Union Pacific: Solid Execution and Free Cash Flow Offset by Macro and Regulatory Uncertainty, Justifying Market Perform (Hold) Rating

In a report released yesterday, Fadi Chamoun from BMO Capital maintained a Hold rating on Union Pacific, with a price target of $255.00.

Fadi Chamoun has given his Hold rating due to a combination of factors that balance near-term stability with longer-term uncertainty. Union Pacific’s latest quarter came in slightly softer than expected at the EBIT line, with weaker pricing and mix offsetting solid cost controls and productivity gains, leading to essentially in-line EPS. The company’s outlook for mid-single-digit earnings growth through 2026 is broadly consistent with market expectations and only modestly better than his prior forecast, suggesting limited scope for significant upside in the near term. In addition, management’s own commentary points to a subdued industrial backdrop, implying that revenue growth will likely be modest and reliant on new business wins and a constructive bulk outlook rather than a strong macro recovery.
At the same time, Chamoun acknowledges that Union Pacific continues to execute well on efficiency initiatives, with improving labor and asset utilization supporting margin resilience and strong free cash flow potential. A key swing factor is the planned resubmission of the merger application, which, if ultimately approved, could create substantial growth and efficiency benefits and meaningfully enhance shareholder value. However, he highlights that the path and timing of regulatory review have become less clear, and potential shifts in the competitive and regulatory environment are difficult to handicap at this stage. Given this mix of respectable underlying performance, reasonable valuation, and significant but uncertain upside from the possible merger, he judges the risk‑reward profile as balanced and therefore maintains a Market Perform (Hold) rating on the shares.

In another report released today, J.P. Morgan also maintained a Hold rating on the stock with a $265.00 price target.