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Norfolk Southern Corp Valuation – April 2018 $NSC

Company Profile (excerpt from Reuters): Norfolk Southern Corporation, incorporated on August 24, 2009, is a holding company engaged principally in the rail transportation business. As of December 31, 2016, the Company operated approximately 19,500 miles of road primarily in the East and Midwest. 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. It also transports overseas freight through several Atlantic and Gulf Coast ports. It offers an intermodal network in the eastern half of the United States. The Company’s system reaches various manufacturing plants, electric generating facilities, mines, distribution centers and other businesses located in its service area.

NSC Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of NSC – April 2018

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 $41,438,714,409 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.84 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 362.33% Pass
6. Moderate PEmg Ratio PEmg < 20 8.21 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.40 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 0.84 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -23.07 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

EPSmg $16.62
MG Growth Estimate 15.00%
MG Value $639.97
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $241.03
MG Value based on 0% Growth $141.29
Market Implied Growth Rate -0.14%
Current Price $136.48
% of Intrinsic Value 21.33%

Norfolk Southern Corp. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.81 in 2014 to an estimated $16.62 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.14% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Norfolk Southern Corp. revealed the company was trading above its Graham Number of $101.73. The company pays a dividend of $2.44 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 8.21, which was below the industry average of 25.23, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-59.82.

Norfolk Southern Corp. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$59.82
Graham Number $101.73
PEmg 8.21
Current Ratio 0.84
PB Ratio 2.40
Current Dividend $2.44
Dividend Yield 1.79%
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $2,149,000,000
Total Current Liabilities $2,545,000,000
Long-Term Debt $9,136,000,000
Total Assets $35,711,000,000
Intangible Assets $0
Total Liabilities $19,352,000,000
Shares Outstanding (Diluted Average) 287,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.99
Dec2017 $37.22
Dec2016 $11.24
Dec2015 $10.20
Dec2014 $6.39
Dec2013 $6.04
Dec2012 $5.37
Dec2011 $5.45
Dec2010 $4.00
Dec2009 $2.76
Dec2008 $4.52
Dec2007 $3.68
Dec2006 $3.57
Dec2005 $3.11
Dec2004 $2.31
Dec2003 $1.37
Dec2002 $1.18
Dec2001 $0.97
Dec2000 $0.45
Dec1999 $0.63
Dec1998 $1.93

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $16.62
Dec2017 $18.70
Dec2016 $8.91
Dec2015 $7.39
Dec2014 $5.81
Dec2013 $5.25
Dec2012 $4.71
Dec2011 $4.28
Dec2010 $3.70
Dec2009 $3.54
Dec2008 $3.77
Dec2007 $3.20
Dec2006 $2.74
Dec2005 $2.15
Dec2004 $1.53
Dec2003 $1.07
Dec2002 $0.95

Recommended Reading:

Other ModernGraham posts about the company

Norfolk Southern Corp Valuation – December 2016 $NSC
Norfolk Southern Corp Valuation – August 2016 $NSC
26 Best Stocks For Value Investors This Week – 2/6/16
Norfolk Southern Corp Valuation – February 2016 Update $NSC
10 Undervalued Companies for the Defensive Dividend Stock Investor – February 2016

Other ModernGraham posts about related companies

CSX Corporation Valuation – April 2018 $CSX
Union Pacific Corp Valuation – April 2018 $UNP
Canadian Pacific Railway Ltd Valuation – Initial Coverage $TSE:CP
Canadian National Railway Co Valuation – Initial Valuation $TSE:CNR
Kansas City Southern Valuation – December 2016 $KSU
Norfolk Southern Corp Valuation – December 2016 $NSC
Norfolk Southern Corp Valuation – August 2016 $NSC
CSX Corporation Valuation – August 2016 $CSX
Union Pacific Corp Valuation – August 2016 $UNP
Norfolk Southern Corp Valuation – February 2016 Update $NSC

Disclaimer:

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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