Union Pacific's Solid Demand & Improving Supply Chain Congestion Triggers 5% Price Target Boost By This Analyst

Benchmark analyst Nathan P. Martin reiterated a Buy rating on the shares of Union Pacific Corporation UNP and raised the price target from $255 to $270.
The analyst has trimmed the Q4 EPS estimate from $2.68 to $2.61 as an increase in RPU assumption isn’t fully able to offset weaker volumes and higher expenses.
Based on AAR data, the analyst estimates UNP’s carloads were down ~3% y/y in Q4 compared to the prior assumption of flat.
On a segment-by-segment basis, the analyst estimates metals & minerals (+15%), coal & renewables (+14%), fertilizer (+9%), and forest (+8%) led the way.
The analyst said that more than offset these gains were declines in premium segment volumes, including an estimated 15% drop in autos as the chip shortage persists and a 12% decrease in intermodal traffic.
As for RPU, the analyst now models 12% y/y growth versus 9% previously on favorable pricing, fuel surcharge, and elevated assessorial charges.
On the expense side, the analyst models a slight increase in average headcount based on STB data.
The analyst now assumes full-year volume is up 4%, in line with UNP’s target that was revised down last month from 5% to about 4% growth.
The analyst believes UNP remains well positioned to achieve its 55.x% full-year 2022 OR target as demand remains strong and supply chain congestion gradually improves.
The analyst expects the company will likely provide more specific guidance when it reports Q4 results.
Price Action: UNP shares are trading higher by 0.02% at $214.30 on the last check Thursday.
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