Union Pacific Corporation UNP may report soft volumes for the fourth quarter of 2019 and the volume weakness could persist in the first half of 2020, according to UBS.
The Analyst
UBS analyst Thomas Wadewitz maintained a Buy rating on Union Pacific, reducing the price target from $193 to $184.
The Thesis
Although the loss of coal and frac sand revenue could significantly impact Union Pacific’s operating income in 2019, these headwinds should ease in 2020, Wadewitz said in the note.
Despite the coal and frac sand impact, the company would likely report an increase of $80 million in its 2019 total operating income, backed by a contribution of an estimated $544 million from the remaining business segments, the analyst mentioned.
He added that this estimate also suggests significant cost savings from Union Pacific’s precision scheduled railroading (PSR) initiatives.
The company has indicated plans to reduce headcount by at least 15% year-on-year in the fourth quarter. Wadewitz expects headcount to be down by another 10% in 2020.
The analyst reduced the EPS estimate for the fourth quarter of 2019 from $2.35 to $2.18 and for 2020 from $10.15 to $9.50, to reflect the impact of persisting weakness in volume performance.
Price Action
Shares of Union Pacific were down 1.72% at $160.88 on Friday.
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