Stock in
Norfolk Southern
dipped late Friday after the railroad posted weaker-than-expected fourth-quarter earnings and offered a disappointing profit-margin forecast for 2024. Wall Street analysts’ reactions point to more losses this week.
For the fourth quarter, Norfolk reported earnings per share of $2.83, while Wall Street was looking for $2.87. Shares dropped 1.5% on Friday.
The shortfall was only a few pennies, but the company’s guidance for the coming year, and years, didn’t help. Management said revenue in 2024 should grow about 3%. That implies 2024 sales of some $12.5 billion, about 1% lower than Wall Street was expecting.
Management also said they planned to improve operating-profit margins by one to two percentage points a year for the coming three years, which would leave margins at about 32% by 2026. Wall Street was projecting closer to 36% to 38%.
Union Pacific’s
and
CSX’s
operating profit margins are already about 38%.
TD Cowen analyst Jason Seidl downgraded shares to Hold from Buy on Monday morning, saying the 2024 outlook was below his forecast and that the three-year margin forecast left him ”wanting more.” Norfolk’s “cost structure should continue to notably underperform its peer group for this year,” the analyst wrote in a research note.
Seidl raised his target for the stock price to $236 from $233 a share, but Morgan Stanley reduced its call to $175 from $185. Analyst Ravi Shanker cut his rating to Sell from Hold.
Stifel analyst Ben Nolan also lowered his Norfolk rating on Monday, going to Hold from Buy. His price target is now $233, down from $250 a share.
“Things are getting dicey on the East Coast,” where Norfolk does a lot of its business, wrote Nolan. “The outlook for ports…is murky, with disruptions from the Panama Canal and the Red Sea that could be further heightened by a looming dockworker strike.”
Investors are taking notice of the various challenges. Shares were down 0.8% in early trading while the
S&P 500
and
Nasdaq Composite
were up 0.1% and 0.2%, respectively. Over the past 12 months, Norfolk stock is down about 2%, underperforming the S&P 500 by some 24 percentage points.
With the downgrades, 46% of analysts covering the stock rate shares at Buy, while the average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average price target for Norfolk stock is about $242, up about 4% from recent levels.
Shanker has the only Sell rating on Norfolk stock. That works out to a Sell-rating ratio of about 4%, while the average for S&P 500 stocks is about 7%.
Write to Al Root at [email protected]
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