On Wednesday, Stifel made a slight adjustment to Union Pacific 's (NYSE:UNP) price target, bringing it down from $267 to $265, while maintaining a Buy rating for the stock. The firm's perspective on the railroad company remains optimistic due to its strategic operational improvements and potential for long-term earnings growth.
Union Pacific has been focusing on enhancing its network operations to combat inflationary pressures and to build a reliable customer base. The company's service quality has reached a new high with increased efficiency leading to a notable 200 miles per day car velocity, and a reduction in excess locomotives. These improvements are expected to drive significant core pricing gains going forward.
The company is also seen as well-positioned to benefit from near-shoring trends, particularly with its Mexico-related business, which currently accounts for around 12% of total freight volumes. Despite flat second-quarter volumes and a projected 1.6% decrease in revenue ton-miles (RTMs), the strategy to prioritize higher-margin business over volume is evident.
Notably, excluding the coal segment, which has seen a roughly 23% year-over-year decline, both volumes and RTMs would have increased by about 3% in the second quarter.
Stifel anticipates that Union Pacific's core pricing strength will lead to a 3% year-over-year revenue increase in the second quarter and for the full year of 2024. Even with volume growth not factored in for 2024 and a 4.5% wage increase set for July, the firm expects a modest sequential and a 274 basis point year-over-year improvement in the second quarter's operating ratio to 60.3%.
The earnings per share (EPS) for the second quarter are estimated to be $2.75, slightly higher than the Factset consensus of $2.72.
The revised price target of $265 is based on the stock trading at 21 times Stifel's 2025 EPS estimate of $12.64.
In other recent news, Union Pacific Corporation (NYSE:UNP) reported a slight increase in its Q1 earnings per diluted share to $2.69, surpassing analyst estimates, with revenue remaining steady at $6.03 billion. These financial results were attributed to improved operational efficiency and core pricing gains.
However, Loop Capital downgraded the company's stock from Buy to Hold, adjusting the price target to $238, due to concerns over operational efficiency and cargo volumes. Stifel analyst Benjamin Nolan, on the other hand, upgraded the company's stock to a Buy rating and raised the price target to $267, following a meeting with the new CEO, Jim Vena, and CFO, Jennifer Hamann.
Deutsche Bank (ETR:DBKGn) maintained its Buy rating on Union Pacific, with a steady price target of $266, highlighting the company's improved operational metrics and expressing optimism for growth in the coming months. TD Cowen also demonstrated confidence in the company by marginally increasing the price target on the stock to $252 while sustaining a Buy rating.
InvestingPro Insights
Union Pacific's (NYSE:UNP) recent performance and strategic initiatives have been closely monitored by market analysts, as reflected in Stifel's optimistic outlook. InvestingPro data underscores this sentiment with a market capitalization of $148.3 billion and a robust gross profit margin of 53.95% over the last twelve months as of Q1 2024. The company's impressive ability to raise dividends, doing so for 54 consecutive years, speaks to its financial stability and commitment to shareholder returns.
InvestingPro Tips also highlight Union Pacific's significant return over the last week, with a price total return of 8.31%, and a notable 18.43% return over the past year, indicating strong short-term and long-term performance. Additionally, analysts on InvestingPro have flagged the stock as trading at a high revenue valuation multiple, with a Price / Book ratio of 9.47 as of Q1 2024, suggesting a premium valuation by the market. For those interested in further insights, there are 6 more InvestingPro Tips available, which can be accessed with the coupon code PRONEWS24 for up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
With the next earnings date set for July 25, 2024, investors will be keen to see if Union Pacific can maintain its momentum and continue to deliver value, as forecasted by Stifel and reflected in the InvestingPro data and tips.
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