Aurizon (ASX:AZJ) share price struggles amid $2b deal speculation

Is Australia’s largest rail freight company considering an acquisition?

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a man in hard hat and high visibility vest talks into a walky-talky device in the foreground of a freight train at a railway yard.

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The Aurizon Holdings Ltd (ASX: AZJ) share price is sliding into the red on Monday and now trades at $3.89.

Shares in the rail freight giant are struggling amid reports the company may be stepping onto the acquisition trail that’s been set on the ASX so far in 2021.

Here are the details.

What’s the situation?

The Aurizon share price is losing ground amid speculation the company may be gearing up to buy One Rail Australia.

According to a report in The Australian, Australia’s largest freight operator has put itself in prime position to sweep up the $2 billion One Rail, potentially opting to buy all of its assets.

These include 2,500km of railroad between South Australia and the Northern Territory, alongside bulk haulage operations.

One Rail is also understood to derive approximately 47% of its revenue from coal, according to the report. With the price of coal soaring lately, Aurizon would be on the receiving end of these earnings if the sale were to go through.

This comes despite the company’s recent moves to take a step back from its coal revenue streams, in accordance with ESG principles.

However, the price of coal has climbed more than 196% this year to date and is up another 34% in the past month, making the commodity an attractive asset for its net-revenue potential right now.

According to The Australian, there is speculation Aurizon is set to make a move for One Rail. This could have a bearing on its share price if the deal goes through. Especially if Aurizon were to reinvest cash flows from its coal operations into non-coal operations.

On this prospect, the Aurizon share price was recently upgraded to a buy from leading broker Morgans which increased its price target to $4.14.

Analysts at the firm liked Aurizon’s prospects to make acquisitions and generate return on the company’s invested capital.

Time will tell if the speculation will convert to a real-life offer from Aurizon to purchase One Rail.

Aurizon share price snapshot

The Aurizon share price is trading flat this year to date and has posted a loss of 9.74% these past 12 months.

Yet, it has gained 2% in the last month and another 2% this past week.

Nonetheless, these results have lagged the S&P/ASX 200 Index (ASX: XJO)’s return of around 25% this last year.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Aurizon Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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