Rail M&A probability remains low ‘but increased substantially,’ says Wells Fargo

Wells Fargo says that rail M&A has re-entered conversations following trade articles and conference discussion. The firm believes the probability remains low, but it has increased substantially from near-zero. Wells believes the key factor in attempting a transcontinental merger is gaining the Trump administration’s buy-in. With that, its discussions suggest the STB would be unlikely to stand in the way. This causes odds to increase to about 20% in the firm’s opinion from near-zero. The probability it assigns remains low as the administration’s support is not guaranteed, but the timeline has clearly accelerated into 2025 to complete the 2-year process by the end of Trump’s term. If rail M&A ensues, Wells sees the most upside for CSX (CSX) and Norfolk Southern (NSC) — the likely targets, but believes all rail stocks would benefit from scarcity value and potential synergies.