What To Expect From Norfolk Southern’s Q2?

Norfolk Southern (NYSE: NSC) is scheduled to report its Q2 2024 results on Wednesday, July 24. We expect NSC stock to trade higher, with its revenue and earnings expected to be slightly above the street expectations. Although the company should see a slight rise in sales y-o-y, higher costs will likely weigh on its operating ratio. Also, we think its stock has some room for growth, as discussed below. Our interactive dashboard analysis of Norfolk Southern’s Earnings Preview has additional details.

Firstly, looking at its stock performance, NSC stock has seen little change from levels of $240 in early January 2021 to around $230 now, vs. an increase of about 45% for the S&P 500 over this roughly three-year period. However, the change in NSC stock has been far from consistent. Returns for the stock were 25% in 2021, -17% in 2022, and -21% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 14% in 2023 (YTD) – indicating that NSC underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector, including UNP, HON, and UPS, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could NSC face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a recovery? From a valuation perspective, NSC stock looks like it has room for growth. We estimate Norfolk Southern’s Valuation to be $263 per share, reflecting roughly 15% upside from its current levels of $230. This represents a 22x P/E multiple for NSC based on earnings expectation of $11.84 for the full year 2024. The 22x figure aligns with the stock’s average P/E ratio over the last four-years.

Looking at the previous quarter, Norfolk Southern’s revenue of $3.0 billion in Q1 reflected a 4% y-o-y decline, primarily due to an 8.5% fall in Intermodal revenues. The overall volume was up 4% while the average revenue per carload was down 8%. The company reported EPS of $0.23 during the quarter, reflecting an 89% y-o-y decline due to increased operating costs, including a $592 million expense related to the East Palestine, Ohio incident.

Coming to the latest quarter, we estimate Norfolk Southern to report sales of $3.07 billion, reflecting a 3% y-o-y rise. It should continue to see lower pricing for coal freight. However, an increase in fuel surcharge revenue will likely aid the top-line growth. The overall costs may remain high, weighing on the company’s operating ratio. We expect Norfolk Southern’s earnings to come in at $2.90 per share, reflecting an 86% y-o-y rise.

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.

[1] Returns as of 7/22/2024
[2] Cumulative total returns since the end of 2016