.88 in 2022.

(3) NSC stock has more room for growth

  • We estimate Norfolk Southern’s Valuation to be around $249 per share, about 18% above the current market price of $212.
  • This represents an 18x P/E multiple based on our EPS forecast of $13.98 in 2023, compared to the last three-year average of 20x.
  • We have assigned a slightly lower P/E multiple than the stock’s historical average. The demand for railroad business can primarily be linked to economic growth. The current high inflationary environment, rising interest rates, and fears of a recession have led to more uncertainties.
  • However, if the company reports upbeat Q1 results and provides a 2023 outlook better than the street estimates, NSC stock may see even higher levels.

While NSC stock looks like it can see higher levels, 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 14% this year. 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 Apr 2023
MTD [1]
YTD [1]
Total [2]
 NSC Return 0% -14% 96%
 S&P 500 Return 1% 8% 85%
 Trefis Multi-Strategy Portfolio 2% 10% 246%

[1] Month-to-date and year-to-date as of 4/24/2023
[2] Cumulative total returns since the end of 2016

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