Should Investors Reassess Norfolk Southern After 24% Rally and Infrastructure Policy Updates?

• Ever wondered whether Norfolk Southern is trading at a fair price or if there is a hidden opportunity waiting for careful investors? Here's what you need to know.
• The stock has climbed 23.6% so far this year, giving it strong momentum and drawing attention from those watching upward trends.
• Recently, headlines have focused on industry developments, including infrastructure spending bills and transportation policy discussions. These factors can influence investor sentiment for rail companies like Norfolk Southern. These updates provide important context about the renewed interest and activity in the share price.
• When it comes to valuation, Norfolk Southern currently scores just 1 out of 6 on our quick value checks. This suggests there may be better ways to assess if the stock is priced appropriately. Next, let’s examine the standard approaches and explore an even more effective method to analyze the stock at the end of this article.

Norfolk Southern scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Norfolk Southern Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model works by forecasting a company's future cash flows and then discounting them back to today's value to estimate what the business is really worth. This approach gives investors an intrinsic value based on the company's potential to generate cash over time.

For Norfolk Southern, the most recent trailing twelve months saw Free Cash Flow (FCF) of $1.41 billion. Analysts project steady growth, with FCF expected to reach close to $2.86 billion by 2029. While estimates from analysts extend about five years, further projections through 2035 are extrapolated, providing a view of sustained cash flow expansion over the next decade.

Based on these forecasts, the DCF model puts Norfolk Southern’s intrinsic value at $225.05 per share. However, the current market price is approximately 28.9% higher than that value. This suggests that, even with optimistic growth projections, the stock is trading well above what the company’s long-term cash flows would justify.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Norfolk Southern may be overvalued by 28.9%. Discover 922 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Norfolk Southern.

Approach 2: Norfolk Southern Price vs Earnings

The Price-to-Earnings (PE) ratio is a popular and effective way to value profitable companies like Norfolk Southern because it directly compares the company’s share price to its net earnings. Investors often use the PE ratio to gauge whether a stock is trading at an attractive price relative to its ability to generate profits.

What counts as a "normal" or "fair" PE ratio varies depending on growth expectations and the risks facing a business. Faster-growing companies or those carrying less risk usually warrant higher PE ratios, while slower growers or riskier companies tend to be valued at lower multiples.

Currently, Norfolk Southern trades at a PE ratio of 22x. For context, this is slightly above its direct peer average of 21x and below the broader transportation industry average of 27x. While those comparisons are useful, they may not capture all the unique factors affecting Norfolk Southern's valuation.

This is where Simply Wall St’s "Fair Ratio" comes in. The Fair Ratio is a proprietary, data-driven benchmark that adjusts for a company’s individual growth prospects, profit margins, industry dynamics, and size. This offers a more tailored measure than simply comparing to peers or industry averages. For Norfolk Southern, the calculated Fair Ratio is 17.7x.

With a current PE multiple of 22x compared to the Fair Ratio of 17.7x, Norfolk Southern appears overvalued based on this approach.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1440 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Norfolk Southern Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is a clear and simple way to connect your view of a company’s future to the numbers, by telling the story behind what you believe about Norfolk Southern’s growth, profits, and business trends, and seeing how these beliefs translate into fair value and investment decisions.

Unlike traditional approaches that focus only on ratios, Narratives summarize your assumptions about future revenue, earnings, margins, and the events that shape them, helping you turn your perspective on the business into a specific financial forecast and estimated share price. This makes it easy for anyone, from beginners to seasoned investors, to build and compare investment cases, right on Simply Wall St’s Community page, where millions of investors are already sharing and discussing their views.

With Narratives, you can clearly compare your calculated Fair Value to the current market price to help inform your investment decisions, and all Narrative estimates are updated dynamically as new data, earnings, or news emerge. For example, one Norfolk Southern Narrative might focus on rising costs and regulatory headwinds, supporting a fair value near $235, while another highlights operational improvements and new growth drivers, projecting a fair value of $339. This shows how your view shapes your investment approach.

Do you think there's more to the story for Norfolk Southern? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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