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Here's Why You Should Avoid Union Pacific (UNP) Stock Now
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Union Pacific Corporation (UNP - Free Report) is being hurt by high-debt levels and low volumes.
Let’s delve deeper.
Southward Earnings Estimate Revisions: The Zacks Consensus Estimate for current-quarter current-year earnings has been revised downward by 8.6% and 7%, respectively, over the past 60 days. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Bearish Industry Rank: The industry, to which UNP belongs, currently has a Zacks Industry Rank of 191 (of 250 plus groups). Such an unfavorable rank places UNP in the bottom 24% of the Zacks industries. Studies show that 50% of a stock price movement is directly related to the performance of the industry group it belongs to.
A mediocre stock within a strong group is likely to outclass a robust stock in a weak industry. Therefore, reckoning the industry’s performance becomes imperative.
Underperformance: Union Pacific has declined 5.7% in the past year compared with a 4.7% decline of the industry it belongs to.
Image Source: Zacks Investment Research
Weak Zacks Rank and Style Score: UNP currently carries a Zacks Rank #4 (Sell). Moreover, its current Momentum Style Score of C shows its short-term unattractiveness.
Other Headwinds: We are concerned about Union Pacific's high-debt levels. Debt/earnings before interest, taxes, depreciation and amortization (EBITDA) ratio (adjusted) at Union Pacific deteriorated to 2.3 in 2018 from 1.9 in 2017. It increased to 2.5 at the end of 2019.
This rose further to 2.9 at the end of 2020. The reading was 2.7 at the end of 2021. The figure inched up to 2.9 at 2022 end.
The metric was 2.9 at the end of the second quarter of 2023 as well. A high debt/EBITDA ratio often indicates that a firm may be unable to service its debt appropriately.
A decline in volumes due to soft consumer markets and reduced fuel surcharge revenues are concerns. Volumes declined 2% year over year in the first half of 2023. Given the soft freight market scenario, revenue weakness is likely to persist throughout 2023. This may hurt overall volumes.
Stocks to Consider
Some better-ranked stocks for investors interested in the Zacks Transportation sector are GATX Corporation (GATX - Free Report) and Triton International Limited .
For third-quarter and full-year 2023, GATX’s earnings are expected to register 36.6% and 14.3% growth, respectively, on a year-over-year basis.
Triton, which currently carries a Zacks Rank #2, is benefiting from its consistent efforts to reward shareholders through dividends and share repurchases.
Triton has an impressive liquidity position. Its current ratio (a measure of liquidity) was 3.83 at the end of second-quarter 2023. A current ratio of more than 1 often indicates that the company will be easily paying off its short-term obligations.
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Here's Why You Should Avoid Union Pacific (UNP) Stock Now
Union Pacific Corporation (UNP - Free Report) is being hurt by high-debt levels and low volumes.
Let’s delve deeper.
Southward Earnings Estimate Revisions: The Zacks Consensus Estimate for current-quarter current-year earnings has been revised downward by 8.6% and 7%, respectively, over the past 60 days. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Bearish Industry Rank: The industry, to which UNP belongs, currently has a Zacks Industry Rank of 191 (of 250 plus groups). Such an unfavorable rank places UNP in the bottom 24% of the Zacks industries. Studies show that 50% of a stock price movement is directly related to the performance of the industry group it belongs to.
A mediocre stock within a strong group is likely to outclass a robust stock in a weak industry. Therefore, reckoning the industry’s performance becomes imperative.
Underperformance: Union Pacific has declined 5.7% in the past year compared with a 4.7% decline of the industry it belongs to.
Image Source: Zacks Investment Research
Weak Zacks Rank and Style Score: UNP currently carries a Zacks Rank #4 (Sell). Moreover, its current Momentum Style Score of C shows its short-term unattractiveness.
Other Headwinds: We are concerned about Union Pacific's high-debt levels. Debt/earnings before interest, taxes, depreciation and amortization (EBITDA) ratio (adjusted) at Union Pacific deteriorated to 2.3 in 2018 from 1.9 in 2017. It increased to 2.5 at the end of 2019.
This rose further to 2.9 at the end of 2020. The reading was 2.7 at the end of 2021. The figure inched up to 2.9 at 2022 end.
The metric was 2.9 at the end of the second quarter of 2023 as well. A high debt/EBITDA ratio often indicates that a firm may be unable to service its debt appropriately.
A decline in volumes due to soft consumer markets and reduced fuel surcharge revenues are concerns. Volumes declined 2% year over year in the first half of 2023. Given the soft freight market scenario, revenue weakness is likely to persist throughout 2023. This may hurt overall volumes.
Stocks to Consider
Some better-ranked stocks for investors interested in the Zacks Transportation sector are GATX Corporation (GATX - Free Report) and Triton International Limited .
GATX, which presently carries a Zacks Rank #2 (Buy), has strengthened its railcar leasing operations. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For third-quarter and full-year 2023, GATX’s earnings are expected to register 36.6% and 14.3% growth, respectively, on a year-over-year basis.
Triton, which currently carries a Zacks Rank #2, is benefiting from its consistent efforts to reward shareholders through dividends and share repurchases.
Triton has an impressive liquidity position. Its current ratio (a measure of liquidity) was 3.83 at the end of second-quarter 2023. A current ratio of more than 1 often indicates that the company will be easily paying off its short-term obligations.