Goldman Sachs cuts Union Pacific stock rating to Neutral

Published 02/06/2025, 09:40
Goldman Sachs cuts Union Pacific stock rating to Neutral

On Monday, Goldman Sachs made a significant adjustment to its stance on Union Pacific Corporation (NYSE:UNP), downgrading the railroad operator’s stock from Buy to Neutral. Despite this change, the firm maintained its price target for Union Pacific at $263.00, reflecting no alteration from their previous target. The downgrade aligns with broader market sentiment, as InvestingPro data shows 15 analysts have recently revised their earnings expectations downward for the upcoming period.

The decision to downgrade comes amid concerns about potential economic challenges that could affect Union Pacific’s growth and operations. The firm’s analyst, Jordan Alliger, pointed out several risks that could negatively impact the company’s performance. These include the possibility of economic headwinds, such as tariffs, which might hinder Union Pacific’s ability to attract new business or slow its expansion. Despite these challenges, Union Pacific maintains impressive gross profit margins of 55.72% and generates annual revenue of $24.25 billion.

Another factor contributing to the downgrade is the potential for increased costs due to fuel surcharges and a greater-than-expected mix of headwinds. Added to this are worries about the need for more capital spending driven by tighter regulation, as well as the volatility in the automotive and coal sectors.

Union Pacific could also face difficulties in volume growth due to renewed congestion issues or a recession. The company’s success in improving key operating metrics and trip plan compliance is crucial for its ability to compete with trucking for business. Any failure to enhance these areas could also limit Union Pacific’s growth prospects.

Goldman Sachs’ price target is based on a multiple of approximately 20.0 times the firm’s unchanged earnings per share (EPS) estimates for the next four quarters, which stand at $13.20. The analysis by Goldman Sachs reflects a careful consideration of Union Pacific’s financial outlook and the broader economic factors that could influence its market performance. According to InvestingPro, the stock currently trades at a P/E ratio of 19.98x and a PEG ratio of 3.26x, suggesting relatively high valuations compared to its growth prospects. For deeper insights into UNP’s valuation and over 30 additional financial metrics, explore the comprehensive Pro Research Report available on InvestingPro.

In other recent news, Union Pacific Corporation reported its Q1 2025 earnings, which showed a slight miss on both earnings per share (EPS) and revenue forecasts. The company posted an EPS of $2.70, short of the expected $2.76, and revenue of $6.03 billion, which was below the anticipated $6.10 billion. Despite these results, Union Pacific experienced an 18.9% year-over-year growth in intermodal volumes, although this did not fully translate into profitability due to an unfavorable mix. The company also achieved a 6.3% reduction in operational expenditure per carload, indicating improvements in efficiency.

Additionally, Union Pacific held its Annual Meeting of Shareholders, where all nominated directors were elected, and Deloitte & Touche LLP was ratified as the independent accounting firm for 2025. However, a shareholder proposal to amend the clawback policy did not pass. In terms of analyst activity, Loop Capital recently adjusted its price target for Union Pacific to $202 from $200, maintaining a Sell rating due to concerns over tariff impacts on rail volumes. Meanwhile, Stephens lowered its price target to $255 but maintained an Overweight rating, citing Union Pacific’s pricing power and operational improvements.

These developments highlight the mixed performance and outlook for Union Pacific, as the company navigates challenges such as trade tariffs while continuing to focus on operational efficiencies and pricing strategies.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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