Stock Analysis on Net
Stock Analysis on Net

Norfolk Southern Corp. (NYSE:NSC)

This company has been moved to the archive! The financial data has not been updated since April 27, 2022.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Norfolk Southern Corp., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 13.69%
01 FCFF0 3,401
1 FCFF1 3,670 = 3,401 × (1 + 7.91%) 3,229
2 FCFF2 3,971 = 3,670 × (1 + 8.19%) 3,072
3 FCFF3 4,308 = 3,971 × (1 + 8.47%) 2,931
4 FCFF4 4,685 = 4,308 × (1 + 8.75%) 2,804
5 FCFF5 5,108 = 4,685 × (1 + 9.03%) 2,689
5 Terminal value (TV5) 119,540 = 5,108 × (1 + 9.03%) ÷ (13.69% – 9.03%) 62,939
Intrinsic value of Norfolk Southern Corp. capital 77,665
Less: Debt (fair value) 17,033
Intrinsic value of Norfolk Southern Corp. common stock 60,632
 
Intrinsic value of Norfolk Southern Corp. common stock (per share) $254.40
Current share price $262.53

Based on: 10-K (reporting date: 2021-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Norfolk Southern Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 62,569 0.79 16.58%
Debt (fair value) 17,033 0.21 3.06% = 4.06% × (1 – 24.58%)

Based on: 10-K (reporting date: 2021-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 238,332,514 × $262.53
= $62,569,434,900.42

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (22.50% + 20.40% + 22.00% + 23.10% + 34.90%) ÷ 5
= 24.58%

WACC = 13.69%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Norfolk Southern Corp., PRAT model

Microsoft Excel
Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Interest expense on debt 646 625 604 557 550
Net income 3,005 2,013 2,722 2,666 5,404
 
Effective income tax rate (EITR)1 22.50% 20.40% 22.00% 23.10% 34.90%
 
Interest expense on debt, after tax2 501 498 471 428 358
Add: Dividends on Common Stock 1,028 960 949 844 703
Interest expense (after tax) and dividends 1,529 1,458 1,420 1,272 1,061
 
EBIT(1 – EITR)3 3,506 2,511 3,193 3,094 5,762
 
Short-term debt — — — — 100
Current maturities of long-term debt 553 579 316 585 600
Long-term debt, excluding current maturities 13,287 12,102 11,880 10,560 9,136
Stockholders’ equity 13,641 14,791 15,184 15,362 16,359
Total capital 27,481 27,472 27,380 26,507 26,195
Financial Ratios
Retention rate (RR)4 0.56 0.42 0.56 0.59 0.82
Return on invested capital (ROIC)5 12.76% 9.14% 11.66% 11.67% 22.00%
Averages
RR 0.59
ROIC 13.45%
 
FCFF growth rate (g)6 7.91%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

1 See details »

2021 Calculations

2 Interest expense on debt, after tax = Interest expense on debt × (1 – EITR)
= 646 × (1 – 22.50%)
= 501

3 EBIT(1 – EITR) = Net income + Interest expense on debt, after tax
= 3,005 + 501
= 3,506

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [3,506 – 1,529] ÷ 3,506
= 0.56

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 3,506 ÷ 27,481
= 12.76%

6 g = RR × ROIC
= 0.59 × 13.45%
= 7.91%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (79,602 × 13.69% – 3,401) ÷ (79,602 + 3,401)
= 9.03%

where:

Total capital, fair value0 = current fair value of Norfolk Southern Corp. debt and equity (US$ in millions)
FCFF0 = the last year Norfolk Southern Corp. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Norfolk Southern Corp. capital

FCFF growth rate (g) forecast

Norfolk Southern Corp., H-model

Microsoft Excel
Year Value gt
1 g1 7.91%
2 g2 8.19%
3 g3 8.47%
4 g4 8.75%
5 and thereafter g5 9.03%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 7.91% + (9.03% – 7.91%) × (2 – 1) ÷ (5 – 1)
= 8.19%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 7.91% + (9.03% – 7.91%) × (3 – 1) ÷ (5 – 1)
= 8.47%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 7.91% + (9.03% – 7.91%) × (4 – 1) ÷ (5 – 1)
= 8.75%