Union Pacificis in talks to buy Norfolk Southern to form a transcontinental line, the Wall Street Journal reported late Thursday. NSC was among the top S&P 500 stocks early Friday, yet CSX also continued to rally, despite the revelation that it's not UNP's preferred partner.
Meanwhile, Deutsche Bank hiked its UNP price target by 12%, keeping a buy rating.
Union Pacific Sees Trump Opening
The WSJ news followed a report from the Semafor online news site that Union Pacific was eyeing one of the big East Coast rail networks, either CSX or Norfolk Southern, to form a coast-to-coast railroad.
A transcontinental railroad line is seen as more viable under President Donald Trump's antitrust policies, Semafor said. The report also noted that a coast-to-coast railroad line would provide stiffer competition for the trucking industry that handles 70% of domestic freight.
Deutsche Bank analyst Richa Harnain wrote in a Friday note that UNP "has been under pressure the past several weeks, underperforming the S&P by ~10% since reports of M&A" emerged. Harnain raised her UNP price target to 272 from 243.
Berkshire Hathaway's BNSF
Union Pacific's railroad network operates across the western two-thirds of the U.S. Warren Buffett's Berkshire Hathaway owns BNSF, which also operates across the western two-thirds of the U.S.
CSX rose early Friday, adding to Thursday's rally. Speculation over a potential bid for CSX by BNSF to form a rival transcontinental network may be giving CSX a lift. Barron's explored the possibility of a BNSF-CSX combination in a Thursday article.
On Thursday, citing the Semafor report, BofA analyst Ken Hoexter upgraded CSX to buy from neutral, hiking his price target to 42 from 34. He kept a buy rating on NSC, while boosting the price target to 305 from 290.
BofA also cited CSX's internal improvements in the upgrade, according to The Fly investment site.
CSX has a $66.7 billion market capitalization, compared to $62.7 billion for Norfolk Southern. Union Pacific is the largest of the three S&P 500 railroad stocks, with a $135.4 billion market cap.
S&P 500 Railroad Stocks: CSX, NSC, UNP
NSC jumped 2.75% to 277.22, adding to Thursday's 3.65% gain. NSC stock cleared a 270 buy point from a double-bottom base.
CSX rose 1% to 34.88 on Friday, after jumping 3.7% on Thursday and clearing a 33.82 buy point from a cup-with-handle base, according to MarketSurge. The buy zone runs through 35.51.
UNP slipped 0.8% on Friday, after falling 1.6% on Thursday. BRKB rose for a second straight day, climbing 0.6%, after a 0.4% advance the prior session.
The S&P 500 climbed 0.2%, touching a new record high.
