Shares of Norfolk Southern Corp. rallied 1.1% toward a three-month high in morning trading Tuesday, after the railroad operator announced a deal to buy nearly all of the assets of Cincinnati Southern Railway (CSR) for $1.62 billion in cash from the City of Cincinnati. CSR consists of 337 miles of railroad that runs from Cincinnati to Chattanooga, Tenn. The deal, announced late Monday, is expected to close in the first half of 2024. Citi Research analyst Christian Wetherbee said the deal appears to be more strategic than growth-oriented for Norfolk, as the rail had previously been operating on the CSR network long-term lease, and the contract was set to renew at a higher rate in about four years. “[T]he acquisition won’t add incremental revenue, but the avoidance of higher lease payments and the ability to swap the lease expenses with depreciation expenses, should be a positive to the OR [operating ratio].” The stock has lost 15.4% year to date, while the Dow Jones Transportation Average has lost 12.2% and the Dow Jones Industrial Average has slipped 6.6%.
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