Can Norfolk Southern (NSC) Pull A Surprise In Q3 Earnings?

Virginia-based Norfolk Southern Corporation (NYSE:NSC) is scheduled to report third-quarter 2016 results on Oct 26, before the market opens.

Last quarter, the company posted a positive earnings surprise of 0.74%. Moreover, the company’s bottom line surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average beat of 9.89%. Let’s see how things are shaping up for this announcement.

Factors at Play this Quarter

We expect Norfolk Southern’s top line to benefit from the inauguration of the expanded Panama canal in June as East Coast ports are anticipated to witness a rise in container traffic. Also, the company’s bottom line should be boosted by its focus on improving productivity by constantly working towards improving its operating ratio.

However, the company’s revenues are likely to be adversely impacted by low coal volumes. At a recent conference, Norfolk Southern mentioned that coal volumes are expected to remain lower in the second half of 2016 than the comparable period in 2015.

Another concern for investors is Norfolk Southern’s high debt levels and the resultant high debt-to-capitalization ratio. Moreover the company faces stiff competition from peers like Union Pacific Corp. (NYSE:UNP) and CSX Corp. (NASDAQ:CSX) .

Earnings Whispers

Our proven model does not conclusively show that Norfolk Southern is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.45 per share. Thus, the Earnings ESP for the company is 0.00%.

Zacks Rank: The company carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Conversely, we caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

NORFOLK SOUTHRN Price and EPS Surprise

NORFOLK SOUTHRN Price and EPS Surprise | NORFOLK SOUTHRN Quote

Stock to Consider

Here is a transportation company you may want to consider, as our model shows that it has the right combination of elements to post an earnings beat this quarter:

Navios Maritime Holdings Inc. (NYSE:NM) , which is expected to report third-quarter earnings on Nov 28, has an Earnings ESP of +16.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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