If the earnings materialize as forecast, based upon forecasted earnings growth of 11%, NSC's share price would $146.19 at the end of 2018 (brown circle on EYE Chart), which would represent a 14.5% annual rate of total return which includes dividends paid (yellow highlighting).
Earnings Yield Estimates
Discounted future cash flows:
All companies derive their value from the future cash flows (earnings) they are capable of generating for their stakeholders over time. Therefore, because earnings determine market price in the long run, we expect the future earnings of a company to justify the price we pay.
Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low risk Treasury bonds.
Comparing an investment in Norfolk Southern to an equal investment in 10-year Treasury bonds illustrates that the company's expected earnings would be 7.6 (purple circle) times that of the 10-year T-bond interest (see EYE chart below). This is the essence of the importance of proper valuation as a critical investing component.
Summary and Conclusions
This report presented essential fundamentals at a glance illustrating the past and present valuation based on earnings achievements as reported. Future forecasts for earnings growth are based on the consensus of leading analysts. Although with just a quick glance you can know a lot about the company, it's imperative readers conduct their own due diligence in order to validate whether the consensus estimate seems reasonable or not.
At the time of publication the author was long NSC.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.