Union Pacific stock set for biggest gain in nearly three years on plans for new CEO

Union Pacific on Sunday said it expected to name a successor to Lance Fritz — a move praised by some analysts on Monday. Fritz has been the company’s CEO since 2015. His successor would take the helm this year.

Union Pacific said that it sought the aid of a consultant and formed a task force of directors last year in an effort to find a new chief executive, following discussions between Fritz and the board. As part of that planning process, Union Pacific also said it had been “actively engaging” with Soroban Capital Partners — the hedge fund that expressed its complaints about Fritz in a letter to the company — since 2017.

See also: Ohio derailment a ‘PR nightmare’ for Norfolk Southern and the rail industry

In that letter, on Sunday, Eric Mandelblatt, the fund’s managing partner and chief investment officer, said it was crucial for Union Pacific’s board to act now, and capitalize on what he said was set to be a “golden age of railroading growth,” as new investments roll in and the trucking industry struggles amid waning demand for goods and a loosening supply chain pull shipping prices lower.

“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 said in 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 record sales for some large railroad operators last year, including Union Pacific, whose rail network covers the western part of the U.S. Union Pacific said that under Fritz, net income had risen 52% since 2017.

But the industry has struggled with service and understaffing, and workers upset about limited time-off policy came close to striking last year. Meanwhile Norfolk Southern’s train derailment in Ohio has raised bigger questions about railroad safety, after years of industry efforts to keep costs lean.

Mandelblatt, in the letter, said that with new, “best-in-class leadership,” Union Pacific could put up earnings per share of around $18 in 2025. Union Pacific reported adjusted earnings per share of $11.33 last year. And he said that Jim Vena, an industry veteran who served as chief operating officer at Union Pacific from 2019 to 2020, was “leading external candidate available” to replace Fritz, after the railroad operator’s performance improved during Vena’s tenure.

But Cowen analyst Jason Seidl said Union Pacific’s results, relative to its peers, 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 said in a research note on Monday.

Shares of Union Pacific are down 14.2% over the past 12 months. CSX is down 9.2% over that period. Norfolk Southern over that time has fallen 11.6%. Over the past 12 months, the S&P 500 index
SPX,
+0.71%
has fallen 8.7%.