Union Pacific vs. CSX: Better Railroad Stock in 2026?

Class I railroads Union Pacific (NYSE: UNP) and CSX (NASDAQ: CSX) are two prominent companies that transport bulk goods and commodities across the continent on tens of thousands of miles of track.

Railroads are classic industrial stocks, but still a fantastic business to invest in today. The incumbent railroad companies dominate North America, and, combined with regulatory hurdles, make it almost impossible for new entrants to enter the fray. That drives pricing power and strong investment returns. Union Pacific has returned 308% over the past decade, slightly outpacing the S&P 500 index's 326%. Meanwhile, CSX has been a home run, returning over 519%.

But which is the better railroad to own in 2026? There's a ton to like about Union Pacific, but much of that depends on a blockbuster acquisition. That's why CSX remains the better railroad stock in 2026. Here is what you need to know.

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CSX's operational improvement is the 2026 headline

CSX operates approximately 20,000 miles of rail and provides rail and intermodal transport services throughout the eastern and southeastern United States and the Canadian provinces of Ontario and Quebec. CSX appointed Steve Angel as CEO in September 2025. He was the former CEO of Linde, an industrial gases giant where operational efficiency is paramount to success. That influence has shown up pretty quickly. CSX's operating margin rose by 560 basis points year over year in the first quarter of 2026, driven largely by a 6% reduction in operating expenses.

The company also recently completed its project at the Howard Street Tunnel in Baltimore, which will boost intermodal volumes. Intermodal volumes rose 6% in the first quarter. The market has rewarded the stock with a forward P/E ratio of 24. It's not a very low valuation, certainly not a bargain. That said, it seems fair given analysts' expectation of approximately 10% annualized earnings growth over the next three to five years. It makes CSX a safe, steady investment.

Union Pacific's pending merger could transform the company

Union Pacific is larger, with about 32,000 miles of railroad track, but operates in the western and central United States, touching parts of Mexico. It's the only railroad with access to all six gateways between the two countries. It's a major advantage, given the significant manufacturing and trade flows between these nations. However, the big story with Union Pacific right now is its pending $85 billion merger with Norfolk Southern, which both parties agreed to last summer.

The merger is currently in regulatory review. Regulators could approve, reject, or impose conditions on the merger, such as requiring asset sales. If approved as is, the merger would create a behemoth in the industry. Its railroad would span over 50,000 miles through 43 states, linking roughly 100 ports across North America. The companies expect a decision on the merger sometime in 2027.

Blockbuster acquisitions come with an assortment of risks

Even if regulators approve the merger as is, there are several risks that investors should consider with Union Pacific.

The merger is an enormous deal. Union Pacific's market cap is about $157 billion, so this deal dramatically increases the company's size. Such large mergers almost always raise questions about how well the pieces fit together. A rocky post-merger transition could hurt operating efficiency or margins. There will likely be cost savings as Union Pacific cuts redundant expenses, but identifying, cutting, and realizing those savings can take several years.

On top of that, analysts currently see Union Pacific growing earnings by an average of 7% to 8% annually over the next three to five years, and Norfolk Southern growing earnings by an average of 4% to 5% over the same time period. Yet, Union Pacific trades at a forward P/E ratio of about 21 times 2026 earnings estimates. In other words, investors could be better off paying a slightly higher valuation for CSX, a more stable company with a stronger earnings growth outlook.

Union Pacific could look completely different once this merger saga plays out. Until then, you're buying Union Pacific for its merger story and long-term potential, not its current fundamentals. That makes CSX the better railroad stock to buy in 2026.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool recommends Linde and Union Pacific. The Motley Fool has a disclosure policy.