Stock Analysis & Ideas

Major Strike Averted in the U.S.: Here’s What You Should Know about Union Pacific (NYSE:UNP) Stock

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Being one of the major railroad companies in the United States, Union Pacific has all the reasons to rejoice as the U.S. government succeeds in bridging the gap between the railroad representatives and labor unions on Thursday.

Now that the Railroad strike has been averted, thanks to the U.S. government’s intervention, this could be a great time to talk about Union Pacific Corporation (NYSE:UNP) stock.

On Thursday, railroads and worker unions agreed on a multi-year deal, which included provisions for the increment in wages of workers through 2024. President Joe Biden said, “This agreement is a big win for America.”

Earlier, several attempts were made by various federal agencies to improve the situation for the U.S. railroad industry. On Wednesday, Labor Secretary and a Democrat, Marty Walsh, met representatives of railroad companies and worker unions to persuade them to resolve the matter.

Shares of Union Pacific, which have fallen 11.9% so far this year, inched up 0.2% to close at $218.36 on Thursday.

With headquarters in Omaha, NE, Union Pacific is a railroad company operating in 23 states in the western U.S. through its subsidiary, Union Pacific Railroad Company.

Exiting 2021, the company had a workforce of 32,124 people, with 84% of its full-time employees represented by major rail unions in the country.

Let us delve deeper into the factors that could impact Union Pacific’s prospects.

Factors that Could Influence Union Pacific’s Prospects

Union Pacific is a pure-play railroad company. In 2021, the company generated approximately 92.9% of its total revenues (versus 83.7% in 2020) from freight services. With its 32,452 route miles, the company connected various ports in the Gulf Coast and the Pacific Coast with multiple eastern and midwestern parts of the United States. The company’s wide network has supported the economic developments of these regions and the country.

Notably, Union Pacific serves coal & renewables, grain & grain products, fertilizers, and food & refrigerated markets under its Bulk category. It also works for customers belonging to energy & specialized, forest products, industrial chemicals & plastics, and metal & minerals markets under its Industrial category. For the Premium category, the company transports products for automotive and intermodal transport markets.

For the second half of 2022, the company anticipates grain, coal, and biofuels products to boost volumes in the Bulk category and industrial, chemicals, plastics, and petroleum products to boost volume in the Industrial category. For the Premium category, the company predicts volume to be driven by domestic and international intermodal and auto sales.

In July 2022, UNP’s Chairman, President, and CEO, Lance Fritz, opined that the company is “positioned to grow volumes in the back half of 2022” and continue working on improving “service product.”

In the second quarter, the company’s revenues increased 14% year-over-year and surpassed the consensus estimate by 2.7%. Meanwhile, earnings advanced 7.7% from the year-ago quarter and exceeded the consensus estimate by 3.2%. Results in the quarter were adversely impacted by cost inflation and high fuel prices.

For the third quarter, the consensus estimate for revenues is $6.42 billion, and that for earnings is $3.08 per share.

Is UNP Stock a Buy or Sell?

For now, a wait-and-watch approach on UNP stock could be a nice idea for prospective investors. While the company benefits from a large addressable market, a solid customer base, and robust demand, near-term headwinds related to wage increases could put pressure on the company’s margins in the quarters ahead.

On TipRanks, analysts are cautious but optimistic about the prospects of UNP stock, which warrants a Moderate Buy consensus rating based on eight Buys and 10 Holds. UNP’s average price forecast is $239.67, representing 9.76% upside potential from the current level.

Meanwhile, retail investors tracked by TipRanks, too, have a Neutral stance on the stock. These retail investors have decreased their exposure to UNP stock by 0.4% in the last seven days.

TipRanks’ Risk Analysis tool reveals that UNP is exposed to five risks related to the Production category. Of these, two risks belong to the Employment/Personnel sub-category. Notably, the tool has identified 19 risks in total for UNP.

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