Norfolk Southern Corporation Analysis – September 2015 Update $NSC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Norfolk Southern Corporation (NSC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Norfolk Southern Corporation is a holding company. The Company owns a freight railroad, Norfolk Southern Railway Company. The Company is engaged in the rail transportation of raw materials, intermediate products and finished goods primarily in the Southeast, East and Midwest and through interchange with rail carriers, to and from the rest of the United States. The Company also transports overseas freight through various Atlantic and Gulf Coast ports. It provides logistics services and offers an intermodal network in the eastern half of the United States. The Company’s system reaches various individual industries, electric generating facilities, mines, distribution centers, transload facilities and other businesses located in its service area. The Company’s general merchandise market group is composed of five commodity groupings: chemicals; metals and construction; agriculture, consumer products, and Government; automotive, and paper, clay and forest products.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of NSC – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
6. Moderate PEmg Ratio PEmg < 20 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

NSC value Chart September 2015

EPSmg $5.69
MG Growth Estimate 4.92%
MG Value $104.31
Opinion Fairly Valued
MG Value based on 3% Growth $82.48
MG Value based on 0% Growth $48.35
Market Implied Growth Rate 2.69%
Current Price $78.90
% of Intrinsic Value 75.64%

Norfolk Southern Corporation qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only initial concern is the low current ratio while the Enterprising Investor is willing to overlook concerns with the level of debt because the company passes the more stringent Defensive Investor requirements.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.28 in 2011 to an estimated $5.69 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 2.69% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Norfolk Southern Corporation (NSC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

NSC Charts September 2015

Net Current Asset Value (NCAV) -$62.13
Graham Number $67.74
PEmg 13.87
Current Ratio 1.10
PB Ratio 1.98
Dividend Yield 2.94%
Number of Consecutive Years of Dividend Growth 14



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Most Recent Balance Sheet Figures

Total Current Assets $2,413,000,000
Total Current Liabilities $2,203,000,000
Long-Term Debt $8,890,000,000
Total Assets $33,310,000,000
Intangible Assets $0
Total Liabilities $21,233,000,000
Shares Outstanding (Diluted Average) 302,900,000

Earnings Per Share History

Next Fiscal Year Estimate $5.09
Dec14 $6.39
Dec13 $6.04
Dec12 $5.37
Dec11 $5.45
Dec10 $4.00
Dec09 $2.76
Dec08 $4.52
Dec07 $3.68
Dec06 $3.57
Dec05 $3.11
Dec04 $2.31
Dec03 $1.37
Dec02 $1.18
Dec01 $0.97
Dec00 $0.45
Dec99 $0.63
Dec98 $1.93
Dec97 $1.90
Dec96 $2.03
Dec95 $1.81

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.69
Dec14 $5.81
Dec13 $5.25
Dec12 $4.71
Dec11 $4.28
Dec10 $3.70
Dec09 $3.54
Dec08 $3.77
Dec07 $3.20
Dec06 $2.74
Dec05 $2.15
Dec04 $1.53
Dec03 $1.07
Dec02 $0.95
Dec01 $0.95
Dec00 $1.09
Dec99 $1.50

Recommended Reading:

Other ModernGraham posts about the company

23 Companies to Research This Week – 9/13/14
Norfolk Southern Corporation Annual Stock Valuation – 2014 $NSC
20 Companies in the Research Spotlight This Week – June 7, 2014
Norfolk Southern Corp Quarterly Valuation – June 2014 $NSC
16 Companies in the Spotlight This Week – 3/8/14

Other ModernGraham posts about related companies

Kansas City Southern Analysis – August 2015 Update $KSU
CSX Corporation Annual Valuation – 2014 $CSX
Union Pacific Corporation Annual Valuation – 2014 $UNP
Norfolk Southern Corporation Annual Stock Valuation – 2014 $NSC
Kansas City Southern Annual Valuation – 2014 $KSU
Norfolk Southern Corp Quarterly Valuation – June 2014 $NSC


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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