On Friday, BofA Securities adjusted its price target for Union Pacific (NYSE:UNP) shares, reducing it slightly to $273 from the previous $275 while maintaining a Buy rating on the stock. Union Pacific recently held its first investor day since 2021 in Dallas, which included a yard visit on Wednesday and a management meeting on Thursday. At the event, CEO Jim Vena emphasized the company's commitment to safety, service, and operational excellence.
During the investor day, Union Pacific outlined its financial goals, aiming for a 3-year earnings per share (EPS) compound annual growth rate (CAGR) between high-single-digit to low-double-digits, using an unspecified 2024 base. This growth is expected to be driven by revenues, excluding fuel surcharges, growing at a faster pace than volumes, excluding coal. Moreover, the company anticipates that its volumes will surpass market growth over the next three years.
CFO Jen Hamann highlighted that pricing improvements are projected to positively impact the Operating Ratio in 2025, as prices are forecasted to exceed inflation rates. While Union Pacific did not establish a specific operating ratio target, it plans to sustain its position as an industry leader in this metric.
BofA Securities had previously anticipated mid-single-digit revenue growth and approximately 13% average EPS growth for Union Pacific, indicating that the company's targets are roughly 5% below BofA's former $14.20 EPS prediction, now adjusted to $14.00.
Hamann also pointed out that the strength in 2024's volumes might create challenging comparisons for 2025. Despite earlier expectations for International Intermodal volumes to decline, they are currently experiencing double-digit increases. Union Pacific anticipates investing between $3.5 billion and $3.7 billion annually in capital expenditures for the years 2025 and 2026, which aligns closely with BofA Securities' estimate of $3.65 billion.
Furthermore, the company plans to repurchase $4 to $5 billion of its shares each year for the next three years, funded by free cash flow, without altering its leverage.
In other recent news, Union Pacific Corporation (NYSE:UNP) reported a net income increase from $1.6 billion to $1.7 billion for the second quarter, with a 1% rise in operating revenue due to solid core pricing gains and a slight volume increase. The company also announced a 3% dividend increase and plans to repurchase approximately $1.5 billion in shares.
BMO Capital adjusted its outlook on Union Pacific by reducing the price target to $275 from $280, while maintaining an Outperform rating on the shares. TD Cowen maintained a Buy rating on shares of Union Pacific, with a price target set at $255.00. Baird retained its positive stance on Union Pacific Corporation, reiterating an Outperform rating with a price target of $270.00.
Stifel reiterated a Buy rating on Union Pacific Corporation stock, with a price target of $265.00. Union Pacific is currently facing allegations of obstructing a federal safety audit and 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) sets its sights on future growth, the latest data from InvestingPro shows a company with solid financial foundations and promising investment indicators. With a robust market capitalization of $148.16 billion and an impressive gross profit margin of 54.68% over the last twelve months as of Q2 2024, Union Pacific demonstrates a strong capacity for generating profits.
The company's commitment to returning value to shareholders is evidenced by a consistent dividend yield of 2.13% and a remarkable history of raising its dividend for 17 consecutive years, as highlighted in one of the InvestingPro Tips. Moreover, the company's stock is characterized by low price volatility, which may appeal to investors seeking stability.
Analysts from InvestingPro have noted Union Pacific's high revenue valuation multiple and a high Price / Book multiple of 9.18, suggesting a premium market valuation. Despite a slight decline in revenue growth of -2.53% over the last twelve months as of Q2 2024, the company is still expected to be profitable this year, with a P/E ratio of 23.3 reflecting investor confidence in its earnings potential. For investors looking for more insights, there are 9 additional InvestingPro Tips available that delve deeper into Union Pacific's financial health and market position.
With the next earnings date set for October 17, 2024, and the fair value as per InvestingPro's analysis at $241.87, investors have valuable metrics to consider as they evaluate Union Pacific's stock in light of the company's strategic goals and financial projections.
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