Union Pacific (NYSE:UNP) recently reported its third-quarter results, which revealed a 13% year-over-year increase in profits driven by fuel surcharges, higher demand for cargo, and increased prices. Nonetheless, persistent labor disputes are hanging heavy on the railroad and freight transport services company, threatening a slowdown in the near term.
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Union Pacific has so far been effective in circumventing the labor disputes and customer demand shifting away from railroad freight transport. This was evidenced by the 3% increase in business volumes amid customers shifting their preference to modes of freight transport other than rail, fearing a rail strike.
In the third quarter, the company benefited from the high fuel surcharges that were imposed on customers who kept up their orders despite the higher costs. However, this trend is likely to recede in the current quarter (Q4), pressing on the top line. However, management at UNP is confident that the company will be able to beat inflation with its ability to retain its pricing power.
The company also sees strong demand for coal transport and construction materials, which can offset the top-line pressures from softening volumes of lumber, industrial materials, and parcels in the ongoing quarter.
Furthermore, a drop in the level of the Mississippi River has opened a new opportunity for Union Pacific to pull up its railroad transport volumes, taking advantage of the diversion of grain freight from barges to rail.
Is UNP a Buy or Sell?
Union Pacific stock is a Moderate Buy on Wall Street, based on nine Buys and 11 Holds. The average price target for UNP stock is $228.79, indicating a 23% upside potential from current price levels.