Norfolk Southern stock (NYSE: NSC) is scheduled to report its Q2 2021 results on Wednesday, July 28. We expect Norfolk Southern to likely post revenue and earnings largely in-line with the street expectations. We believe that the company likely navigated well over the latest quarter, driven by an expected increase in intermodal demand as well as a rebound in coal and merchandise freight. Furthermore, the company has been able to keep its overall costs in check even during the challenging environment of the pandemic, a trend expected to continue in Q2, as well.
While we estimate the revenue and earnings to be largely in-line with the consensus estimates, our forecast indicates that Norfolk Southern’s valuation is around $290 per share, which is 9% above the current levels of $265. Our interactive dashboard analysis on Norfolk Southern’s Pre-Earnings has additional details.
(1) Revenues expected to be in-line with the consensus estimates
Trefis estimates Norfolk Southern’s Q2 2021 revenues to be around $2.7 Bil, in-line with the consensus estimate. The rise in the vaccination rate in the U.S. has resulted in a pickup in economic activities, and this should bode well for Norfolk Southern’s freight business. The trucking industry still faces driver shortages, and railroad companies, including Norfolk Southern, likely benefited from this with some of the trucking business shifting to intermodal. Looking back at Q1 2021, Norfolk Southern’s total revenues grew 1% y-o-y to $2.6 Bil, as a low double-digit growth in intermodal segment and a mid-single-digit growth in coal freight more than offset a mid-single-digit decline in merchandise freight revenues. Our dashboard on Norfolk Southern’s Revenues offers more details on the company’s segments.
2) EPS likely to be slightly above the consensus estimates
Norfolk Southern’s Q2 2021 earnings per share is expected to be $2.97 per Trefis analysis, slightly above the consensus estimate of $2.94. The company’s net income of $673 Mil in Q1 2021 reflected a solid 77% growth from its $381 Mil figure in the prior-year quarter. This can be attributed to lower operating costs, as well as absence of a $385 Mil loss recorded in the prior-year quarter for an asset disposal. For the full-year 2021, we expect the EPS to be $11.50 compared to $7.84 in 2020.
(3) Stock price estimate 9% above the current market price
Going by our Norfolk Southern’s Valuation, with an EPS estimate of $11.50 and a P/E multiple of around 25x in 2021, this translates into a price of $290, which is 9% above the current market price of $265. At the current price of $265, Norfolk Southern is trading at 23x its expected EPS of $11.50 in 2021, and this compares with the P/E multiple of 16x and 19x figures seen in 2018 and 2019, respectively. However, it is lower than the 30x figure seen in late 2020, as the NSC stock along with the broader markets rallied in the hopes of a quicker economic rebound.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year
While NSC stock may have more room for growth, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Canadian Pacific Railway vs. D R Horton