With a daily loss of -1.64%, a 3-month loss of -0.88%, and an Earnings Per Share (EPS) (EPS) of 11.12, Norfolk Southern Corp (NSC, Financial) is raising questions about its market value. Is the stock significantly undervalued? This article offers a valuation analysis that aims to answer this question. Read on to gain insights into the company's financial strength, profitability, growth, and other key metrics.
Company Overview
Norfolk Southern Corp (NSC, Financial) is a Class-I railroad company that operates in the Eastern United States. The firm runs on more than 20,000 miles of track, hauling shipments of coal, intermodal traffic, and a diverse mix of automobile, agriculture, metal, chemical, and forest products. Despite its recent losses, the company's stock price stands at $207.73, with a market capitalization of $47.20 billion. However, the GF Value, a proprietary measure of a stock's intrinsic value, estimates the fair value of Norfolk Southern at $310.52. This discrepancy suggests that the stock might be significantly undervalued.
Understanding the GF Value
The GF Value provides an estimate of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line, visible on our summary page, represents the fair value at which the stock should ideally be traded. 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.
Given its current price, Norfolk Southern appears to be significantly undervalued. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Hence, it is crucial to review a company's financial strength before deciding to buy its stock. Norfolk Southern's cash-to-debt ratio stands at 0.04, which is worse than 94.1% of 932 companies in the Transportation industry. Its overall financial strength is ranked 4 out of 10 by GuruFocus, indicating poor financial strength.
Profitability and Growth
Profitability is a crucial factor for investors. Norfolk Southern has been profitable for 10 out of the past 10 years, with an operating margin of 37.32%, ranking better than 92.74% of 937 companies in the Transportation industry. Its growth is also impressive, with an average annual revenue growth of 8.3%, ranking better than 59.41% of 909 companies in the Transportation industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) can provide insights into its profitability. Norfolk Southern's ROIC is 10.07, and its WACC is 9.69, indicating that the company is creating value for shareholders.
Conclusion
In conclusion, Norfolk Southern's stock appears to be significantly undervalued. Despite its poor financial strength, the company shows strong profitability and promising growth. For more detailed financial data on Norfolk Southern, check out its 30-Year Financials here.
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