Norfolk Southern CorporationNSCNYSE

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DCF Valuation

DCF Valuation Summary

Sell

Fair Value: $274.14 per share(market-calibrated)

-13.3%

Upside to Fair Value

Current

$316.12

Pure Model

$269.05

Fair Value

$274.14

Bull Case

$342.16

Bear Case

$202.54

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

4.63%

Calibrated Growth

2.61%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $269.05.

What's Driving This Ratingfor NSC

↓

CapEx normalizing toward maintenance

Historical CapEx is 17.00% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$2.4B in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 34.83% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 2.45% revenue growth, fading to 2.25% by Year 10. Revenue reaches $18.1B (vs $12.2B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $217.41/share (15.0x terminal FCF) while exit multiple gives $320.70/share (23.9x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $316.12, the market implies 4.63% perpetual growth — 238bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 75.24% indicates efficient cash generation. FCF reaches $6.2B by Year 10 (34.17% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.32

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)10.46%

Cost of Debt

Pre-tax Cost of Debt4.28%

Tax Rate21.61%

After-tax Cost of Debt3.36%

Equity Weight (E/V)80.62%

Debt Weight (D/V)19.38%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (80.62% × 10.46%) + (19.38% × 3.36%)

= 9.08%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$12.5B	$13.7B	$15.3B	$16.6B	$18.1B
EBIT	$4.3B	$4.8B	$5.3B	$5.8B	$6.3B
Tax	$939M	$1.0B	$1.2B	$1.3B	$1.4B
NOPAT	$3.4B	$3.7B	$4.2B	$4.5B	$4.9B
+ Depreciation	$1.3B	$1.5B	$1.6B	$1.8B	$1.9B
- Capex	$2.1B	$1.9B	$1.7B	$1.3B	$633M
- Δ NWC	$30M	$64M	$76M	$64M	$40M
Free Cash Flow	$2.6B	$3.2B	$4.0B	$4.9B	$6.2B
Discount Factor	0.917	0.770	0.648	0.544	0.419
Present Value	$2.4B	$2.5B	$2.6B	$2.7B	$2.6B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$6.2B

Terminal Growth Rate2.25%

WACC9.08%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$92.5B

PV of Terminal Value$38.8B

Exit Multiple Method

Year 10 EBITDA$8.2B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$147.9B

PV of Terminal Value$62.0B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$25.6B

PV of Terminal Value$38.8B

Enterprise Value$64.4B

(-) Net Debt$15.6B

Equity Value$48.9B

Shares Outstanding225M

Price per Share$217.41

Exit Multiple Method

PV of Projected FCFs$25.6B

PV of Terminal Value$62.0B

Enterprise Value$87.7B

(-) Net Debt$15.6B

Equity Value$72.1B

Shares Outstanding225M

Price per Share$320.70

Pure Model Fair Value

$269.05

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
7.08%	$343.87	$355.82	$370.24	$387.99	$410.37
8.08%	$295.84	$303.73	$312.99	$323.97	$337.24
9.08%	$257.30	$262.78	$269.05	$276.32	$284.84
10.08%	$225.42	$229.36	$233.80	$238.84	$244.62
11.08%	$198.46	$201.37	$204.61	$208.24	$212.34

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$202.54

-35.9% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.66

Base Case

$269.05

-14.9% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.32

Bull Case

$342.16

8.2% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.13

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth2.45%

Year 3 Revenue Growth4.91%

Year 5 Revenue Growth5.21%

Year 7 Revenue Growth4.03%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin34.83%

Tax Rate21.61%

Historical Capex / Rev17.00%

Terminal Capex / Rev3.50%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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