RBC upgrades CSX, says shares gain under most rail merger outcomes

Investing.com -- RBC upgraded CSX Corp to Outperform, saying the railroad is positioned to benefit under nearly any outcome from the proposed Union Pacific–Norfolk Southern merger. The brokerage also raised its price target on stock to $39 from $37.

Analysts laid out three possible paths, in which the most favorable would be if Union Pacific and Norfolk Southern secure approval for their deal and CSX is later acquired by another large carrier.

“This points to significant upside (+33%) for CSX if this scenario plays out,” analyst at RBC said.

If the merger is approved but CSX is not bought, RBC still sees gains. The firm expects stronger collaboration among railroads that would accelerate earnings growth.

“We believe there will be an incentive for increased rail collaboration and out-sized EPS growth as a result,” the analyst said.

RBC cited new partnerships already in place, including intermodal services with BNSF and joint routes with Canadian operators.

In the least favorable case, regulators block Union Pacific’s bid for Norfolk Southern. RBC called this outcome neutral, arguing that current valuations already reflect such a scenario.

Operational momentum adds to the case, the analysts said, with CSX improving despite construction projects that have constrained its network.


“Operationally CSX has really turned it around and we therefore expect the core CSX business to perform much better looking ahead,” they wrote.

At 20 times expected earnings, RBC’s $39 target implies about 18% upside from recent trading.

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