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The market seemed underwhelmed by last week's earnings announcement from Norfolk Southern Corporation (NYSE:NSC) despite the healthy numbers. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.
View our latest analysis for Norfolk Southern
How Do Unusual Items Influence Profit?
To properly understand Norfolk Southern's profit results, we need to consider the US$508m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Norfolk Southern doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
Our Take On Norfolk Southern's Profit Performance
Because unusual items detracted from Norfolk Southern's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Norfolk Southern's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share increased by 44% in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 2 warning signs for Norfolk Southern you should be aware of.
This note has only looked at a single factor that sheds light on the nature of Norfolk Southern's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.