On Wednesday, Evercore ISI adjusted its stance on Union Pacific (NYSE:UNP) stock, shifting from an "Outperform" to an "In Line" rating, while also revising the price target to $247 from the previous $254. The investment firm cited a lack of significant upside potential for the railroad company's shares, which have performed strongly over the past three months.
The analyst from Evercore ISI expressed concerns about the near-term revenue and earnings per share (EPS) due to the current mix of cargo, where intermodal growth has surpassed carload momentum.
This shift in mix is expected to affect the company's financial results, prompting downward revisions of EPS estimates for the third and fourth quarters of 2024 to $2.73 and $2.82, respectively. The reduced forecasts reflect a decrease in revenue per unit (RPU) forecasts, lower fuel surcharges, and unfavorable mix.
Furthermore, the firm has lowered its 2025 EPS projection for Union Pacific to $12.34 from $12.70, aligning with the high end of the company's new three-year compound annual growth rate (CAGR) guidance, which ranges from high-single-digit to low-double-digit growth. The adjustment is based on anticipated moderation in volume and the extension of current mix challenges into the future.
Despite the downgrade, Evercore ISI acknowledged Union Pacific's strong franchise and substantial growth opportunities, particularly its exposure to trade with Mexico. However, the analysis concluded that the current valuation fully reflects the medium-term earnings outlook for Union Pacific, leading to the decision to adopt a neutral position on the stock.
In other recent news, Union Pacific Corporation (NYSE:UNP) has witnessed several important developments. The company reported a third-quarter carload growth of 5.1%, slightly above the forecasted 4.7%, and a significant increase of 27% year-over-year in International Intermodal volumes.
However, due to lower yields from International Intermodal, the revenue per carload is anticipated to decrease. BofA Securities adjusted its earnings per share (EPS) projections for Union Pacific, lowering estimates for the third quarter of 2024 to $2.75, and for both 2024 and 2025 to $11.05 and $12.25 respectively.
The company recently held its first investor day since 2021, outlining its financial goals and emphasizing its commitment to safety, service, and operational excellence. Union Pacific aims for a 3-year EPS compound annual growth rate (CAGR) between high-single-digit to low-double-digits, expected to be driven by revenues growing at a faster pace than volumes.
Several analyst firms have adjusted their outlook on Union Pacific. BofA Securities and BMO Capital have reduced their price targets, while TD Cowen and Stifel maintained a Buy rating. Jefferies, however, reiterated a Hold rating on Union Pacific shares.
Finally, Union Pacific is currently facing allegations of obstructing a federal safety audit and has expressed concerns over the potential effects of a lockout of approximately 10,000 Canadian unionized workers by Canadian National Railway (TSX:CNR) and Canadian Pacific (NYSE:CP) Kansas City on both the U.S. and Canadian economies. These are recent developments that could impact Union Pacific's operations and reputation.
InvestingPro Insights
As Union Pacific (NYSE:UNP) navigates through a period of reassessment by analysts, current InvestingPro data and tips shed light on the company's financial health and market position. With a market capitalization of $151.28 billion and a P/E ratio standing at 23.23, the company's valuation reflects its status as a substantial player in the Ground Transportation industry. The gross profit margin, a robust 54.68% over the last twelve months as of Q2 2024, underscores UNP's impressive ability to manage costs and maintain profitability.
InvestingPro Tips highlight Union Pacific's consistent shareholder value through dividends, with an ongoing track record of dividend growth for 54 consecutive years, and a current dividend yield of 2.15%. In addition, the stock's low price volatility is a testament to its stable market performance. Investors taking a closer look at Union Pacific's financials will note its moderate level of debt, which supports a balanced financial strategy.
For those seeking further insights, InvestingPro offers additional tips on Union Pacific, providing a more detailed perspective on the company's future profitability and valuation multiples. With further analysis available, interested investors can explore a total of 10 InvestingPro Tips to gain a comprehensive understanding of Union Pacific's investment profile.
While the recent downgrade by Evercore ISI reflects a cautious near-term outlook, Union Pacific's long-term financial stability and commitment to shareholder returns remain key attributes that are well-captured by the available InvestingPro data and tips.
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