Union Pacific inventory set for greatest acquire in almost three years on plans for brand spanking new CEO

Union Pacific on Sunday mentioned it anticipated to call a successor to Lance Fritz — a transfer praised by some analysts on Monday. Fritz has been the corporate’s CEO since 2015. His successor would take the helm this yr.

Union Pacific mentioned that it sought the help of a advisor and shaped a activity power of administrators final yr in an effort to discover a new chief govt, following discussions between Fritz and the board. As a part of that planning course of, Union Pacific additionally mentioned it had been “actively engaging” with Soroban Capital Partners — the hedge fund that expressed its complaints about Fritz in a letter to the corporate — since 2017. Soroban mentioned it owns a roughly $1.6 billion stake in Union Pacific.

See additionally: Ohio derailment a ‘PR nightmare’ for Norfolk Southern and the rail trade

In that letter, on Sunday, Eric Mandelblatt, the fund’s managing companion and chief funding officer, mentioned it was essential for Union Pacific’s board to behave now, and capitalize on what he mentioned was set to be a “golden age of railroading growth,” as new investments roll in and the trucking trade struggles amid waning demand for items and a loosening provide chain pull delivery costs decrease.

“UNP has repeatedly and significantly failed to reach its potential under Mr. Fritz’s leadership. UNP has ranked the worst in safety, volume growth, revenue growth, cost management, EBIT growth, and total shareholder return,” he mentioned within the letter.

“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,” he continued.

The succession plans come after file gross sales for some giant railroad operators final yr, together with Union Pacific, whose rail community covers the western a part of the U.S. Union Pacific mentioned that underneath Fritz, internet revenue had risen 52% since 2017.

But the trade has struggled with service and understaffing, and employees upset about restricted time-off coverage got here near putting final yr. Meanwhile Norfolk Southern Corp.’s practice derailment in Ohio has raised greater questions on railroad security, after years of trade efforts to maintain prices lean.

Mandelblatt, within the letter, mentioned that with new, “best-in-class leadership,” Union Pacific may put up earnings per share of round $18 in 2025. Union Pacific reported adjusted earnings per share of $11.33 final yr. And he mentioned that Jim Vena, an trade veteran who served as chief working officer at Union Pacific from 2019 to 2020, was “leading external candidate available” to interchange Fritz, after the railroad operator’s efficiency improved throughout Vena’s tenure.

But Cowen analyst Jason Seidl mentioned Union Pacific’s outcomes, relative to its friends, meant it was time for a change.

“We believe that underperformance compared to its peers warrants a mgmt shake-up, and see Jim Vena as the most logical successor,” he mentioned in a analysis notice on Monday.

UBS analysts, in a notice on Monday, additionally mentioned that Union Pacific had a possibility to enhance service. They additionally pointed to what they mentioned was Vena’s sturdy monitor file at Union Pacific and Canadian National Railway Co.
CNI,
+0.82%,
and mentioned there was “likely to be significant investor support” for him to take over as CEO.

“However, it is unclear if Mr. Vena will be the choice and whether there will ultimately be more visibility to stronger financial performance from UNP,” analysts there mentioned.

Shares of Union Pacific are down 14.2% over the previous 12 months. Rival CSX Corp.
CSX,
+0.41%
is down 9.2% over that interval. Norfolk Southern
NSC,
+0.48%
over that point has fallen 11.6%. Over the previous 12 months, the S&P 500 index
SPX,
+0.51%
has fallen 8.7%.