Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

On Nov 27, we maintained our Neutral recommendation on rail transport service provider Union Pacific Corporation (UNP - Analyst Report). We are encouraged by the company’s growth in chemicals and industrial segments. However, sluggish economic growth, fierce competition and a weak coal business remain causes for concern. This Omaha-based company holds a Zacks Rank #4 (Sell).

Why Maintained?

The company is progressing well on its operating and productivity improvements. We believe that the company has opportunities to improve yields backed by a higher rate of contract re-pricing compared to its Class I peers, continuous productivity gains and increased volume. Union Pacific is favorably positioned for 2014, having successfully renewed 50% of the $100 million legacy contract for the year. These actions are expected to contribute to operating profit growth.

Moreover, the company’s optimism surrounding growth across the majority of its product lines is complemented by strong crude-by-rail market conditions, increased grain shipments and recovery in housing starts. These are likely to be its near-term growth drivers.

Additionally, strength in intermodal volume is expected to continue based on the ongoing truckload conversion and domestic expansion. We also anticipate near-term revenue growth in the automotive division as the demand to replace old vehicles is high.

Despite making huge investments, Union Pacific possesses one of the industry's strongest balance sheets with solid free cash flow. This allows the company to provide high returns to shareholders via dividends and share buybacks.

However, Union Pacific’s performance is likely to be hurt by sluggish domestic economic growth. Challenges in the coal business are anticipated to weigh on the company’s coal shipments in the fourth quarter, offsetting the positive impacts of other products lines. Further, the company expects that the loss of a customer contract early this year to continue hurting coal volumes.

It also foresees an increase of about 5% to 7% in depreciation expenses in 2014. Further, Union Pacific plans to make long-term investments of about 17–18% of total revenue over the next several years, supporting operating efficiencies. These investments are likely to be accretive over the long term, but might weigh upon its margins in the near term.

Other Stocks

Other stocks worth considering within this sector are Canadian Pacific Railway Ltd (CP - Analyst Report), Arkansas Best Corp. (ABFS - Snapshot Report) and Covenant Transportation Group Inc. (CVTI - Snapshot Report). All these stocks currently hold a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GROUP DXYN 15.84 +7.90%
BOFL HOLDING BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%