Today, Norfolk Southern Corp (NSC, Financial) experienced a daily gain of 3.2%, yet it has seen a 3-month decline of -8.89%. With an Earnings Per Share (EPS) of 6.21, investors might wonder if the stock is modestly undervalued. This article delves into Norfolk Southern's financial metrics and market valuation to explore this query.
Company Overview
Norfolk Southern operates a Class-I railroad network extending over 20,000 miles in the Eastern United States, specializing in the transportation of a diverse array of goods including coal, intermodal traffic, and products ranging from automobiles to chemicals. With a market capitalization of $52.40 billion and sales amounting to $12 billion, the company holds a significant position in the transportation industry. The comparison of the current stock price ($231.9) with the GF Value of $257.29 suggests that Norfolk Southern might be trading below its fair value.
Understanding GF Value
The GF Value is an exclusive measure used to estimate the intrinsic value of a stock. It is calculated based on historical trading multiples, an internal adjustment factor from past performance, and future business performance estimates. According to this valuation, Norfolk Southern appears modestly undervalued, suggesting potential for higher future returns given the stock's current trading price below its estimated fair value.
Financial Strength and Risks
Investors must consider a company's financial strength to avoid potential capital loss. Norfolk Southern's financial strength is rated 4 out of 10 by GuruFocus, primarily due to its low cash-to-debt ratio of 0.04, which is lower than 93.77% of companies in the Transportation industry. This indicates a higher risk associated with long-term capital investment in the company.
Profitability and Growth Metrics
Despite financial risks, Norfolk Southern has demonstrated strong profitability with an operating margin of 33.87%, ranking better than 90.95% of its peers. The company has also maintained profitability over the past decade. However, its growth metrics reveal a mixed picture, with a 3-year average EBITDA growth rate of 4.4%, which is below industry norms.
Investment Efficiency: ROIC vs. WACC
The efficiency of Norfolk Southern's investments can be evaluated by comparing its Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC). Currently, Norfolk Southern's ROIC is 8.35% while its WACC is 10.32%, indicating that it's generating a lower return on investment than the cost of its capital, which could be a concern for value generation.
Conclusion
In conclusion, while Norfolk Southern (NSC, Financial) presents a case of being modestly undervalued according to the GF Value, potential investors should weigh the poor financial strength against the strong profitability and mixed growth metrics. For a deeper understanding of Norfolk Southern's financial health and market position, interested individuals 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.
