Norfolk Southern Stock looks reasonably priced as it approaches Q4


Southern Norfolk (NYSE: NSC) is expected to report its fourth quarter 2022 results on Wednesday, January 25. We expect NSC shares to trade sideways with the company expected to post results slightly below street expectations. While the company should continue to benefit from a shift to cheaper transportation alternatives, higher costs are likely to weigh on overall performance. In addition, our forecast indicates that NSC stock is fairly valued, as discussed below. Our interactive dashboard analysis of Norfolk Southern Profit Example has additional details.

(1) Expected revenues will match consensus estimates

  • Trefis estimates Norfolk Southern’s fourth quarter 2022 revenues at approximately $3.2 billion, reflecting 12% yoy growth, in line with the consensus estimate of $3.2 billion.
  • Higher inflation has led some shippers to turn to low-cost alternatives, such as railroads.
  • With costs rising, the company should be able to increase its average revenue per load, which bodes well for its revenue growth.
  • Looking back to the third quarter, the company reported a 17% increase in sales to $3.3 billion, led by a solid 20% increase in average sales per carload, while total carload volumes fell 2%.
  • Our dashboard on Norfolk Southern Receipts has details about the segments of the company.

(2) EPS will likely be slightly below consensus estimates

  • Norfolk Southern’s earnings per share (EPS) in the fourth quarter of 2022 are expected to be $3.40 according to Trefis analysis, slightly lower than the consensus estimate of $3.44.
  • The company’s net income of $958 million in the third quarter of 2022 reflected solid growth of 27% from the $758 million figure in the prior year quarter, led by significant sales growth and lower taxes.
  • The company’s operating ratio of 62.0% in the last quarter reflected an increase of 180 basis points from the 60.2% in the prior year quarter.
  • For the full year 2023, we expect earnings per share to be higher at $14.80 compared to earnings per share of $12.11 in 2021 and an estimated $13.88 in 2022.

(3) NSC shares look reasonably priced

  • We estimate Appreciation of Norfolk Southern around $260 per share, in line with the current market price of $256.
  • However, if the company reports optimistic Q4 results and offers better 2023 outlook than street estimates, NSC stock could see higher levels.
  • The demand for railway companies can mainly be linked to economic growth. The current high inflation environment, rising interest rates, fears of slowing economic growth and weakness in broader markets have weighed on railroad stocks, including NSC.

While NSC stock looks well priced, it’s helpful to see how Peers of Norfolk Southern rate on metrics that matter. Other valuable comparisons for companies in different industries can be found at Peer comparisons.

In addition, the Covid-19 crisis has led to many price discontinuities which can provide attractive trading opportunities. For example, you’d be surprised how counterintuitive stock valuation is CSX vs Amerco.

With inflation rising and the Fed raising rates, among other factors, NSC shares are down 7% over the past 12 months. Can it go down even more? See how low Norfolk Southern stock can go by comparing the drop from previous market crashes. Here’s a performance summary of all stocks in previous market crashes.

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