Jefferies upgrades Union Pacific stock to Buy on attractive risk/reward

Investing.com - Jefferies upgraded Union Pacific (NYSE:UNP) from Hold to Buy on Friday, raising its price target to $285.00 from $250.00. The railroad giant, currently trading at $220.52 with a market capitalization of $131.76 billion, trades at a P/E ratio of 20.07x.

The upgrade comes as Jefferies sees an attractive risk/reward setup for the railroad operator, particularly following a recent announcement that was referenced but not detailed in the research note. According to InvestingPro data, 15 analysts have recently revised their earnings estimates upward for the upcoming period, with analyst targets ranging from $213 to $286.

Jefferies believes that if a potential deal is approved and successfully executed, Union Pacific could emerge as an even stronger industry leader, with revenue and cost synergies potentially resulting in a structurally lower operating ratio in the low-to-mid 50s over time.

The firm projects that Union Pacific could achieve pro forma earnings per share of over $18 in 2027, which at a 19x multiple would support a share price of approximately $350.

Even without a merger, Jefferies notes that Union Pacific’s core fundamentals remain strong with industry-leading service metrics and margin profile, with standalone earnings potential of $14 per share in 2027 in a downside scenario.

In other recent news, Union Pacific has been actively exploring potential acquisitions with the assistance of Morgan Stanley (NYSE:MS), although the specific target remains unnamed. Meanwhile, Union Pacific announced a 3% increase in its quarterly dividend to $1.38 per share, continuing its long-standing tradition of dividend growth. The company has a remarkable history of 126 consecutive years of dividend payments. Despite reporting first-quarter 2025 revenue and earnings per share approximately 1% below consensus estimates, Union Pacific has maintained its full-year 2025 outlook. This shortfall was mainly due to weaker-than-expected fuel surcharge revenue and underperformance in the "Other revenue" category.

Bernstein has maintained its Outperform rating on Union Pacific, reflecting confidence in its strong pricing outlook. Additionally, Bernstein raised its price target for Union Pacific to $286, citing potential value creation from a transaction with Norfolk Southern (NYSE:NSC). On the other hand, Warren Buffett clarified that Berkshire Hathaway (NYSE:BRKa)’s BNSF is not working with Goldman Sachs on a railroad takeover, dispelling previous rumors. These developments highlight Union Pacific’s strategic maneuvers and continued financial commitments.

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