Transportation stocks are drawing attention as investors assess rail consolidation risks, dividend sustainability and early signs of improvement in trucking and freight markets.
BNN Bloomberg spoke with Ari Rosa, an analyst at Citi, about transportation stocks he views as attractive, pointing to operational strength at major railways, valuation support in parcel delivery and disciplined capital allocation in trucking.
Key Takeaways
- Rail stocks with efficient, well-run networks may offer downside protection even if merger activity is delayed or fails to materialize.
- Regulatory review of large rail mergers is expected to remain a major theme for the transportation sector this year.
- Dividend yield and balance sheet strength are key considerations for parcel delivery stocks facing competitive pressure.
- Early signs of improving trucking rates could support earnings recovery across North American freight markets.
- Companies with disciplined, opportunistic acquisition strategies are viewed as better positioned late in the cycle.
Read the full transcript below:
ANDREW: On Hot Picks today, we’re looking at transportation, and our guest has Union Pacific as his top idea. He says synergies from a potential merger with Norfolk Southern could provide significant upside for investors. We’re joined now by Ari Rosa, analyst at Citi. Ari, thanks very much for joining us.
ARI: Thank you for having me.
ANDREW: Give us an update. What’s the latest on the potential merger between Union Pacific and Norfolk Southern?
ARI: There’s still a lot that’s unknown. Union Pacific and Norfolk Southern submitted a merger application to the Surface Transportation Board, or STB, in late December. The STB is now reviewing that application. There’s a 30-day comment period, and we expect comments back by mid-January. It will be interesting to see what kind of feedback comes through.
A number of competing railroads have raised concerns, including around disclosures, potential impacts on competition and the level of detail provided on synergy targets and expected business growth. That said, this is a roughly 7,000-page application, so it’s certainly not lacking information. The real question is whether the STB finds the information credible, and that’s something that will play out over the course of the year.
As part of our 2026 outlook, one of our predictions is that the discussion around a potential Union Pacific–Norfolk Southern merger will dominate headlines across the transportation sector throughout the year.
ANDREW: But even if the merger is delayed or doesn’t happen, Union Pacific still looks attractive as a stock right now.
ARI: Absolutely. That’s really why we like Union Pacific so much. It’s fallen into what we call deal purgatory, where the stock hasn’t done very much. At the same time, the network is running extremely well. Some would argue it’s operating as well as it ever has in terms of fluidity and efficiency metrics.
The company is generating strong free cash flow, margins look solid, and the business is well positioned regardless of the merger outcome. We see relatively limited downside and attractive upside, which is a setup we like. There’s also optional upside from merger synergies, although some of those wouldn’t materialize until 2028 or 2029. Overall, Union Pacific remains a high-quality business producing significant free cash flow.
ANDREW: We’re tight for time. United Parcel Service — despite competition that has pushed the P/E multiple lower — do you still see potential there?
ARI: Yes. UPS is a bit further out on the risk spectrum, but it offers a six per cent dividend. That should be attractive to long-term investors and retirees. We actually think that dividend yield is too high and should come down over time, which would support the stock price.
UPS was clear last quarter that the dividend is safe. Our analysis suggests the balance sheet remains strong. There are competitive challenges, but from a fundamental valuation perspective, we think UPS looks attractive.
ANDREW: And finally, a Canadian name — TFI International, looking at its New York listing.
ARI: We really like TFI’s management. CEO Alain Bédard has been a prominent figure in the industry for years and is a very sharp operator. He’s focused on driving shareholder returns, free cash flow and being opportunistic with mergers and acquisitions, particularly during down cycles.
We see meaningful upside, especially with trucking rates starting to improve in the U.S. due to government enforcement actions. TFI has significant exposure on both sides of the border and is well positioned to benefit.
ANDREW: And they have a strong track record with acquisitions?
ARI: Absolutely. They’ve been very acquisitive, and that strategy has driven earnings growth over time. They’re disciplined and opportunistic, which has supported accretive growth.
ANDREW: Ari, thanks very much.
ARI: My pleasure.
ANDREW: Ari Rosa, analyst at Citi.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| UNP NYSE | N | N | Y |
| UPS NYSE | N | N | Y |
| TFII NYSE | N | N | N |
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This BNN Bloomberg summary and transcript of the Jan. 15, 2026 interview with Ari Rosa are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
