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Union Pacific Corporation

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Union Pacific Corporation (UNP - Free Report) recently posted record financial results for the third quarter of 2011, beating the Zacks Consensus Estimates on both the top and bottom lines.

Analysts revised their 2011 and 2012 estimates higher off the strong quarter, sending the stock to a Zacks #2 Rank (Buy).

The company is also shareholder-friendly as it buys back stock and boosts its dividend. It currently yields a solid 2.4%. Valuation is attractive too, with shares sporting a PEG ratio of 1.0.

Union Pacific Corporation is the largest railroad in North America, operating in the western two-thirds of the United States.

Third Quarter Results

Union Pacific delivered record results for the third quarter of 2011. Earnings per share came in at $1.85, beating the Zacks Consensus Estimate of $1.81. It was a 19% increase over the same quarter in 2010.

Total revenue jumped 16% year-over-year to $5.101 billion, ahead of the Zacks Consensus Estimate of $4.994 billion. Revenue was up across each segment as volumes rose 1%. The company experienced solid volume gains in its Automotive, Industrial Products, Energy and Chemical segments.

Meanwhile, operating income was up 13% year-over-year. The operating ratio (operating expenses / total revenue) increased to 69.1% due to the negative impact of higher fuel prices.

Raising Estimates

Analysts revised their estimates higher for both 2011 and 2012 following strong third quarter results, sending the stock to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2011 is now $6.52, representing 18% growth over 2010 EPS. The 2012 consensus estimate is currently $7.80, corresponding with 20% EPS growth.

In its third quarter press release, management stated that while the economic outlook is uncertain, it is optimistic about the future for Union Pacific.

Returning Value to Shareholders

As the company delivers record results, it continues to reward shareholders through stock buybacks and dividend hikes. In the third quarter alone, the company spent $428 million buying back 4.7 million shares of its stock.

And over the last 5 years, Union Pacific has raised its dividend at a compound annual growth rate of 26%:

UNP: Union Pacific Corporation

It currently yields a solid 2.4%.

Reasonable Valuation

The valuation pictures looks very reasonable for UNP. Shares are trading at 12.9x 12-month forward earnings, a slight discount to the industry average and its 10-year median of 14.2x.

Its PEG ratio is 1.0 based on a long-term EPS growth rate of 13.5%.

The Bottom Line

With strong growth projections, rising estimates, a 2.4% dividend yield and reasonable valuation, Union Pacific offers investors attractive total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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