4. Union Pacific Corporation (NYSE:UNP)
Stock Upside: 13.49%
Number of Hedge Fund Holders: 99
Union Pacific Corporation (NYSE:UNP) is one of the best railroad stocks to buy according to analysts. On March 19, Evercore ISI upgraded Union Pacific Corporation (NYSE:UNP) to Outperform from In Line and raised its price target slightly to $262 from $260. The firm highlighted Union Pacific’s strong volume growth, robust margins, and noted that the railroad trades at a discount compared to nearly all peers. Analysts expect performance to remain solid, particularly once tough intermodal comparisons are behind it.
Evercore ISI also pointed to the pending merger application, expected in about six weeks, as a potential upside catalyst. If the merger does not proceed, the stock could still deliver low-to-mid teens upside organically. If the merger gains traction toward closing, Union Pacific could be viewed as a premier growth industrial stock, with synergy-driven earnings expansion over the next three to four years.
On March 5, Reuters reported that US railroads, including Union Pacific Corporation (NYSE:UNP), CSX, and BNSF, are moving to recapture freight that shifted to truckers in recent years. The companies believe that shrinking truck capacity and sharply rising road-haul rates have swung the competitive pendulum back toward rail, said Reuters.
The report noted that for several years, an oversupply of trucking capacity kept road rates low. This allowed truckers to undercut rail on price and poach intermodal freight that would otherwise have moved by train. That dynamic is now reversing, noted Reuters.
Reuters stated that the primary catalyst of the reversal is a contraction in trucking supply. For instance, smaller carriers, who make up roughly 90% of all US trucking operators, are exiting the market because they are squeezed out by rising fuel and insurance costs and tightening federal regulations on driver licensing and safety. As a result, national van spot rates climbed to $2.43 per mile in February this year, up 20% from last year, said Reuters.
According to Reuters, the data matters because intermodal freight, which is cargo shipped in containers that can move seamlessly between ships, trucks, and trains, is the direct competitive battleground between the two modes, and rail generally needs to offer roughly a 15% cost advantage to pull freight off highways. So, as trucking rates rise, that threshold is now achievable on more routes and even on shorter hauls. Each major railroad is moving quickly to capitalize, Reuters concluded.
Union Pacific Corporation (NYSE:UNP) is a US freight rail company. It operates over 32,000 route miles across 23 western states, transporting agricultural products, automotive goods, chemicals, coal, industrial products, and intermodal containers.
