Union Pacific: Long-Term Upside from Norfolk Southern Merger Tempered by Heightened Regulatory and Consolidation Risks, Justifying Hold Rating

In a report released yesterday, Fadi Chamoun from BMO Capital downgraded Union Pacific to a Hold, with a price target of $255.00.

Fadi Chamoun has given his Hold rating due to a combination of factors that balance Union Pacific’s long-term potential with elevated uncertainty around the proposed merger with Norfolk Southern. He acknowledges that if the merger proceeds as envisioned, the company could deliver significantly higher earnings, stronger free cash flow, and meaningful upside to the stock over time, even more so if freight volumes rebound. However, he views the current regulatory environment as highly unpredictable, with limited visibility on how authorities will respond and how that might reshape industry economics.
At the same time, Chamoun sees rising risk that approval of the transaction could accelerate further consolidation in the rail sector, provoke heightened regulatory scrutiny, and ultimately pressure pricing power and margins across the industry. He also notes that the expected benefits from merger synergies rely on assumptions about stable regulations and limited additional consolidation, which may not hold. Given this mix of attractive longer-term scenarios but substantial regulatory and execution risks, he expects the shares to trade within a relatively narrow range until at least the first half of 2027, leading him to maintain a neutral, or Hold, stance on Union Pacific.

In another report released on January 2, J.P. Morgan also maintained a Hold rating on the stock with a $267.00 price target.