William B. Cassidy, Senior Editor | Jan 04, 2012 2:02PM EST
Stifel Nicolaus downgraded the stock of Union Pacific from “buy” to “hold” Tuesday despite the investment research firm forecasting higher earnings for the rail giant.
The firm raised its 2011, 2012 and 2013 earnings estimates for UP by “about 2 percent,” noting the railroad beat Wall Street expectations in the third quarter.
In effect, the $17 billion parent of Union Pacific Railroad, which reported a third-quarter profit of $904 million, is just too successful for a “buy” rating. Stifel Nicolaus expects UP's revenue 2011 revenue to increase 14 percent year-over-year to $19.4 billion and projects the company's top line will rise an additional 9 percent to $21.1 billion in 2012.
“We believe the company's shares are too close to fully valued to justify a ‘buy’ rating at this time,” said John G. Larkin, managing director at Stifel Nicolaus.
The firm set its fair value estimate for UP stock at $113 a share, “which provides 4.6 percent potential upside relative to Tuesday’s closing price,” Larkin said.
The railroad’s stock has traded at prices ranging from $77 to $109 a share over the past 52 weeks, closing at $108 per share on the Nasdaq exchange Jan. 3.
“We continue to expect the company to perform well over the next few years,” Larkin said in a note to investors. He noted the railroad’s fourth quarter freight volume was up 3.7 percent year-over-year through the 51st week of 2011.
He told investors Stifel Nicolaus is shortening its “buy” list to common shares of companies that “have the most potential for upside” over the next year. Among those companies are eastern railroads CSX and Norfolk Southern, which had per share prices at the end of Monday of $22.04 and $73.79, respectively.
Contact William B. Cassidy at wcassidy@joc.com. Follow him on Twitter at @wbcassidy_joc