We are trimming UNP 50bps and allocating the proceeds to IVV based on the following reasons:
· 1Q19 has been impacted by weather related events, causing some missed revenue, but mostly having some possible impact on their infrastructure in the following quarters which we think is not accounted for in consensus expectations
o Those events could delay their PSR implementation, a big catalyst for the stock
o Commodity carloads have been well below 1Q18 and 1Q17 levels
o Falling frac sand demand is a secular headwind
· Port of Wilmington and port of Virginia expansions are longer term threats to rails
· Deregulation in the trucking industry is another short-term threat (allowing driver longer work hours etc…)
· Valuation: we see little upside to our price target based on the points listed above
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Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109