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Wall Street says Norfolk Southern profits won’t suffer from derailment 

It may actually be a good time to buy Norfolk Southern’s stock on the cheap

A black plume rises over East Palestine, Ohio, as a result of a controlled detonation of a portion of the derailed Norfolk Southern train on Feb. 6, 2023. (AP Photo/Gene J. Puskar)

Two Wall Street analysts said Norfolk Southern won’t see a major hit to its bottom line following a major derailment in East Palestine, Ohio, a village roughly 50 miles from Pittsburgh.

Bank of America and Cowen published reports on Tuesday concerning the Feb. 3 derailment of some 50 cars, several of which were hauling hazardous chemicals. The accident has sparked international media attention. 

The 150-car Norfolk Southern train derailed on the Ohio-Pennsylvania border. In the days after, Norfolk Southern commenced a controlled burn of five cars containing vinyl chloride, a known carcinogen used to make packaging materials.

In a Tuesday note to investors, Cowen’s Jason Seidl wrote that Atlanta-based Norfolk Southern will likely incur a “special charge” in the first quarter of this year as a result of the derailment. However, the charge won’t undermine the rail giant’s business.

“While the severity of the derailment earlier this month is still unclear, if history is a guide, the unfortunate event may not have much long-term impact on the rail carrier’s share,” Seidl wrote. “Hence, we would view any noteworthy pullback [as] a buying opportunity.”

Bank of America’s Ken Hoexter wrote that Norfolk Southern may have to pay $40 million to $50 million in a “casualty charge.” In 2022, the rail giant generated some $12.7 billion in revenue and $3 billion in profits. A $50 million charge would equal roughly 1.7% of its 2022 profits. 

“As rail service is restored, rail shares have historically not seen a material impact from accidents on a 3-month horizon,” Hoexter wrote.

Following this derailment, which one congressman called “one of the deadliest environmental emergencies in decades” on Monday, may actually be a good time to buy Norfolk Southern’s stock on the cheap. 

“We see any material sell-off in NSC stock following negative derailment headlines as a unique opportunity for investors to step into the name,” Seidl wrote. 

Norfolk Southern did not provide a statement.

2005 derailment suggests Norfolk Southern may not have to pay much for current debacle

Both Hoexter and Seidl pointed to a 2005 Norfolk Southern derailment in Graniteville, South Carolina. That derailment immediately resulted in the deaths of nine people, who choked to death on the chlorine released into the air from the train, and more than 550 hospital admissions, most of whom complained about respiratory issues, the National Transportation Safety Board stated in its report on the accident

Despite the fatalities and large number of hospital admissions, Norfolk Southern saw a mere 1.7-point hit to its operating ratio in the first quarter of 2005, when the train crash happened. It incurred $35 million of expenses that quarter and later paid a $4 million penalty, Seidl wrote. Its stock was discounted for a “very short time” and rebounded by the end of the year.

Norfolk Southern also settled several suits filed following the collision, including a class action settlement and a suit from Avondale Mills, which said the collision damaged its facilities. The terms of both suits were not disclosed, but The Wall Street Journal reported that Norfolk Southern increased its operating expenses by $13 million following the settlement and paid some of it with its insurance reimbursement. 

East Palestine residents and business owners have filed at least four class-action suits, a Youngstown, Ohio media outlet reported on Friday. The lack of fatalities so far following this derailment also likely means that Norfolk Southern will incur less expense than it did following its 2005 collision. 

‘Burnt the inside of my lungs’

Hundreds of derailments occur annually. However, this derailment has sparked international media attention in part because it occurred near a residential area and involved a toxic spill of chemicals entering the community’s air, water and soil. 

The Environmental Protection Agency said in a statement on Tuesday that its air monitoring “has not detected any levels of health concern in the community that are attributed to the train derailment.” The agency is still assessing the impact of the derailment’s chemical spill on the local water supply, according to the statement.

Residents say the controlled burn affected their health. Those near the site of the controlled burn said they’ve suffered from coughing and burning eyes, while others report that fish and chickens in their area have died, NBC News reported. Residents also complained about the drinking water in news reports.

University of Pittsburgh’s Eric Beckman, who studies chemical engineering, told NewsNation that long-term exposure to vinyl chloride is associated with a variety of cancers, particularly of the liver. 

“It immediately burnt the inside of my lungs,” East Palestine resident Tim Cumberlidge told the Cincinnati Enquirer. “The stench was just like standing over a pit that’s on fire. … I’ve got a bad sniffer, it’s hard for me to smell anything. But I could smell that.”

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Rachel Premack

Rachel Premack is the editorial director at FreightWaves. She writes the newsletter MODES. Her reporting on the logistics industry has been featured in the New York Times, the Wall Street Journal, Bloomberg, Vox, and additional digital and print media. She's also spoken about her work on ABC News, NBC News, NPR, and other major outlets. If you’d like to get in touch with Rachel, please email her at [email protected] or [email protected].