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Investing.com -- Jefferies upgraded Union Pacific (NYSE:UNP) and downgraded Norfolk Southern (NYSE:NSC) saying the former stands to benefit more from a potential merger that would create the first coast-to-coast freight rail network in the U.S.
The firm estimates the tie-up could generate $1 billion to $2 billion in annual earnings benefits by 2027–2030 through cost efficiencies and new revenue streams.
Union Pacific was raised to Buy, with analysts noting the company is well positioned whether or not the deal goes through.
“We upgrade shares of UNP and recommend investors start building a position to get in on the ground level on what we see as a transformational combination,” analyst at Jefferies said.
Jefferies expects earnings to exceed $18 per share by 2027 if the merger proceeds, implying a valuation near $350. In a no-deal scenario, it forecasts $14 in EPS, supporting a price target of $200.
Norfolk Southern was cut to Hold after a sharp rally, with Jefferies warning that much of the takeover premium appears priced in.
It also cited regulatory hurdles and integration risks that could limit further upside, while maintaining a $300 target.
Jefferies reiterated a Buy on CSX (NASDAQ:CSX), suggesting that a Union Pacific–Norfolk Southern merger could trigger broader consolidation, possibly involving Berkshire Hathaway-owned BNSF.
“We continue to recommend CSX given what we see as an increased likelihood of a BNSF-CSX combination,” analysts said.