Analyst Note| Matthew Young, CFA |
Class I railroad Union Pacific hosted an investor day, its first since early 2018. Management discussed key strategic initiatives, namely those linked to driving incremental network productivity and bolstering volume growth, which relies in part on leveraging solid precision scheduled railroading-related service enhancements already in place. Overall, we noted no major surprises in the presentation, though management’s medium-term expectations for volume expansion and incremental operating margins came in slightly higher than our forecasts. Given its vast geographic footprint and improving network service capabilities over the past two years (including velocity and locomotive productivity gains), we are comfortable giving the rail more credit for a longer growth runway, especially in terms of truck-to-rail conversion opportunities. Thus, we tweaked our carload and margin forecasts for 2023-24 higher, which will likely boost our $179 fair value estimate by 2%-3%.