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Norfolk Southern Stock Is Taking a Hit From Ohio Train Derailment

Ten of the cars in the Ohio train derailment were carrying hazardous materials.

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Angelo Merendino/Getty Images

Wall Street analysts just don’t see a big long-term impact on
Norfolk Southern
from the train derailment that led to the release of hazardous vinyl chloride gas in Ohio this month. Investors aren’t so sure.

The accident happened on Feb. 3, when a train with 141 cars and three locomotives had 50 cars derail in East Palestine, Ohio. Ten of the cars were carrying hazardous materials, including vinyl chloride, a gas that is used to make chemical products including PVC pipe,

Vinyl chloride, which can cause cancer, according to the Environmental Protection Agency, had to be released into the environment to prevent an explosion.

Since the accident, Norfolk (ticker: NSC) stock is down about 10%, roughly 5 percentage points worse than the performances of
Union Pacific
(UNP) and
(CSX) over the same span.

That underperformance, a rough indicator of what investors think the accident will cost the company, works out to roughly $3 billion of stock market value for Norfolk.

Wall Street just doesn’t see it that way. Bank of America analyst Ken Hoexter believes Norfolk could face a $40 to $50 million charge. The railroad “may be liable for cleanup costs per the Environmental Protection Agency (EPA) and is facing class action lawsuits,” wrote Hoexter on Feb. 14, noting that the company has insurance for damage to third-party damages above $75 million and up to $800 million, as well as coverage for property damage.

“We do not expect damages above coverage levels for this incident,” Hoexter wrote.

Neither does Cowen analyst Jason Seidl, who note that a January 2005 train crash in Graniteville, South Carolina, led to a 16-car derailment, including a tanker filled with chlorine. Ten people died, but the incident resulted in Norfolk Southern paying cleanup costs, with a total charge against earnings of about $35 million.

“We see any material sell-off in Norfolk Southern stock following negative derailment headlines as a unique opportunity for investors to step into the name,” wrote Seidl on Feb. 14. “We will continue to monitor the ongoing situation and hope for minimal personnel and environmental loss.”

Both Hoexter and Seidl rate the stock at Buy. Seidl’s target for the prices is $259 a share, while Hoexter’s is $269. The shares were nearly flat at $230.05 on Friday morning.

Wolfe Research analyst Scott Group rates the shares at Hold, but he doesn’t see a big long-term impact either. Group noted the Graniteville incident, but also recently pointed to the Lac-Mégantic rail disaster in 2013, where an unattended train carrying crude oil derailed and exploded, resulting in many fatalities and the bankruptcy of a small, Canadian railroad.

It was probably the most serious rail incident of the past 20 years. “This is very clearly not another Lac-Mégantic,” wrote Group on Feb. 13.

He sees the maximum charge from the Ohio derailment at around $75 million, the amount the railroad would have to pay before its insurance for third-party damage kicks in.

All three could be right. Still, Norfolk Southern’s market capitalization is down by more than just $75 million. Shares of CSX and Union Pacific have both fallen too, underperforming the
S&P 500
by a few percentage points since the Norfolk accident.

One reason could be that investors are concerned that the accident could lead to changes that add safety equipment to trains, raising costs for all railroads. Or maybe they just want to see how things proceed before jumping back into Norfolk stock, or the railroad industry in general.

A few percentage points of performance, after all, isn’t much of a penalty to pay while investors wait for more news to emerge.

Write to Al Root at


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