Union Pacific stock (UNP) fell 2.4% on June 13 after Barclays (BCS) lowered its recommendation on the stock from “overweight” to “equal weight.” Barclays analyst Brandon Oglenski believes that the earnings estimate for Union Pacific doesn’t reflect the slower demand environment.
Oglenski downgraded the stock after he cut his views on the entire industry to “neutral” from “buy,” citing “real fundamental challenges set against high market expectations,” the real-time financial news publisher The Fly reported yesterday.
The analyst in his client note stated that the railroad stocks are not discounting the recent challenges of the sluggish demand environment and “lower supply chain urgency” across the North American region. He believes that tariff-driven inflation risk is increasing, which could dampen consumer consumption in the latter half of 2019.
Oglenski reaffirmed his “equal weight” ratings on major North American railroad companies Norfolk Southern (NSC), Kansas City Southern (KSU), and Canadian National Railway (CNI). Also, he kept his “overweight” ratings on Canadian Pacific Railway (CP) and CSX (CSX) stocks.
The majority of railroad stocks plunged yesterday after Oglenski’s rating downgrade report on the industry. Norfolk Southern, Kansas City Southern, and CSX stocks lost 1.4%, 1.3%, and 0.8% of their respective market value on June 13.
Consensus rating on UNP
Wall Street analysts have a mixed stance on Union Pacific stock. Approximately 57% of the 28 analysts covering the railroad company have given it a bullish rating, about 39% recommended holding it, while 4% say to sell the stock. Their consensus target price of $184.84 suggests a potential return of 10.6% over the next year.
Investors can gain exposure in the railroad industry by investing in the iShares Transportation Average ETF (IYT), which has allocated ~51% of its fund in the space. The ETF has returned 13.2% in the year so far, outperforming the Dow Jones Index’s gain of 11.9%.