Union Pacific, railroad stocks pull back on cost, capacity concerns
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Railroad stocks are rolling back on Friday despite earnings beat from both Union Pacific (NYSE:UNP) and CSX Corporation (CSX). 
Moving alongside a broader market decline, numerous railroad stocks including Union Pacific (UNP), CSX Corporation (CSX), Norfolk Southern Corporation (NSC), Canadian National Railway (CNI), and Canadian Pacific Railway (CP) are all falling on Friday. Declines across the industry range from 2% to 3%.
Union Pacific is headlining declines, abetted by a fresh downgrade from UBS. The firm slashed its 12-month price target from $283 to $267 while rerating shares to Neutral from a Buy. 
"We expect the current capacity constraints and service issues to weigh on volume performance and these issues also reduce our conviction in UNPâs ability to execute on its volume growth strategy," the downgrade explains. "The added resources necessary to handle more volume could work against UNPâs margin performance while the current level of resources appear to be insufficient to support stronger volumes."
These constraints, as well as higher fuel costs, carry over to the entire sector and threaten operating ratios across the industry, adding to falling rail traffic rates reported in recent weeks.
With earnings results expected from Canadian National Railway (CNI) and Canadian Pacific Railway (CP) next week, analysts are not overly optimistic on the upcoming prints either.
Raymond James analyst Steve Hansen advised that âhefty cost headwindsâ confront Canadian railroad operators and could delay visions of recovery into the second half of the year.
âWe are trimming our target prices on both Canadian National Railway (CNI) and Canadian Pacific Railway (CP) to account for a weaker-than-expected start to the year and incremental concerns over the slowing economic backdrop,â he wrote. âWe anticipate both carriers faced stiff weather, volume and cost-related headwinds that demonstrably blunted their 1Q22 performance.â
Against a difficult macroeconomic backdrop and concerns on execution, Hansen tempered price targets on both of the Canadian companies. He cut his target on Canadian Pacific (CP) to $100 from $105, Canadian National Railway (CNI) from $180 to $175.
Canadian National Railway (CNI) will start off the next slate of railroad earnings reports on Tuesday after the market close, followed by Norfolk Southern (NSC) on Wednesday morning and Canadian Pacific (CP) on Wednesday evening. 

Read more on the earnings expectations for Canadian Pacific.