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Category: Stock Market and Norfolk Southern (NSC)
Date: 28 October 2020 Stock Price of Norfolk Southern: $199.35 We take a look at the 3rd quarter earnings release of their 2020 fiscal year of Norfolk Southern, a freight rail operator and competitor of Union Pacific and Kansas City Southern. Revenues declined by -11.7% for the quarter compared to the same quarter of the previous year, and they reported income of $569 million for the 3rd quarter of their 2020 fiscal year.
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Since launching our Precision Scheduled Railroading strategy, we have significantly enhanced Norfolk Southern's operational and financial performance and delivered superior returns for shareholders - James A. Squires, Norfolk Southern chairman, president and CEO. "
About Norfolk Southern (NSC)
Norfolk Southern Corporation (NYSE: NSC) is one of the nation's premier transportation companies. Its Norfolk Southern Railway Company subsidiary operates approximately 19,500 route miles in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern is a major transporter of industrial products, including chemicals, agriculture, and metals and construction materials. In addition, the railroad operates the most extensive intermodal network in the East and is a principal carrier of coal, automobiles, and automotive parts.
Overview of Norfolk Southern (NSC) 3rd quarter 2020 earnings report
The data below refers to the most recent quarter unless specified otherwise:
- Revenues: $2.506 billion (down from $2.841 billion for the same quarter of the previous year)
- Revenue decreased by -11.7% over the last 12 months
- Operating expenses: $1.666 billion (down from $1.845 billion for the same quarter of the previous year)
- Operating expenses decreased by -9.7% over the last 12 months
- Some margin squeeze for Norfolk Southern as their revenues declined at a faster rate than their operating expenses
- Net income: $569 million (down from a $657 million for the same quarter of the previous year)
- Diluted earnings per share: $2.22 (down from $2.49 for the same quarter of the previous year)
- PE ratio of Norfolk Southern : 31.3
- Diluted weighted-average shares outstanding: 256.1 million (down from 264.3 million for the same quarter of the previous year)
- Cash and cash equivalents: $1.359 billion
- Cash and cash equivalents per share: $5.31
- Cash and cash equivalents makes up 2.7% of Norfolk Southern market capital
- Cash and cash equivalents makes up 3.6% of Norfolk Southern total assets
- Stockholders equity in Norfolk Southern: $14.941 billion
- Stockholders equity per share in JetBlue: $58.34
- Norfolk Southern is trading at 3.41 times its stockholders equity per share which is within the expected range of between 2 and 4 times that most firms tend to trade at.
- For perspective the average price to book value of firms in the S&P 500 is 3.7.
Norfolk Southern's management commentary on their 3rd quarter 2020 earnings report
NORFOLK, Va., Oct. 28, 2020 /PRNewswire/ -- Norfolk Southern Corporation (NYSE: NSC) today reported financial results for the quarter ended September 30, 2020. During the quarter, the company achieved net income of $569 million, diluted earnings per share of $2.22, and an operating ratio of 66.5%. These results include a previously announced $99 million non-cash impairment charge. Excluding the effects of the impairment charge, adjusted third-quarter net income was $643 million, adjusted diluted earnings per share were $2.51, and the adjusted operating ratio was 62.5%, which reflects a 240 basis point improvement compared with third-quarter 2019.
"Since launching our Precision Scheduled Railroading strategy, we have significantly enhanced Norfolk Southern's operational and financial performance and delivered superior returns for shareholders," said James A. Squires, Norfolk Southern chairman, president and CEO. "Given the impact of the COVID-19 pandemic on our industry and the broader economy, we quickly executed a plan to align our assets and resources with demand and generate sustainable margin improvement. In addition to maintaining outstanding service levels with fewer resources and reduced headcount, we successfully idled our fifth hump in the last five quarters, helping Norfolk Southern achieve record productivity. With the resilience of our railroad, strong customer relationships and the hard work of our team, including new Chief Operating Officer and PSR veteran Cindy Sanborn, we are confident in our ability to achieve our goal of a 60% operating ratio with more to come, while delivering enhanced free cash flow and further value creation for Norfolk Southern shareholders."
"Since launching our Precision Scheduled Railroading strategy, we have significantly enhanced Norfolk Southern's operational and financial performance and delivered superior returns for shareholders," said James A. Squires, Norfolk Southern chairman, president and CEO. "Given the impact of the COVID-19 pandemic on our industry and the broader economy, we quickly executed a plan to align our assets and resources with demand and generate sustainable margin improvement. In addition to maintaining outstanding service levels with fewer resources and reduced headcount, we successfully idled our fifth hump in the last five quarters, helping Norfolk Southern achieve record productivity. With the resilience of our railroad, strong customer relationships and the hard work of our team, including new Chief Operating Officer and PSR veteran Cindy Sanborn, we are confident in our ability to achieve our goal of a 60% operating ratio with more to come, while delivering enhanced free cash flow and further value creation for Norfolk Southern shareholders."
Third-quarter summary
Loss on Asset Disposal
In the first quarter of 2020, we committed to a plan to dispose of certain locomotives deemed excess and no longer needed for railroad operations. Specifically, during the first nine months of 2020, the Company recorded a charge related to the loss on the sale of 574 locomotives disposed of in the first nine months, and a write-down of 129 additional locomotives that we are actively marketing to sell. Accordingly, a $385 million loss was recorded to adjust their carrying amount to their estimated fair value.
Stock Repurchase Program
We repurchased and retired 5.3 million and 8.4 million shares of common stock under our stock repurchase program during the first nine months of 2020 and 2019, respectively, at a cost of $960 million and $1.6 billion, respectively.
- Railway operating revenues of $2.5 billion decreased 12% compared with third-quarter 2019, driven by a 7% decline in total volume and 5% decline in revenue per unit.
- Railway operating expenses were $1.7 billion, including a $99 million non-cash impairment charge related to an equity-method investment.
- Excluding the impairment charge, adjusted operating expenses declined $278 million, or 15%, compared with third-quarter 2019, driven by lower compensation and benefits, fuel, purchased services, materials, and the absence of last year's $32 million receivable write-off.
- Income from railway operations was $840 million and the operating ratio was 66.5%.
- Excluding the impairment charge, adjusted income from railway operations was $939 million, while the adjusted operating ratio improved to 62.5% versus the third-quarter record of 64.9% set in 2019.
Loss on Asset Disposal
In the first quarter of 2020, we committed to a plan to dispose of certain locomotives deemed excess and no longer needed for railroad operations. Specifically, during the first nine months of 2020, the Company recorded a charge related to the loss on the sale of 574 locomotives disposed of in the first nine months, and a write-down of 129 additional locomotives that we are actively marketing to sell. Accordingly, a $385 million loss was recorded to adjust their carrying amount to their estimated fair value.
Stock Repurchase Program
We repurchased and retired 5.3 million and 8.4 million shares of common stock under our stock repurchase program during the first nine months of 2020 and 2019, respectively, at a cost of $960 million and $1.6 billion, respectively.
Norfolk Southern (NSC) stock price history
The image below, obtained from Google, shows the stock price history of Norfolk Southern (NSC) over the last 5 years. And it's been a good time for Norfolk Southern stockholders. 5 years ago the stock of Norfolk Southern was trading at around $80 a stock and its currently trading at $199.35 That's a very strong 149% provided to Norfolk Southern stockholders over the last 5 years.
Norfolk Southern stock is trading at closer to its 52 week high of $224.99 and far away from its 52 week low of $112.62 which to us is a clear indication that the short term sentiment and momentum of Norfolk Southern stock is positive at this point in time.
Norfolk Southern stock is trading at closer to its 52 week high of $224.99 and far away from its 52 week low of $112.62 which to us is a clear indication that the short term sentiment and momentum of Norfolk Southern stock is positive at this point in time.
Norfolk Southern (NSC) vs Union Pacific (UNP) vs Kansas City Southern (KSU) over last 5 years
The image below shows the stock price performance of Norfolk Southern (NSC) vs Union Pacific (UNP) vs Kansas City Southern (KSU) over last 5 years. The summary below shows the stock price returns of the freight rail firms below below (sorted from best to worst performer)
So looking at the performance of the three freight train operators Norfolk Southern just managed to outperform Union Pacific over the last 5 years, while they both easily outperformed the stock of Kansas City Southern. But in saying that all three freight rail stocks have provided investors with very healthy returns.
- Norfolk Southern (NSC): 108.51%
- Union Pacific: 107.8%
- Kansas City Southern: 91.5%
So looking at the performance of the three freight train operators Norfolk Southern just managed to outperform Union Pacific over the last 5 years, while they both easily outperformed the stock of Kansas City Southern. But in saying that all three freight rail stocks have provided investors with very healthy returns.
Recent coverage of Norfolk Southern (NSC)
The extract below shows recent coverage of Norfolk Southern (NSC) as obtained from Nasdaq.com
Norfolk Southern (NSC) came out with quarterly earnings of $2.51 per share, beating the Zacks Consensus Estimate of $2.36 per share. This compares to earnings of $2.58 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of 6.36%. A quarter ago, it was expected that this railroad would post earnings of $1.39 per share when it actually produced earnings of $1.53, delivering a surprise of 10.07%.
Read the full article here
Norfolk Southern (NSC) came out with quarterly earnings of $2.51 per share, beating the Zacks Consensus Estimate of $2.36 per share. This compares to earnings of $2.58 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of 6.36%. A quarter ago, it was expected that this railroad would post earnings of $1.39 per share when it actually produced earnings of $1.53, delivering a surprise of 10.07%.
Read the full article here
Norfolk Southern (NSC) latest stock valuation
So based on Norfolk Southern 3rd quarter 2020 earnings report what do we value Norfolk Southern stock at? Based on Norfolk Southern earnings reported our valuation model provides a target price (full value price) for Norfolk Southern at $172.60 per stock
We therefore believe that the stock of Norfolk Southern stock is overvalued. We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target price, which in this case is $172.60. A good entry price into Norfolk Southern stock would therefore be at $155.40 or below.
Since the stock of Norfolk Southern is trading at well above our suggested entry price we rate the stock of Norfolk Southern (NSC) as a sell
We therefore believe that the stock of Norfolk Southern stock is overvalued. We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target price, which in this case is $172.60. A good entry price into Norfolk Southern stock would therefore be at $155.40 or below.
Since the stock of Norfolk Southern is trading at well above our suggested entry price we rate the stock of Norfolk Southern (NSC) as a sell
Next earnings release of Norfolk Southern (NSC)
It is expected that Norfolk Southern will release their 4th quarter 2020 earnings release in late January 2021