Al Root

CSX and Burlington Northern Santa Fe announced a partnership on Friday, sending shares of CSX falling while the market roared higher. Investors were hoping for more.

CSX stock dropped about $3 from its high for the day, leaving the shares 3.4% lower at $34.66.

The S&P 500 and Dow Jones Industrial Average were up 1.7% and 2%, respectively, following Fed Chair Jerome Powell's Jackson Hole speech, which the market interpreted as paving the way for a September interest rate cut.

BNSF, which is owned by Warren Buffett's Berkshire Hathaway, and CSX announced a collaboration to bring "seamless, efficient, coast-to-coast [intermodal] solutions." Intermodal refers to freight that travels by both railroad and truck for portions of the shipping journey.

It's a way for shippers to keep costs low. Rail is typically lower cost than trucking.

New services and partnerships are fine, but investors are hoping for merger discussions between the two railroads, following developments in the industry. In July, Union Pacific and Norfolk Southern announced plans to merge. The combination, which will face stiff regulatory hurdles, would create a transcontinental railroad.

Large-scale railroad mergers haven't happened in a generation, partly because the industry is relatively consolidated. But if the Union Pacific-Norfolk merger is allowed, it would make sense for CSX and BNSF to consider combining.

Failing to combine might leave CSX at a competitive disadvantage, versus a larger Union Pacific-Norfolk. That is one reason activist investor Ancora is pushing for CSX to look for merger partners now.

Ancora didn't immediately respond to a request for comment about Friday's announcement.

Investors might be overreacting: The partnership isn't a response to the deal between Union Pacific and Norfolk, which leaves unclear how CSX and BNSF might eventually react. CSX noted that agreements like the BNSF partnership take a while to come together and pointed Barron's to another recent deal it struck with Southeast Mexico Express.

"What it is: a collaboration that creates four new long-haul domestic service offerings to compete with Truckload and, conceptually, a combined Union Pacific/Norfolk Southern transcontinental railroad," wrote Evercore ISI analyst Jonathan Chappell on Friday. "What it isn't: a full replacement of an eventual combination of the two rails."

A merger could still be on the table. He rates CSX shares Buy and has a $39 price target for shares, but cautioned investors that a premium similar to the one Union Pacific has agreed to pay for Norfolk Southern would be in the $36 to $39 range.

"The pullback today renders [CSX stock] more interesting, but we still only see upside to our $39 price target," Chappell wrote.

Overreaction or not, railroad investors will have to contend with merger-induced volatility for months to come.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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August 22, 2025 14:57 ET (18:57 GMT)

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