Norfolk Southern Stock Slumps on Disappointing Q4 Earnings and 2024 Forecasts

Shares of Norfolk Southern took a hit on Friday after the railroad company reported weaker-than-expected earnings for the fourth quarter and provided a disappointing profit-margin forecast for 2024. Analysts on Wall Street are predicting further losses in the coming week.

Fourth Quarter Earnings

Norfolk Southern reported earnings per share of $2.83 for the fourth quarter, falling just shy of Wall Street's expectations of $2.87. As a result, shares dropped by 1.5% on Friday.

Concerns for 2024

While the slight earnings miss was not a major cause for concern, the company's guidance for 2024 and beyond had investors worried. Management stated that revenue is expected to grow by approximately 3% in 2024, implying total sales of around $12.5 billion, which is approximately 1% lower than what Wall Street had anticipated.

Furthermore, management also announced plans to improve operating-profit margins by one to two percentage points each year over the next three years. This would result in margins of about 32% by 2026. However, Wall Street analysts were projecting higher margins, closer to 36% to 38%. Comparatively, Union Pacific and CSX already have operating profit margins of around 38%.

Analyst Downgrade

Following the disappointing outlook for 2024 and the three-year margin forecast, TD Cowen analyst Jason Seidl downgraded Norfolk Southern shares from Buy to Hold on Monday morning. Seidl expressed his disappointment with the outlook and stated that Norfolk Southern's cost structure is expected to significantly underperform its peers this year.

In conclusion, Norfolk Southern's stock slumped due to weaker-than-expected fourth-quarter earnings and a less-than-ideal profit-margin forecast for 2024. Analyst reactions indicate potential further losses in the near future.

Norfolk Stock Faces Challenges Amidst Downgrades

In recent news, analysts have revised their ratings and price targets for Norfolk stock (NYSE: NSC), reflecting the various challenges the company faces.

Mixed Recommendations

Seidl, a leading analyst, has raised his target for the stock price to $236 per share, showing confidence in the company's prospects. However, Morgan Stanley has reduced its call to $175 per share. Another analyst, Ravi Shanker, has gone a step further and downgraded Norfolk stock from Hold to Sell.

Concerns Over East Coast Business

Stifel analyst Ben Nolan has joined the chorus of downgrades and has lowered his Norfolk rating to Hold from Buy. Nolan identifies the East Coast business as a source of concern, citing the uncertain outlook for ports due to disruptions from the Panama Canal and the Red Sea. Furthermore, a potential dockworker strike could further exacerbate the situation.

Investor Reaction

Investors are paying attention to these challenges, as evidenced by a slight decline of 0.8% in Norfolk shares during early trading. In comparison, the S&P 500 and Nasdaq Composite were up 0.1% and 0.2%, respectively. Over the past 12 months, Norfolk stock has underperformed the S&P 500 by approximately 24 percentage points, with a decline of around 2%.

Analyst Coverage and Targets

At present, 46% of analysts covering Norfolk stock rate shares as Buy, which falls short of the average Buy-rating ratio for stocks in the S&P 500 at approximately 55%. The average price target for Norfolk stock is approximately $242, marking a potential increase of around 4% from current levels.

It is worth noting that Shanker's Sell rating remains unique among Norfolk stock analysts. This results in a Sell-rating ratio of about 4%, compared to an average of about 7% for S&P 500 stocks.