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    Norfolk Southern Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 86.68

    Market price

    USD 314.16

    Implied upside

    -72.4%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 18.0% of revenue against depreciation of 10.7%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 86.68-72.4%
    Exit multiple
    USD 212.36-32.4%
    Market price
    USD 314.16

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn3bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 12.0bnUSD 11.8bnUSD 11.6bnUSD 11.5bnUSD 11.3bn-1.5%
    EBITUSD 4.6bnUSD 4.6bnUSD 4.5bnUSD 4.4bnUSD 4.4bn-1.5%
    NOPATUSD 3.7bnUSD 3.6bnUSD 3.5bnUSD 3.5bnUSD 3.4bn-1.5%
    Add depreciation & amortisationUSD 1.3bnUSD 1.3bnUSD 1.2bnUSD 1.2bnUSD 1.2bn-1.5%
    Less capital expenditureUSD -2.2bnUSD -2.1bnUSD -2.1bnUSD -2.1bnUSD -2.0bn-1.5%
    Less increase in working capitalUSD 114.2mUSD 112.4mUSD 110.8mUSD 109.1mUSD 107.5m+1.5%
    Free cashflow to firmUSD 2.9bnUSD 2.8bnUSD 2.8bnUSD 2.8bnUSD 2.7bn-1.5%
    Discount factor0.95350.86680.78800.71630.6512-
    Present valueUSD 2.8bnUSD 2.5bnUSD 2.2bnUSD 2.0bnUSD 1.8bn-10.5%
    Present Value Of The ForecastUSD 11.2bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.180Reported 1.268, pulled toward 1.0 (Blume)
    Cost of equity11.49%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 70.6bn80.3% of capital
    Total debtUSD 17.3bn19.7% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC10.00%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 86.68

    68% of EV

    Forecast FCFF, final year
    USD 2.7bn
    Capex at depreciation, working capital in reinvestment
    USD 3.4bn
    Less reinvestment at g/ROIC (21.2% of NOPAT)
    USD -727.6m
    Capitalised
    USD 2.7bn
    ROIC (reported)
    11.8%
    Terminal value, undiscounted
    USD 37.1bn
    Terminal value, discounted
    USD 24.1bn
    Enterprise value
    USD 35.3bn
    Less net debt
    USD 15.8bn
    Equity value
    USD 19.5bn

    Exit at 14.5x EBITDA

    Value per shareUSD 212.36

    82% of EV

    Terminal value, undiscounted
    USD 80.5bn
    Terminal value, discounted
    USD 52.4bn
    Enterprise value
    USD 63.6bn
    Less net debt
    USD 15.8bn
    Equity value
    USD 47.8bn

    Spread between methods: 84%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.00%128.88134.16140.32147.62156.43
    9.00%102.99105.99109.38113.27117.78
    10.00%83.2084.8686.6888.7090.96
    11.00%67.5968.4269.3070.2471.26
    12.00%55.1355.5155.8956.2756.65

    Outlined: this model. Green text: above today's price of 314.16. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year-1.5%24.0%+25.5pp
    EBIT margin38.5%90.2%+51.6pp
    Discount rate10.0%5.4%-4.6pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.