Making the grade: Buyside's who's-who of stocks that made the grade with a recommendation upgrade or initiation to 'strong buy'. (For Strong Buys Only).

Publication: Buyside

Publication Date: 01-MAR-02

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COPYRIGHT 2002 Adams Business Media

RAILROADS

Union Pacific Corp. (UNP)

BASIS FOR STRONG BUY

Our long-term outlook for the Union Pacific Corp. remains favorable, as we believe the company will likely benefit from an eventual economic rebound, efforts to raise rates, despite competition on coal contracts, market share gains, both internal and external, and increasing demand for PRB coal.

We are raising our rating on Union Pacific Corp. from a buy rating to a strong buy with a 12-month price target of $70, the company offers attractive 18% upside potential. We believe that Union Pacific should continue to participate in an early cyclical rally over the next few quarters. The company stands to advance the most, given its more attractive valuation, potential margin expansion, and the potential monetization of Overnite, the company's LTL business.

Despite a negative price trend in coal, we note that the company continues to focus on service improvements, with the intention of improving overall pricing. Poor railroad service prevented the western railroads from extracting rate increases from customers...

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