Al Root

Railroad merger mania has left shares of Union Pacific languishing, with investors unsure how the process will play out. Its shares have become attractive enough for one analyst, regardless of the outcome.

Citi analyst Ariel Rosa upgraded Union Pacific shares to Buy from Hold on Monday, after getting more clarity on railroad mergers.

Union Pacific and Norfolk Southern announced plans to merge in July, creating a truly transcontinental railroad. Each share of Norfolk will be swapped for one share of Union Pacific and $88.82 in cash. That's if the deal is approved. Combining large railroads hasn't happened in more than a generation. The industry is relatively concentrated, and regulators typically frown on additional consolidation.

Union Pacific stock was up 1.8% in premarket trading at $218.85, while S&P 500 and Dow Jones Industrial Average futures were up about 0.2%. The premarket price values Norfolk stock at about $307.67. Shares closed at $274.72 on Friday.

A Union Pacific-Norfolk merger could have sparked additional consolidation, with CSX attempting to merge with Berkshire Hathaway's BNSF or a Canadian railroad. Additional rail mergers could lower the odds that any one merger is approved, Rosa wrote, adding BNSF and Canadian Pacific Kansas City don't appear interested in consolidation.

That means the odds of deal approval are up to about 70%, from his prior call of about 65%. "The good news for Union Pacific investors is that the attractiveness of Union Pacific shares does not hinge on deal approval, as [it] trades at a discount to its long-term average price-to-earnings ratio on a stand-alone basis, even as it executes at a high level," wrote Rosa.

Union Pacific stock is down about 4% over the past three months, trailing the S&P 500 by about 14 percentage points. That leaves shares trading for about 16.5 times estimated next year's earnings, a discount to their historic average of closer to 18.5 times.

His price target for shares moved to $251 from $250, which values Union Pacific stock at about 20 times his 2026 earnings estimate of $12.55 per share.

With the upgrade, about 60% of analysts covering Union Pacific stock rate shares Buy, according to FactSet. The average Buy rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for Union Pacific stock is about $266 per share.

Coming into Monday trading, Union Pacific stock was down about 6% so far this year.

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

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September 15, 2025 07:47 ET (11:47 GMT)

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