Union Pacific (UNP) Outlook Updated by BofA Securities: Analysts Reduce Price Target to $270, Still Recommend Buy - International Intermodal Volumes Surge
On Tuesday, BofA Securities revised its outlook on Union Pacific (NYSE: UNP), lowering the price target to $270 from $273, while maintaining a Buy recommendation. The adjustment comes after Union Pacific's impressive third-quarter performance, with carload growth exceeding expectations at 5.1%.
Notably, International Intermodal volumes have experienced a substantial 27% year-over-year increase for the quarter, outpacing Domestic Intermodal growth. This has led to a 14% overall rise in Intermodal carloads compared to the same period last year. However, despite this growth, the revenue per carload is expected to decline due to lower yields from International Intermodal.
CFO Jen Hamann highlighted the disparity in yields between International and Domestic Intermodal, with International yields at $1,200 per carload and Domestic at around $1,600. This mix is projected to result in a near 6% year-over-year drop in Intermodal revenue per car, falling to an estimated $1,375.
As a result of the anticipated lower margin contribution from International Intermodal, BofA Securities has adjusted its earnings per share (EPS) estimates for Union Pacific. The EPS projections for the third quarter of 2024 have been reduced by 2% to $2.75, and by 1% for both 2024 and 2025 to $11.05 and $12.25 respectively.
In a recent investor day event, Union Pacific outlined its financial goals, emphasizing its commitment to safety, service, and operational excellence. The company aims for a 3-year EPS compound annual growth rate between high-single-digit to low-double-digits, driven by revenue growth outpacing volume increases.
Analysts from BofA Securities, BMO Capital, TD Cowen, and Stifel have adjusted their price targets for Union Pacific shares, while maintaining positive ratings. However, Jefferies reiterated a Hold rating, suggesting incremental improvements may be necessary despite strong financials.
Union Pacific is also facing challenges, including allegations of obstructing a federal safety audit and concerns over the impact of a potential lockout of Canadian unionized workers by Canadian National Railway and Canadian Pacific. These developments could affect the company's operations and reputation.
InvestingPro Insights: Union Pacific demonstrates financial resilience with a market cap of $148.64 billion and a P/E ratio of 22.9. The company's gross profit margins of 54.68% reflect operational efficiency and pricing power. Additionally, its history of dividend growth and moderate debt level contribute to its financial stability.
For more detailed analysis and investment tips on Union Pacific, visit InvestingPro for comprehensive insights.