On July 23, both Union Pacific Corporation (NYSE:UNP) and Norfolk Southern Corporation (NYSE:NSC) delivered their Q2 results, giving investors better insight into which railroad stock is the better play. While both companies reported strong results, NSC’s investment case is now tied to the possible acquisition. Investors must weigh UNP’s standalone growth potential against NSC’s risks and upside arising from the merger.
Union Pacific Earnings
Union Pacific Corporation (NYSE:UNP) delivered an operating revenue of $6.9 billion and an adjusted EPS of $3.41, marking a surprise of 3% and 5%, respectively. Meanwhile, the company reported 6% EPS growth, with operating revenue up 12% YoY. Management sees full-year reported EPS growth in the high single-digit range, raising its 2026 outlook.
The strong results were mainly driven by freight revenue, which grew 12%, due to volume growth, fuel surcharge revenue, solid core pricing, and operational efficiency. The company reports being 10 basis points better on the operating ratio, standing at 59.2%.
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A key highlight of the results was the company’s intermodal strength, as it delivered its fourth consecutive record quarter in volume and revenue. Thanks to truck capacity and share gains, private asset, rail asset, and parcel volumes were all up double-digits.
Norfolk Southern Earnings
Norfolk Southern Corporation (NYSE:NSC)’s results surpassed its own expectations, with 7% net income and EPS growth. A sharp inflection in volumes drove the company’s results due to the higher energy prices arising from the Middle East conflict.
The company also saw a 5% surge in volumes in the Intermodal business, backed by favorable trucking dynamics and recent business wins. Consequently, the company reported a 5% improvement in operating income.
The operating ratio for the quarter was 65.5%, with an EPS of $3.52. With that said, the operating ratio increased 210 basis points relative to last year. The company continues to monitor energy prices, the consumer, and interest rates.
Weighing the Investment Case
In terms of EPS growth, Norfolk Southern Corporation (NYSE:NSC) took the lead, but Union Pacific Corporation (NYSE:UNP) stood out on operational efficiency.
UNP offers a revenue forward growth rate of 4.40%, which is above NSC’s 3.79% growth rate. Similarly, UNP’s EBITDA Forward Growth Rate of 6.31% is meaningfully higher than NSC’s rate of 3.91%. This implies that UNP is now a growth play.
Another fact to note is that while fuel and inflation headwinds impacted both companies, Union Pacific Corporation (NYSE:UNP) reported a 10 basis point improvement in operating ratio in contrast to the meaningfully higher operating ratio of Norfolk Southern Corporation (NYSE:NSC). This suggests that NSC may be more vulnerable to macroeconomic challenges.
From the valuation perspective, NSC is now best evaluated in terms of the proposed merger rather than as a standalone company. Investors must focus on the company’s current share price relative to the implied value of the acquisition consideration. Under the agreement, Union Pacific will acquire Norfolk Southern in a stock-and-cash transaction with NSC’s shareholders receiving 1.0 Union Pacific common share and $88.82 in cash for each NSC share. Based on Union Pacific’s closing share price of $307.32 on Friday, the implied consideration is approximately $396 per NSC share, compared with Norfolk Southern’s current market price of $350.66. That nearly 12% merger discount indicates that investors are pricing in some risks surrounding the transaction, including regulatory approval, the time required to close the deal (expected to close by early 2027), and the future performance of UNP’s shares.
UNP has also attracted greater hedge fund interest. According to Insider Monkey’s database, 96 hedge funds held the stock in Q1, compared with 76 hedge funds holding NSC during the same quarter.
The Conclusion
Union Pacific Corporation (NYSE:UNP) is delivering a resilient standalone financial performance as the freight cycle improves. To benefit from UNP’s operational strength, strong growth potential, and synergies from the merger, investors may have to pay a premium. On the other hand, NSC can’t be analyzed in isolation as the merger opportunity is the core of its investment thesis. With the stock trading below the deal’s implied value, Norfolk Southern Corporation (NYSE:NSC) is now a more event-driven opportunity with greater uncertainty.
While we acknowledge the risk and potential of UNP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than UNP and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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