UNP Posts Strong Q2, Expects Moderating Growth Going Forward

Analysts at Sterne Agee reiterate their "buy" rating on Union Pacific Corp UNP, while raising their estimates for the company. The target price for UNP has been raised from $86 to $88. UNP has reported its 2Q10 EPS at $1.40, significantly above the estimate of $1.22 and consensus expectation of $1.19. "We view the “apples-to-apples” EPS as around $1.35 after adjusting for a $40 million ($0.05 p/s) positive true-up to casualty reserves,” Sterne Agree says “We believe UNP continues to post solid results in 2H10 and in 2011, albeit at a moderating pace as the low-hanging fruit on productivity and operating leverage is likely behind us. While the 56% incremental margin was a solid beat and much better than we expected, we note that it represents a significant moderation from 1Q’s 66%. Similar to what we are forecasting for CSX, which also reported a moderating 2Q incremental margin, we believe this moderation will continue into 2H10 and 2011 as tougher volume comps, slowing productivity growth, and cost pressures begin to crimp margin expansion,” the analysts add. Sterne Agee has raised its EPS estimate for 2010 from $4.93 to $5.20 to “account for the 2Q beat and better Intermodal volume and pricing in 2H.” More Analyst Ratings here