Union Pacific Profit Beat Wall Street Estimates; Buy with Target Price $235

Union Pacific, one of the U.S. largest railroad operators, reported better-than-expected profit in the last quarter of 2020 as shipments recovered from the COVID-19 pandemic slump.

The Nebraska-based railroad company said its net income declined to $1.38 billion, or $2.05 per share and total operating revenue dipped to $5.14 billion from $5.21 billion a year earlier.

However, excluding items, Union Pacific reported a profit of $2.36 per share, beating the Wall Street consensus estimate of $2.23 per share. Fourth-quarter business volumes, as measured by total revenue carloads, increased 3% compared to 2019, but quarterly freight revenue declined 1%.

At the time of writing, Union Pacific shares traded about 5% lower at $213.39 on Thursday. However, the stock rose 15% in 2020.

Executive Comments

“While the economic outlook for 2021 remains uncertain, we will build off our solid 2020 performance to produce continued strong productivity through operational excellence. We expect our enhanced service product will support both solid core pricing gains while also increasing our share of the freight transportation market,” said Lance Fritz, Union Pacific chairman, president, and chief executive officer.

Union Pacific Stock Price Forecast

Eighteen analysts who offered stock ratings for Union Pacific in the last three months forecast the average price in 12 months at $223.59 with a high forecast of $250.00 and a low forecast of $160.00.

The average price target represents a 4.48% increase from the last price of $214.01. From those 18 analysts, 12 rated “Buy”, six rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $160 with a high of $240 under a bull scenario and $100 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the U.S. railroad operator’s stock.

Several other analysts have also recently commented on the stock. Union Pacific had its price target upped by Raymond James to $250 from $220. They currently have a strong-buy rating on the railroad operator’s stock. TD Securities boosted their target price to $230 from $225 and gave the stock a hold rating.

In addition, Bank of America boosted their target price to $220 from $198 and gave the stock a buy rating. Citigroup boosted their target price to $250 from $215. At last, Deutsche Bank boosted their target price to $239 from $220 and gave the stock a buy rating.

We think it is good to buy at the current level and target $235 as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.

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Union Pacific at New High Ahead of Earnings

Union Pacific Corp. (UNP) reports Q4 2020 earnings in Thursday’s pre-market, with analysts expecting a profit of $2.23 per-share on $5.12 billion in revenue. If met, earnings-per-share (EPS) will mark a 10% profit increase compared to the same quarter in 2019. The stock sold off more than 6% in October after missing Q3 top and bottom line estimates, and fell another 6% into month’s end. However, it’s recovered since that time and is now trading at an all-time high.

Union Pacific Raises Guidance

This is America’s largest railroad, with 32,340 route miles linking the Pacific and Gulf coasts and Great Lakes. The company issued upside guidance on Jan. 8 and now expects to report revenue of $5.1 billion, compared to prior estimates of $5.06 billion. It also projects an adjusted operating ratio of 55.6%, marking a 4.1 point improvement over the same quarter in 2019. The stock rallied 3.4% after the news, breaking out to a new high.

United Pacific is the highest capitalized component in the Dow Jones Transportation Average, with a $146 billion market cap about $5 million higher than runner-up United Parcel Service Inc. (UPS). The stock posted a modest 14% return in 2020, which was enough to lift the Average above 3-year resistance to an all-time high. UNP price action is highly vulnerable to economic cycles, which impact shipping volume carried across the rails.

Wall Street and Technical Outlook

Wall Street consensus is mixed, with a ‘Moderate Buy’ rating based upon 11 ‘Buy’, 6 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $160 to a Street-high $250 while the stock opened Tuesday’s U.S. session about $3 below the median $222 target. The pre-announcement triggered just one upgrade but more could follow if Q4 earnings-per-share also exceeds current expectations.

Union Pacific has been grinding higher since 2017 when it broke out above 2015 resistance near 125. Price action since September 2018 has tracked a rising highs trendline that’s now come back into play for the third time. This tells sidelined investors the reward-to-risk profile isn’t favorable, unless a bull surge generates a trendline breakout. The sky’s the limit if that happens, opening the door to 300 and beyond.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.