Railroads in general and Union Pacific specifically have underperformed the broader market, leading the investment firm to upgrade the Omaha company to overweight from equal weight.
Barclays increased its price target to $260 a share from $240.
"The more recent underperformance has likely been driven by softer rail volume outcomes and the risk of potentially higher U.S. corporate tax rates," analyst Brandon Oglenski said.
"However, with current volume pressure likely a function of constraints across the global supply chain (e.g. shortages of labor, equipment and inventory) rather than a signal of warning demand, we see fundamentals improving in 2022 as headwinds abate."
Shares of Union Pacific at last check moved up 2.2% to $206.17. The stock touched a 52-week high above $231 on May 10. In 2021 through the close of Friday trading, the stock was off 3.1%.
The investment firm does caution that reduced fiscal and monetary policy support in the U.S. could be a headwind going forward.
But low inventory levels suggest that freight shipping will be critical for the U.S. economy going forward, it said.
Railroad volume fell nearly 5% in third-quarter 2021 from prepandemic levels in 2019. But Barclays expects a stronger demand environment in 2022 as supply-chain constraints abate.
"Further, cost inflation has been meaningful for most transport modes, including rails, suggesting pricing outcomes in late 2021 should accelerate," Oglenski said.
That's "likely supporting robust margins for the sector."