Norfolk Southern has erased $5 billion in market value since the Ohio train derailment spilled toxic chemicals into East Palestine

• Shares of Norfolk Southern have erased $5 billion in market value since the Ohio train derailment.
• On February 3, a Norfolk Southern train derailment released toxic chemicals in the community of East Palestine, Ohio.
• JPMorgan estimated Norfolk Southern will face costs related to the train derailment of as much as $50 million.

A Norfolk Southern train derailment that released toxic chemicals into the community of East Palestine, Ohio, has led to a steep sell-off in the railroad company's stock price.

Norfolk Southern has fallen as much as 10% and has erased $5 billion in market value since the February 3 train derailment, which led to hundreds of thousands of pounds of vinyl chloride being spilled, some of which was burned off into the atmosphere.

The train derailment has led to severe concerns from community residents about the potential health impacts, and even two weeks after the spill there are reports of a chemical smell lingering around the town.

Norfolk Southern said it has completed nearly 500 in-home air tests, removed 3,150 cubic yards of contaminated soil, and removed 942,000 gallons of contaminated liquid from the derailment site. It is also implementing an outdoor air monitoring program and working with the EPA and village of East Palestine to sample drinking water for potential contamination.

Despite the efforts, investors have grown concerned about the potential costs Norfolk Southern will face in lawsuits and clean-up actions.

But according to JPMorgan, based on previous train derailments that spilled toxic chemicals, the costs to Norfolk Southern will be a lot less than the billions of dollars the stock market is currently implying.

"We believe the potential cost for the East Palestine derailment could be between $30 million to $50 million based on total damages in the 2022 spill of petroleum distillates in Hamar, PA and the 2012 release of vinyl chloride in Paulsboro, NJ," JPMorgan said in a Friday note. The cost estimate from JPMorgan excludes potential settlements.

In both of those instances, hazardous materials entered the waterways. So far, water tests have yet to show vinyl chloride entering the drinking water for residents in the East Palestine, Ohio area.

The incident has highlighted to investors just how many train derailments there are in the US each year. On Thursday, another train operated by Norfolk Southern derailed in Michigan. In 2022, there were more than 1,000 instances of train cars coming off the tracks.

According to data from JPMorgan, Norfolk Southern has experienced 55 hazardous material train derailments over the past 10 years, with total damages totaling $64 million, or an average cost of about $1.2 million per incident.

While the ultimate cost and liabilities Norfolk Southern faces won't be known for some time, JPMorgan highlighted that the company has extensive insurance coverage for third-party liabilities and property damage, with coverage of above $75 million and below $800 million.

If the costs related to the cleanup of the train derailment get that high, the insurance coverage could help soften the blow to the company's bottom line. JPMorgan rates Norfolk Southern stock at "Neutral" with a price target of $232 per share.