Union Pacific Corporation (UNP - Analyst Report) recently introduced “Arrowedge,” an aerodynamic fuel and locomotive technology that reduces emissions from double-stack intermodal freight trains. With the latest technological development, the company expects to enhance fuel efficiency on its locomotives, ultimately resulting in improved costs.
Union Pacific currently holds two patents for this new technology in the U.S. and is awaiting additional patents in the U.S. and Canada. Over the near term, the company expects to utilize Arrowedge in its double-stack train service between Joliet, IL and Long Beach, CA.
We believe the company is progressing well on its operating and productivity improvements. As a result, management expects operating ratio to decrease to 65% by 2017.
We believe the company has opportunities to improve yields backed by a higher rate of contract re-pricings compared to its Class I peers and increased access to West Coast intermodal business and energy related markets. Apart from strengthening its network operation, the company also focuses on customer satisfaction level, which was an impressive 93% in the second quarter.
Further, the company has also accelerated its investment plans so as to support its growth goals in network infrastructure. Union Pacific remains committed to make long-term investments of about 17–18% of total revenue over the next several years, supporting operating efficiencies, growth and returns.
For 2013, the company expects to invest about $3.6 billion with more than half of the investments targeted toward infrastructure replacement and enhancement of commercial plants. The company aims to invest nearly $1 billion in service growth and productivity projects. Management will put in approximately $450.0 million on positive train control.
One of the major ventures of the company is the Santa Teresa unit in New Mexico that is expected to be completed by early 2014. Union Pacific also targets the purchase of 100 new locomotives and 900 freight cars during the year to serve the domestic market, supporting growth of the industrial segment. We believe that these investments would boost the company’s long-term efficiency and service capabilities.
Union Pacific, which operates with other railroad company – CSX Corp. (CSX - Analyst Report), Norfolk Southern Corp. (NSC - Analyst Report) and Canadian Pacific Railway Ltd (CP - Analyst Report) – currently retains a Zacks Rank #3 (Hold).