Train Derailment in Ohio Prompts Norfolk Southern Upgrade to Buy

There has been some speculation on Wall Street this week about the possibility of snapping up shares of Norfolk Southern NSC -1.32% at a discount in the aftermath of the Ohio train derailment.

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Scott Group, an analyst at Wolfe Research, upgraded Norfolk Southern (NSC) from a Hold rating to a Buy rating on Tuesday. His price target for the stock has been raised to $255 a share. FactSet reports that he did not have a price target for the shares when they were rated Hold by analysts.

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It comes just a few weeks after a Norfolk train derailed in East Palestine, Ohio, as a result of the upgrade. In the aftermath of the accident, a number of hazardous materials were released into the environment, leading to the evacuation of some residents for a few days. In spite of the fact that the incident resulted in no fatalities, no one was injured.

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There is a lot of concern among investors about the derailment. Since the accident, shares of the company have fallen by about 10%. The stock of CSX ( CSX ) is down about 5% over the same period of time as its rail peer. Almost 2% has been knocked off the S&P 500SPX -0.93% since the start of the year.

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The group, however, does not believe that the accident will have a large impact on their finances. It is unlikely that the charges will exceed $75 million in total. As a company that generates roughly $2.5 billion in free cash flow every year, that should be an easy task to manage.

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Taking into account both the small charge and the downturn in the stock price as well as the improving volume trends Group sees for the company, the company was upgraded as a result of the small charge.

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Norfolk shares were downgraded by Group to a Hold rating in November when they were trading at around $245 each. At the time of the downgrade, Group had a Buy rating on Norfolk stock and his price target for that stock was $267 per share when he had a Buy rating.

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Shares of the company have fallen by about 7% since he downgraded them. There has been an increase of about 3% in the S&P 500 over the same period.

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It is estimated that about 33% of analysts covering Norfolk stock have rated the stock as a Buy. It is estimated that about 58% of stocks in the S&P 500 have a Buy rating ratio.

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Norfolk is still seen as a cautious investment by the Street as a whole. As time passed, it became so long before the derailment occurred. Approximately 52% of analysts in the middle of 2022 rated shares of the company as Buy. It was around the time that the U.S. economy began to slow and industrial activity in America began to decline that downgrades began to happen.

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Analysts expect the stock's price to reach about $250 a share on average in the near future.

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There is a small impact on the shares of the company following the upgrade on Tuesday. The Norfolk stock was flat in premarket trading on Tuesday morning. There is a 0.7% drop in the S&P 500 futures and a 0.8% drop in the Dow Jones Industrial Average futuresSJIA –1.07%.