How NSC Could Surpass Analysts’ Earnings Estimates in 4Q17



Analysts’ earnings estimates

Earlier in this series, we discussed the estimated operating margins of Norfolk Southern (NSC) for 4Q17. Here, we’ll consider Thomson Reuters–surveyed analysts’ estimates of NSC’s 4Q17 earnings. 

These analysts expect the company to report adjusted earnings per share (or EPS) of $1.57 in 4Q17, which represents an estimated increase of 10.5% over 4Q16’s adjusted EPS of $1.42.

In fiscal 2016, Norfolk Southern’s adjusted EPS totaled $5.62. According to analysts’ estimates, the company should report adjusted EPS of $6.50 in 2017 and $8.20 in 2018. 

On a YoY (year-over-year) basis, the expected EPS growth comes in at 15.7% and 26.1%, respectively, in 2017 and 2018.

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Headwinds and tailwinds for 4Q17 earnings

Norfolk Southern (NSC) has targeted double-digit CAGR[1. compound annual growth rate] earnings per share by 2020. In 4Q17, the company’s headcount decreased by 800 YoY. 

However, expenses related to incentive compensation and wage rates are expected to increase $47.0 million and $29.0 million, respectively. The rise in its 4Q17 fuel prices over 4Q16 can adversely impact NSC’s earnings considering the lag in incremental fuel cost recovery.

In December 2017, Norfolk Southern announced the delisting of certain notes from the NYSE. The objective of the move was to reduce the overall costs and expenses related to the listing and registration.

Considering the tailwinds to the earnings, its 2017 interest expenses should decrease to $135.0 million in 4Q17 from $142.0 million in 4Q16. Debt renegotiation should lower the interest expenses for NSC. 

The company is expected to complete $1.0 billion in stock buybacks in 2017. Along with the US tax reform benefits, this should provide a strong upside to the earnings in 4Q17 and beyond.

Peer group’s 4Q17 earnings estimates

The US tax reform benefits should drive the railroad (IYT) stocks’ bottom line in the coming quarters. Coupled with the stock buyback program, this should set a strong case for robust earnings. Let’s take a look at analysts’ earnings estimates for NSC’s peer group in 4Q17:

  • Union Pacific’s (UNP) earnings per share are expected to rise 11.0% to $1.54 from $1.39.
  • Kansas City Southern’s (KSU) earnings per share are estimated to increase 22.0% to $1.37 from $1.12.
  • Canadian National Railway’s (CNI) earnings per share are anticipated to decline 0.5% to $1.22 Canadian.
  • Canadian Pacific Railway (CP) earnings per share are expected to increase ~5.6% to $3.21 Canadian from $3.04 Canadian.

In the final article of this series, we’ll take a look at analysts’ opinions on Norfolk Southern stock and its peers ahead of the 4Q17 earnings.


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