Union Pacific's (UNP) strong Q2 results and its memorandum of understanding with CN (CNI) reinforce the railroad's earnings outlook and strengthen its regulatory case for the proposed transaction with Norfolk Southern (NSC), RBC Capital Markets said.

Union Pacific and CN on Wednesday signed a binding MoU establishing a framework for CN to secure competitive access in connection with the proposed transaction between Union Pacific and Norfolk Southern.

RBC said in a Thursday note that the agreement strengthens Union Pacific's case for regulatory approval by addressing competition concerns and eliminating CN's opposition to the proposed merger. It also gives Union Pacific trackage rights on CN's EJ&E line around Chicago, easing what would otherwise have been a key congestion point for future operations.

The company reported Q2 adjusted EPS ahead of consensus expectations and raised its full-year EPS growth outlook to high-single digits. RBC said the new guidance was above market expectations.

RBC reiterated its outperform rating and raised the price target to $339 from $289.

Shares of Union Pacific were up 1.4% in Friday afternoon trading.

Price: 308.79, Change: +4.46, Percent Change: +1.46