Union Pacific on Sunday announced a management shake-up on Sunday, after a hedge fund owner demanded leadership changes. The move comes as railroad stocks have kept losses to a minimum in February despite the Norfolk Southern disaster in Ohio. Union Pacific stock surged Monday.
Soroban Capital Partners on Sunday publicly called for the ouster of the railroad's CEO, Lance Fritz. A letter from the New York-based hedge fund projected that a change to 'best-in-class' leadership would result in a doubling of Union Pacific stock price over the next two years.
Soroban projected Union Pacific earnings per share of $18 in 2025. That would represent 59% EPS growth compared to 2022. It is also 24% more than analysts' 2025 consensus estimates of $14.46 per share, according to FactSet.
Soroban favors former Chief Operating Officer Jim Vena for the job. The hedge fund says it owns a $1.6 billion stake in UNP — about 0.76% of outstand UNP shares, according to FactSet.
"Unlike typical shareholder engagements which come with numerous demands, Soroban has only one ask — install new leadership who can get the trains to operate safely and on time," the letter said.
Union Pacific responded Sunday. The company said the board would actively search for a new CEO "who will assume the position in 2023."
"Union Pacific has been my home for 22 years and I am confident that now is the right time for Union Pacific's next leader to take the helm," Fritz said in a statement. "I look forward to working with the Board as we identify our next CEO to lead the Company into the future."
Union Pacific Stock Retakes Support
Union Pacific stock bolted 10% higher to 212.16 during market trade on Monday. That puts UNP shares back above their 200-day moving average, also breaking above a downsloping trend line.
Industrywide, investors appear to be sticking with railroad stocks despite February's Norfolk Southern train derailment in East Palestine, about 50-miles northeast of Pittsburgh.
In early February, a Norfolk Southern 150-rail car train, transporting hazardous materials, derailed in flames while passing through the eastern Ohio town of East Palestine. Five of the derailed cars in East Palestine were carrying the chemical vinyl chloride, a type of gas.
There are reports of animals falling ill, dead fish appearing in waterways and residents experiencing burning eyes.
Union Pacific Headlines S&P 500 Winners Monday
EPA Halts East Palestine Waste Shipments
On Sunday, the U.S. Environmental Protection Agency (EPA) ordered Norfolk Southern to stop shipping hazardous waste from the accident site so that officials could review routes and destinations for the hazardous chemicals. The EPA reports hazardous materials "have been and continue to be released to the air, surface soils and surface waters."
Railroad stock Norfolk Southern stock is down 6.5% in February while Union Pacific stock was up 4.7% after Monday's spike. CSX has held effectively flat, down 0.5%.
Among Canada's railroads, Canadian Pacific has lost 1.6% on the month, while Canadian National Railway has a 2.1% decline. On the whole, IBD's Transportation-Rail industry group has dropped around 1.7% on the year, according to MarketSmith analysis.
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