Quick Update for NSC Investors

We've been asking ourselves recently if the market has placed a fair valuation on Norfolk Southern. Let's dive into some of the fundamental values of this large-cap Industrials company to determine if there might be an opportunity here for value-minded investors.

Norfolk Southern's Valuation Is in Line With Its Sector Averages:

Norfolk Southern Corporation, together with its subsidiaries, engages in the rail transportation of raw materials, intermediate products, and finished goods in the United States. The company belongs to the Industrials sector, which has an average price to earnings (P/E) ratio of 20.49 and an average price to book (P/B) ratio of 3.78. In contrast, Norfolk Southern has a trailing 12 month P/E ratio of 17.3 and a P/B ratio of 4.03.

Norfolk Southern's PEG ratio is 3.11, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.

Growing Revenues With a Flat Capital Expenditure Trend:

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $11,296 $9,789 $11,142 $12,745
Gross Margins 41.9% 41.3% 44.8% 43.3%
Operating Margins 35.3% 34.6% 39.9% 37.7%
Net Margins 24.1% 20.56% 26.97% 25.66%
Net Income (MM) $2,722 $2,013 $3,005 $3,270
Net Interest Expense (MM) -604 -625 -646 -692
Net Interest Expense (MM) -$604 -$625 -$646 -$692
Depreciation & Amort. (MM) -$1,139 -$1,154 -$1,181 -$1,221
Earnings Per Share $10.25 $7.84 $12.11 $13.0
EPS Growth n/a -23.51% 54.46% 7.35%
Diluted Shares (MM) 266 257 248 228
Free Cash Flow (MM) $1,873 $2,143 $2,785 $2,274
Capital Expenditures (MM) -$2,019 -$1,494 -$1,470 -$1,948
Net Current Assets (MM) -$20,658 -$20,853 -$22,685 -$24,145
Current Ratio 0.9 1.07 0.86 0.76
Long Term Debt (MM) $11,880 $12,102 $13,287 $14,479
Net Debt / EBITDA 2.22 2.68 2.28 2.44

Norfolk Southern benefits from growing revenues and a flat capital expenditure trend, a steady stream of strong cash flows, and average operating margins with a stable trend. The company's financial statements show positive EPS growth and healthy leverage. However, the firm has slimmer gross margins than its peers.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.