Union Pacific Slips 6% As Lower Freight Volumes Drag On Earnings

Shares of Union Pacific Corporation plunged 6.2% on Thursday after the company reported weaker-than-expected 3Q results, reflecting lower freight volumes. The freight-hauling railroad company’s earnings per share of $2.02 fell short of Street estimates of $2.06 and marked a year-on-year decline of 9%. Its 3Q revenues declined 11% year-over-year to $4.92 billion and missed analysts’ expectation of $4.93 billion.

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Union Pacific’s (UNP) freight volumes took a hit from lower economic activities amid COVID-19 pandemic. However, the increase in core pricing partially offset the aforementioned negative impact during the quarter.

Union Pacific’s total 3Q volumes, as measured by total carload revenue, dropped 4% year-over-year. The largest publicly traded US railroad company recorded freight revenue decline across all its three major categories. During the quarter, Bulk, Industrial, and Premium revenues slipped 12%, 18%, and 1%, respectively. (See UNP stock analysis on TipRanks).

Nonetheless, Union Pacific recorded 0.8 points year-over-year improvement in operating ratio and achieved an all-time quarterly record operating ratio of 58.7% during the quarter. A 35% year-over-year decline in per gallon average quarterly diesel fuel prices positively impacted 3Q operating ratio by 100 basis points.

Following its quarterly results, Cowen & Co. analyst Jason Seidl raised the stock’s price target by $1 to $216 (15.4% upside potential) and reiterated a Buy rating. In a note to investors, Seidl wrote, “The company has made great strides towards improving its OR (operating ratio) through the adoption of Precision Scheduled Railroading. With better rail service, we believe the focus will shift towards growing the top-line.”

Currently, the Street has a bullish outlook on the stock. The Strong Buy analyst consensus is based on 15 Buys and 4 Holds. With shares up 3.5% year-to-date, the average price target of $204.16 implies a further upside potential of over 9% to current levels.