Amidst a daily fluctuation resulting in a -2.81% loss and a 3-month gain of 13.77%, investors might wonder about the true value of Norfolk Southern Corp (NSC, Financial). With an Earnings Per Share (EPS) of 9.12, the question arises: is the stock modestly undervalued? This article delves into a valuation analysis to shed light on the intrinsic worth of Norfolk Southern, guiding investors through the complexities of market valuation.
Company Introduction
Norfolk Southern operates as a Class-I railroad in the Eastern United States, covering over 20,000 miles of track. This extensive network facilitates the transportation of various commodities, including coal, intermodal traffic, and a diverse array of products from the automobile, agriculture, metal, chemical, and forest sectors. With a market cap of $48.90 billion and a stock price of $221, juxtaposed against a GF Value of $299.66, a closer look at Norfolk Southern's valuation is warranted. This comparison sets the stage for an in-depth valuation analysis, balancing financial metrics with the company's operational backdrop.
Summarize GF Value
The GF Value is a proprietary metric that represents the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides a benchmark for the fair value at which the stock should trade. When a stock's price significantly deviates from this line, it suggests potential overvaluation or undervaluation, influencing future returns. Currently, Norfolk Southern (NSC, Financial) is considered modestly undervalued, implying a higher potential for long-term returns relative to its business growth.
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Financial Strength
Investing in companies with robust financial strength is crucial to avoid the risk of permanent capital loss. Norfolk Southern's cash-to-debt ratio of 0.09 ranks lower than 85.77% of peers in the Transportation industry, indicating a weaker balance sheet. This positions Norfolk Southern's financial strength at a concerning 4 out of 10, signaling the need for investor caution regarding its financial resilience.
Profitability and Growth
Profitable companies present less investment risk, especially those with a history of consistent profitability. Norfolk Southern's impressive operating margin of 35.58% outshines 92.49% of its industry counterparts, reflecting strong profitability. Additionally, the company has maintained profitability over the past decade, with a revenue of $12.30 billion and an Earnings Per Share (EPS) of 9.12 in the last twelve months. Growth is equally paramount, with Norfolk Southern's average annual revenue growth at 8.3%, ranking favorably within the Transportation industry. Its 3-year average EBITDA growth of 9.2% also demonstrates a solid trajectory.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) can reveal its profitability in relation to the capital invested. Norfolk Southern's ROIC of 8.85 is currently below its WACC of 10, suggesting that the firm is not generating sufficient returns on its investments. This disparity warrants attention from investors assessing the company's capital efficiency.
Conclusion
In summary, Norfolk Southern (NSC, Financial) appears to be modestly undervalued, offering a potential upside for investors. Despite its poor financial condition, the company's strong profitability and growth prospects may be compelling for value investors. Those interested in a deeper dive into Norfolk Southern's financials can explore 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.
