UBS Asks: What Should Norfolk Southern Investors Expect This Quarter?

In a report published Tuesday, UBS analysts maintain their Neutral rating on

, while lowering the price target from $114 to $105. The company has guided to a decline in its 1Q15 revenue by 5 percent and EPS by 15 percent y/y. This brings the company's expectations for 1Q significantly below the consensus and the analyst estimates. Although the analysts believe that revenue pressures are likely to continue going forward, the expense performance is likely to improve in 2H15. According to UBS, "The downside report appears to be due to a combination of notable weakness in coal volumes and weakness in other segments, a headwind from lower fuel surcharge, and expense pressures from both higher headcount y/y and slow network velocity." "We are concerned that versus much more difficult comparisons in 2Q, y/y volume performance aside from coal could look worse. We are more optimistic about expense performance in 2H15 as we expect the impact of increased resources to fade and velocity improvement to support better productivity," the analysts added. Consequently, the EPS estimates have been downgraded for Norfolk Southern from $6.49 per share to $5.77 per share for 2015 and from $7.62 per share to $6.55 per share for 2016. The analysts expect significant downward pressure on the company's shares going forward.