Norfolk Southern under pressure as another train derails near Detroit
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Lawsuits are piling up against freight rail operator Norfolk Southern (NYSE:NSC), which has faced a public backlash and investor scrutiny over a series of train derailments. One led to a chemical disaster in East Palestine, Ohio, on Feb. 3, while another said to be carrying hazardous materials overturned on Thursday outside of Detroit, Michigan. NSC shares have gone off the tracks over the past two weeks, falling 10% to $230, though some like Cowen analyst Jason Seidl are looking at historical precedent, believing the unfortunate events may not have much of a long-term impact.
SA commentary: "While I expect more weakness than the average analyst, I'm eagerly looking to buy NSC as soon as it drops to $210 again," contributor Leo Nelissen wrote in an eerily entitled article, just a week before trouble struck for Norfolk Southern (NSC). He explores a steep cost surge and high operating ratios in the company's latest earnings, but counters that pricing and improved operations have helped bolster record revenues. For investors looking for other players in the freight railroad sector, check out recent SA analysis on CSX Corp. (NASDAQ:CSX), Union Pacific (NYSE:UNP) and Canadian Pacific Railway (NYSE:CP) (which is expected to close its acquisition of Kansas City Southern by the end of Q1).
Facing a public backlash over the chemical spill in East Palestine, Norfolk Southern (NSC) CEO Alan Shaw just penned a letter to address concerns about the contamination of air, water and soil. "Crews are cleaning the site thoroughly... together with local health officials, we have implemented a comprehensive testing program and established a $1M community support fund as a down payment on our commitment to help rebuild." Worries remain in the community of about 4,800, especially following the release of carcinogen vinyl chloride, and reports of headaches, rashes and nausea, as well as dead fish in local waterways.
Is there anything to do about it? Around 1,000 derailments occur in the U.S. each year caused by collisions, conductor errors, mechanical failures, broken rails and defective wheels. While it may be hard preventing the incidents (the latest was said to be triggered by a mechanical axle issue), there have been pushes to regulate and de-regulate new costly safety standards in recent U.S. administrations. Others have blamed the mishaps on precision-focused railroading, heavier train capacities, staff cuts and the rushing of essential safety checks.