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Investing.com - JPMorgan downgraded Norfolk Southern (NYSE:NSC) from Overweight to Neutral on Wednesday, while raising its price target to $288.00 from $282.00. The railroad giant, currently valued at $62.6 billion, is trading near its 52-week high of $288.11, with InvestingPro data indicating the stock may be slightly overvalued at current levels.
The downgrade comes as JPMorgan analyst Brian Ossenbeck noted that Norfolk Southern’s stock is now trading at approximately 1% of where the firm expected it would trade versus the $320 deal price.
JPMorgan estimates that NSC now reflects a 60% implied probability of a close, and with no voting trust in place, the firm prefers to "take a step back" on the stock.
The analyst acknowledged the possibility of BNSF submitting a higher bid for Norfolk Southern, but noted that such a move would require covering the $2.5 billion break fee.
JPMorgan believes BNSF is more likely to pursue CSX (NASDAQ:CSX) either soon or after waiting to see how the UP/NS deal is received by key stakeholders.
In other recent news, Norfolk Southern’s stock rating was downgraded by Evercore ISI from Outperform to In Line, even as the firm increased its price target to $289.00. This change follows the company’s proposed merger with Union Pacific (NYSE:UNP), which has been valued at $85 billion. Fitch Ratings has placed Union Pacific on Rating Watch Positive, citing the potential benefits of creating the first transcontinental railroad in the nation. The merger is expected to enhance Union Pacific’s business model through increased geographical diversification and network efficiencies.
S&P Global Ratings has revised Norfolk Southern’s outlook to positive, anticipating that the merger will strengthen its competitive position by forming an extensive transcontinental network. However, the merger faces opposition from SMART Transportation Division, the largest rail union in the United States. The union plans to oppose the acquisition during proceedings before the Surface Transportation Board, which must approve significant railroad mergers. These developments reflect a dynamic period for both Norfolk Southern and Union Pacific, as the companies navigate the complexities of the proposed merger.
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