With a daily gain of 3.41%, a 3-month loss of 13.44%, and Earnings Per Share (EPS) of 11.12, Norfolk Southern Corp (NSC, Financial) presents a compelling case for investors. Is the stock significantly undervalued? This article aims to provide a comprehensive valuation analysis to answer this question. Read on to gain valuable insights into Norfolk Southern's financial performance and intrinsic value.
A Snapshot of Norfolk Southern Corp (NSC, Financial)
Operating in the Eastern United States, Norfolk Southern Corp is a Class-I railroad company with over 20,000 miles of track. The firm's diverse portfolio includes shipments of coal, intermodal traffic, automobile, agriculture, metal, chemical, and forest products. Despite a current stock price of $207.79, the GF Value, an estimation of fair value, stands at $307.56. This discrepancy suggests that Norfolk Southern may be significantly undervalued. The following sections will delve deeper into this valuation, integrating financial assessment with essential company details.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. This measure considers historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on our calculation, Norfolk Southern's stock is significantly undervalued with a market cap of $47.20 billion and a price of $207.79 per share. This undervaluation suggests that the long-term return of its stock is likely to be much higher than its business growth.
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Assessing Norfolk Southern's Financial Strength
Investing in companies with poor financial strength can pose a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before purchasing shares. Norfolk Southern's cash-to-debt ratio is 0.04, ranking worse than 93.22% of 944 companies in the Transportation industry. This ratio, coupled with an overall financial strength of 4 out of 10, indicates that Norfolk Southern's financial strength is poor.
Evaluating Profitability and Growth
Investing in profitable companies, particularly those with consistent profitability over the long term, is less risky. Norfolk Southern has been profitable 10 over the past 10 years, with an operating margin of 37.32% that ranks better than 92.77% of 954 companies in the Transportation industry. This strong profitability, ranked 8 out of 10, makes Norfolk Southern a safer investment.
Growth is a crucial factor in a company's valuation. Norfolk Southern's growth ranks better than 51.95% of 822 companies in the Transportation industry, with a 3-year average annual revenue growth rate of 8.3% and a 3-year average EBITDA growth rate of 9.2%.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. Norfolk Southern's ROIC is 10.07, exceeding its WACC of 9.98. This indicates that the company is likely creating value for its shareholders.
Conclusion
In summary, Norfolk Southern's stock appears to be significantly undervalued. Despite its poor financial strength, the company exhibits strong profitability and decent growth. To learn more about Norfolk Southern stock, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
