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Why Union Pacific (UNP) Shares Inched Up 1.34% on Tuesday

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Shares of Union Pacific Corporation (UNP - Free Report) performed well on the bourses yesterday, closing the trading session at $241.35, up 1.34% from Aug 16’s closing price. The uptick was owing to the bullish commentary by management on volumes for the third quarter of 2022.

The favorable update was provided at the Deutsche Bank Transportation Conference for 2022.  At the presentation, management stated that overall volumes for the third quarter were up 2% year over year as of Aug 11, 2022. The improvement was owing to the easing of labor problems and congestion-related headwinds at this railroad operator, which currently carries a Zacks Rank #3 (Hold).

Segmentwise, volumes at the bulk division were flat year over year. Third-quarter volumes at the industrial andpremium segments are up 3% and 2%, respectively as of Aug 11. Per UNP CFO Jennifer Hamann, "We're encouraged by the improvement seen in fluidity and crew availability and have begun to place some stored cars back into service."

With volumes expected to be strong in the second half of the year, UNP expects current-year carload growth of 4-5%. Riding on improved revenues, the operating ratio (operating expenses as a % of revenues) for the current year is expected to be around 58%. The metric is expected to improve in the second half from the first. In the first six months of 2022, the operating ratio was 59.8%. Lower the value of the metric, the better. Incremental margins in the second half are expected to be around 50%.

Key Picks

Some better-ranked stocks in the broader Zacks Transportation  sector are C.H. Robinson (CHRW - Free Report) and SkyWest (SKYW - Free Report) presently flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

C.H. Robinson is being aided by the improving freight scenario in the United States. Efforts to control costs also bode well. Measures to reward CHRW's shareholders instill further confidence in the stock.

C.H. Robinson has a pleasant earnings track record. The bottom line surpassed the Zacks Consensus Estimate in three of the trailing four quarters (missing the mark in the remaining one). The stock has witnessed the Zacks Consensus Estimate for 2022 earnings being revised 13.8% upward over the past 60 days.

Continued recovery in air-travel demand bodes well for SkyWest. With improvement in air-travel demand, SkyWest carried 32.7% more passengers in first-half 2022 than the year-ago level. As a result, the passenger load factor (percentage of seats filled by passengers) expanded 1450 basis points to 82.1% in first-half 2022. SKYW’s fleet-modernization efforts are commendable as well.

The positivity surrounding the SkyWest stock is evident from the Zacks Consensus Estimate for current-year earnings being revised in excess of 100% upward over the past 60 days. SKYW has a Momentum Style Score of A.


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