What next for Norfolk Southern after Senate hearing’s East Palestine disaster?


Norfolk Southern Corp. CEO Alan Shaw was in Washington this week, providing testimony on the East Palestine, Ohio, train derailment before the Senate Committee on Environment and Public Works.

During the hearing, Senate Democrats Jeff Merkley of Oregon and Debbie Stabenow of Michigan pushed Shaw on Norfolk Southern’s stock buybacks.

Vermont Sen. Bernie Sanders, meanwhile, went after the CEO about the company’s
use of precision scheduled railroading, which focuses on the movement of individual train cars, rather than whole trains. A key industry trend of recent years, PSR aims to boost railroad efficiency by 
streamlining operations.

Citi analyst Christian Wetherbee says that Shaw handled Thursday’s grilling “arguably a bit better than expected” and stuck to a consistent message of safety and responsibility. “Predictable attacks on buybacks and PSR from various senators did not appear damaging, but underscore the bipartisan nature of current rail scrutiny,” Wetherbee added. “Following a tumultuous several months leading back to the union contract resolution, we think it’s possible Thursday represented ‘peak headline negatively’ for the group, underscored by a reported NS derailment as Mr. Shaw testified.”

Related: Norfolk Southern will do ‘everything it takes’ for East Palestine, CEO tells senators

Also see: Norfolk Southern committed to ‘making this right’ for East Palestine after Ohio derailment, CEO to tell senators

“We think the longer-term value opportunity presented by the U.S. rails, including NS, is building,” wrote Wetherbee.

Norfolk Southern’s stock, which has fallen 16.2% since the Feb. 3 derailment near the Ohio-Pennsylvania border, fell 0.9% Friday. Shares of fellow Class I rail carriers CSX Corp.
and Union Pacific Corp.
fell 0.6% and 1.6%, respectively, on Friday. The S&P 500 Index
was down 1.4%.

A Class I carrier is defined as any carrier earning annual revenue greater than $943.9 million, according to the U.S. government’s Surface Transportation Board.

No one was killed or injured in the Ohio derailment, but the incident has been described as a “PR nightmare” for Norfolk Southern and the rail industry. The derailed cars included 11 tank cars carrying hazardous materials that subsequently ignited, damaging an additional 12 railcars, according to the National Transportation Safety Board, and setting off concerns about impacts on air and water quality and dangers to health in the region.

Safety was the key theme of Thursday’s hearing, and Shaw was asked whether Norfolk Southern would support all, or parts of, a new railroad safety bill proposed by Ohio senators Sherrod Brown, a Democrat, and J.D. Vance, a Republican, and incorporating many of the changes called for by Pete Buttigieg, President Joe Biden’s transportation secretary.

“With respect to the recently proposed railway safety legislation, NSC indicated that it would support provisions for expedited tank-car phase-in and wayside detector installation,” wrote Cowen analyst Jason Seidl, in a note Thursday. “We continue to see no material impact to NSC’s long-term earnings power, despite pressure from Washington on capital allocation that does not relate to the Ohio derailment, in our view.” 

Of 29 analysts surveyed by FactSet, 10 have a buy a rating on Norfolk Southn, 17 have a hold rating, and two have an underweight or sell rating on the stock.




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