The Norfolk Southern (NSC) has become the most hated company in America because of the East Palestine catastrophe.
A Norfolk Southern train derailed in East Palestine, Ohio, on 3 February 2023. The derailment released enormous amounts of toxic chemicals. News reports claim the chemicals are contaminating water, killing wildlife, fish, pets, and livestock, and creating possible health problems for residents.
Officials say these claims are exaggerated. However, pictures of fires, explosions, and crews burning chemicals are creating panic. Moreover, the news coverage is confusing and hysterical.
Norfolk Southern’s Reputation is Suffering
Predictably, Norfolk Southern’s reputation is suffering. For example, The Washington Post alleges Norfolk Southern’s CEO Alan Shaw lobbied US Transportation Secretary Pete Buttigieg (D-Indiana) to stop imposition of stronger safety rules. In particular, Shaw opposed a rule requiring freight trains to carry two people.
Moreover, the Environmental Protection Agency (EPA) took over the East Palestine cleanup from Norfolk Southern. The EPA took control because the Norfolk Southern was failing to clean up the spill, The Pittsburgh Gazette reports.
Hence, Norfolk Southern (NSC) has an image problem from which it may never recover. The East Palestine crash could destroy the railroad.
What is the Norfolk Southern (NSC)?
The Norfolk Southern Corporation (NYSE: NSC) is one of seven Class 1 railroads in the United States. To explain, a Class 1 railroad has annual revenues of over $900 million.
They formed the Norfolk Southern by merging two historic railroads, the Norfolk & Western and The Southern in 1982. Norfolk Southern owns some of the oldest track in the United States. Its earliest predecessor, the South Carolina Canal and Railroad began service in 1827.
Today, Norfolk Southern operates 19,300 miles of track in 22 states and the District of Columbia. They claim Norfolk Southern serves every major container port in the Eastern United States.
Norfolk Southern operates 3,210 locomotives and 40,713 freight cars. The Norfolk Southern moved 7.03 million units of freight in 2021.
Is Norfolk Southern (NSC) Making Money?
Norfolk Southern (NSC) is a growing company that makes money. Its revenues grew by 13.5% in the quarter ending on 31 December 2022.
Moreover, Norfolk Southern reported seven straight quarters of revenue growth. For example, the revenues grew by 17.22% in the quarter ending on 30 September 2022 and 10.84% in the quarter ending on 31 December 2021.
Norfolk Southern reported a quarterly gross profit of $1.156 billion on 31 December 2022. The quarterly gross profit grew from $1.123 billion on 31 December 2021.
In contrast, Norfolk Southern reported a quarterly operating income of $1.181 billion on 31 December 2022. The quarterly operating income grew from $1.129 billion on 31 December 2021.
How Much Cash is Norfolk Southern Generating?
Norfolk Southern (NSC) generates cash with its railway. For example, it reported a quarterly operating cash flow of $798 million on 31 December 2022.
The quarterly operating cash flow fell from $942 billion on 31 December 2021. However, the quarterly operating cash flow rose to $1.413 billion on 30 September 2022.
Conversely, Norfolk Southern’s ending cash flow fell to -$758 million on 31 December 2022. The quarterly ending cash flow fell from $1.571 billion on 31 March 2022 and -$626 million on 31 December 2021.
Predictably, Norfolk Southern is not keeping much cash. It had just $456 million in cash and short-term investments on 31 December 2022. The cash and short-term investments fell from $1.571 billion on 31 March 2022 and $839 million on 31 December 2021.
How Much Debt and Value does Northern Southern (NSC) have?
The cash is low because Norfolk Southern (NSC) pays enormous amounts of debt. For example, Norfolk Southern reported a quarterly financing cash flow of -$1.013 billion on 31 December 2022.
Conversely, Norfolk Southern’s Total Debt grew from $13.84 billion on 31 December 2021 to $15.182 billion on 31 December 2022. So Norfolk has more debt and less cash.
Norfolk Southern has a little more value. Its total assets grew from $38.493 billion on 31 December 2021 to $38.885 billion on 31 December 2022.
Norfolk Southern is an overvalued stock
I think Mr. Market pays too much for Norfolk Southern (NSC). I see nothing in Norfolk Southern’s financial numbers that justifies the $224.77 Mr. Market paid for Norfolk Southern on 24 February 2023. Norfolk Southern’s stock price fell from $258.35 on 22 February 2023.
I think nothing, not even Norfolk Southern’s dividend justifies the $224.77price. Yet Norfolk Southern is an appealing dividend stock. Norfolk Southern has scheduled eight $1.35 dividends between 19 May 2023 and February 21 2025. Overall, Norfolk Southern offered a $5.40 forward dividend and a 2.4% forward dividend yield on 22 February 2023.
Norfolk Southern is a lousy Stock
I consider Norfolk Southern (NSC) a lousy stock. Consequently, management pays a high dividend because that is the only way to get people to buy the stock.
I might add paying a big dividend while toxic chemicals poison East Palestine looks terrible. Hence, Norfolk Southern could have to suspend its dividend payments for public relations.
I have to wonder if the public relations nightmare in East Palestine could destroy Norfolk Southern. Notably, politicians, including Donald J. Trump Senior (R-Florida) are rushing to East Palestine for photo ops.
During those photo ops, the politicians will attack the “big bad railroad.” For example, Ohio Governor Mike DeWine (R-Springfield) wants Norfolk Southern to “pay East Palestine residents’ healthcare bills,” CBS notes.
Hence, Norfolk Southern will suffer because of the East Palestine crash. A train derailment could wreck one of America’s most historic railroads.
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