Norfolk Southern Corp. (NSC) Stock Analysis

Chugga, Chugga, Chugga… Chugga, Chugga, Chugga – DIVIDENDS!  That’s the sound that the stock up for this week’s analysis is all about.  I’ve been on a hunt for a good dividend paying stock and what better than a stock that is down over 8% this year but has been consistently raising dividends and laying down stronger tracks each year?  What stock am I talking about?  Norfolk Southern Corp. (NSC).  Let’s see the analysis!

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The Stock – NSC

Loving this train over the last few months, as you re-call they were on my watch list forever ago (but have maintained on my stock tickers I look at every day).   Description compliments to Google Finance, “Norfolk Southern Corporation is a United States-based company that owns a freight railroad, Norfolk Southern Railway Company. Norfolk Southern Railway Company is primarily engaged in the rail transportation of raw materials, intermediate products, and finished goods primarily in the Southeast, East, and Midwest and, via interchange with rail carriers, to and from the rest of the United States. The Company’s operations include Railroad operations, Coal, General Merchandise, Intermodal; Passenger operations and Noncarrier operations. The Company also transports overseas freight through several Atlantic and Gulf Coast ports. It provides logistics services and offers intermodal network in the eastern half of the United States.”  Our goods need to be transported somewhere, right?  There is a physical component to life and this, as far as I can feel and tell – is never going anywhere.  We want bananas?  Good luck growing them in Cleveland.  Want a mango?  Not happening.  Love having Florida Oranges?  Well – I am sure Cleveland oranges would be delicious… Out of coal up here?  Doubt we would settle for being SOL.  Good thing transportation companies are here to transfer goods across the world.  They also have intermodal which is huge for oversees freight.  Similarly, it’s been almost 3+ weeks since I’ve purchased a stock, therefore, buyer’s anxiety could be approaching on me, Yikes!  How do they match up at the moment?

NSC – Dividend Diplomat Screener Analysis

Well, as of this writing on 4/19/15 – the stock is trading at $100.65.  What’s interesting is that it has declined since the post discussed above by $9.26 or 8.42% – talk about discounting…  Using the dividend diplomat stock screener, how does it look now?!  Let’s hop on the boxcar and check the stats:

  1. Price to Earnings – Forward earnings are looking to be $6.49 now based on the analysts.  With the price at $100.65, this means the P/E is roughly 15.50 – I really like this now and has decreased since the last post.  Definitely undervalued in relation to the overall market and against competition of CSX and UNP (both are over 16).
  2. Dividend Yield – Current dividend payment is $2.36 per year.  This yield is now at 2.34% vs the 2.15% at the earlier date of my watch list – 19 basis points is a little higher, this is a positive trend.  This yield is also higher than the aforementioned two competitors – definitely a plus.  Further, it’s higher than the overall market as a whole – another notch.  Also – it’s higher than the cost of my auto loan, but still is lower than my after-tax mortgage interest rate as discussed on my debt update.
  3. Payout Ratio – At an expected $6.49 EPS for the year with a $2.36 dividend, this leads to a payout ratio of 36%.  Pretty low with ample room for that dividend to keep chugging along the tracks – pick up that speed NSC, come on!
  4. Dividend Growth Rate – As well all know, the power of the growth rate is real.  Norfolk has increased their dividend for over 10+ years (13 I believe) and given their recent January increase announcement has also paid a dividend for 130 consecutive quarters 32.5 years!  I like that.  What about the DGR, though?  Well – it’s interesting, usually we see 2 increases during the year.  Excluding 2015 projections, 2014 and the prior 3 years = roughly 10%.  Going back 5 years only increases that figure, so I’ll be conservative with a 10% dividend growth rate actually.  Aka, loving it.  It is higher than my overall DGR on my portfolio.
  5. Share Buy Back – from the 10K – “On August 1, 2012, our Board of Directors authorized the repurchase of up to an additional 50 million shares of Common Stock through December 31, 2017.”  Further… “Share repurchases totaled $318 million in 2014, $627 million in 2013, and $1.3 billion in 2012 for the purchase and retirement of 3.1 million, 8.3 million, and 18.8 million shares, respectively. ”  Therefore, they have purchased back approximately 30 million shares over the last 3 years and still have room to continue with more, especially as their older program of repurchasing 125 million shares ending 12/31/14 – with the 50 million new share repurchase program opening up the ceiling a bit more.  See why this is big news for dividend investors and is a good note to consider for NSC.  Essentially – management can control shares, which controls EPS, which then can control the payout ratio/dividend increases/amounts.
  6. Five Year Dividend Average – Well.. father time has taken into effect and the 5 year average is approximately 2.30%.  This lines up nicely with the current yield at just a hash over 2.34% and looks valuable here.  As you know – I love the comparison to the five-year dividend yield average!
  7. EPS Growth:  I also want to show the EPS growth NSC has had over the last 3 years from 2012 to 2014, pretty interesting.  As you can see below, EPS has gone from $5.42 to $6.44 over a 3 year period.  From 2012 to 2013 was a 12.5% growth and from 2013 to 2014 was 5.57% growth or an average of 9.03% over the period.  A very solid return but also you can notice the sharp decline from 2013 to 2014 and with an analyst target of $6.49 – doesn’t show much promise, even with a huge slash in transportation cost due to the decline in oil prices.  Interestingly enough – the payout ratio is still VERY low, so no harm there.  Wanted to point it out there – this is a yellow light here.

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Conclusion on NSC Stock Analysis

This company is interesting.  Low payout, decent yield, strong history of growth, share buy back program and a decline in prices in an area where fuel consumption/expense should be less than planned in the past – should lead to a strong year.  If I buy though – let’s be real… I’m not in it for a fricken year, I’m in it for the long-haul baby and I want to be a well oiled locomotive if I am buying NSC.  In a recent release, see the 8K link, they are saying first quarter results were hindered by a large amount of training of new employees and weather conditions – I wonder if this is due to the Buffalo/New York and the New England area that put a damper on revenue targets.  I could see this definitely impacting their business without a doubt – as how the heck can you transport goods/services if there is nowhere to go? haha.  In all seriousness, I hope the issues are worked out and the spring/summer weather is upon us.  I really do like this stock and it’s in an industry that I do not have a single holding really.  It would fit in nicely, the dividend growth rate is larger than my overall and the combined amount is also appetizing.  Further, their next announcement should be this week and it will be great to capture some of them now, rather than later.

How about you the readers?  Do you like the valuation where it is at now?  Would you hop on this train?  I’d be curious to see.  I wouldn’t mind initiating a 7-8 share purchase and then to re-up again on a 5% decline.  I think they are a well known, large, solidly run company.  I am curious on your thoughts!  Thanks everyone and happy investing!

-Lanny

DISCLOSURE: I DO NOT RECOMMEND ANY DECISION TO THE READER OR ANY USER, PLEASE CONSULT YOUR OWN RESEARCH. THIS IS ACTUAL DATA, ANALYSIS, HOWEVER I BASE NO INVESTOR RECOMMENDATION.  THANK YOU FOR YOUR UNDERSTANDING.

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