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Here's Why It Is Worth Holding Union Pacific (UNP) Stock Now
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Union Pacific’s (UNP - Free Report) efforts to reward shareholders during challenging times and cost control measures have positively impacted the bottom line. However, weak freight revenues and volumes are concerning, along with a high debt load.
Factors Favoring UNP
Union Pacific's robust 2023 financial performance, featuring strong cash generation of $8.38 billion from operations and $1.54 billion in free cash flow, supports shareholder-friendly activities. UNP returned $3.9 billion to shareholders through dividends and buybacks. With a proactive dividend policy, including two hikes in 2021 and a 10% increase in May 2022 to $1.30 per share, Union Pacific demonstrates confidence in its strong financial position.
In the fourth quarter of 2023, UNP maintained flat year-over-year operating expenses, showcasing its commitment to cost control. Despite rising oil prices, fuel costs saw a notable 11% reduction in 2023.
Key Risks
UNP’s high debt levels are a cause of concern, with the debt/earnings before interest, taxes, depreciation and amortization (EBITDA) ratio consistently increasing over the years, rising from 1.9 in 2017 to 3 at the end of 2023. This upward trend does not bode well as far as the company’s overall debt-paying capacity is concerned.
A volume decline of 1% in 2023, driven by soft consumer markets and reduced fuel surcharge revenues, further raises concerns. Weakness in revenues is expected to persist in the near term, with an estimated 0.6% decline in overall volumes for the first quarter of 2024.
UNP’s operating ratio (operating expenses as a percentage of revenues) witnessed a 220-basis point deterioration, reaching 62.3% by the end of 2023, primarily influenced by low revenues. The trend is expected to persist, with ongoing costs related to recently negotiated labor deals contributing to our expectation of 62.7% as far as the operating ratio in the first quarter of 2024 is concerned. This underscores the current challenges faced by the company in balancing operational efficiency amid cost dynamics.
GATX has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the past four quarters (missing the mark in the remaining one). The average beat is 16.47%.
The Zacks Consensus Estimate for 2024 earnings has been revised 6.1% upward over the past 90 days. GATX has an expected earnings growth rate of 3.7% for 2024. Shares of GATX have risen 19.5% in the past year.
SkyWest's fleet modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 11.1% over the past 90 days. Shares of SkyWest have surged 222.1% in the past year.
The company has an expected earnings growth rate of more than 100% for 2024. SKYW delivered a trailing four-quarter earnings surprise of 128.02%, on average.
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Here's Why It Is Worth Holding Union Pacific (UNP) Stock Now
Union Pacific’s (UNP - Free Report) efforts to reward shareholders during challenging times and cost control measures have positively impacted the bottom line. However, weak freight revenues and volumes are concerning, along with a high debt load.
Factors Favoring UNP
Union Pacific's robust 2023 financial performance, featuring strong cash generation of $8.38 billion from operations and $1.54 billion in free cash flow, supports shareholder-friendly activities. UNP returned $3.9 billion to shareholders through dividends and buybacks. With a proactive dividend policy, including two hikes in 2021 and a 10% increase in May 2022 to $1.30 per share, Union Pacific demonstrates confidence in its strong financial position.
In the fourth quarter of 2023, UNP maintained flat year-over-year operating expenses, showcasing its commitment to cost control. Despite rising oil prices, fuel costs saw a notable 11% reduction in 2023.
Key Risks
UNP’s high debt levels are a cause of concern, with the debt/earnings before interest, taxes, depreciation and amortization (EBITDA) ratio consistently increasing over the years, rising from 1.9 in 2017 to 3 at the end of 2023. This upward trend does not bode well as far as the company’s overall debt-paying capacity is concerned.
A volume decline of 1% in 2023, driven by soft consumer markets and reduced fuel surcharge revenues, further raises concerns. Weakness in revenues is expected to persist in the near term, with an estimated 0.6% decline in overall volumes for the first quarter of 2024.
UNP’s operating ratio (operating expenses as a percentage of revenues) witnessed a 220-basis point deterioration, reaching 62.3% by the end of 2023, primarily influenced by low revenues. The trend is expected to persist, with ongoing costs related to recently negotiated labor deals contributing to our expectation of 62.7% as far as the operating ratio in the first quarter of 2024 is concerned. This underscores the current challenges faced by the company in balancing operational efficiency amid cost dynamics.
Zacks Rank
UNP currently carries a Zacks Rank #3 (Hold)
Stocks to Consider
Some better-ranked stocks for investors’ consideration from the Zacks Transportation sector include GATX Corporation (GATX - Free Report) and Skywest Inc. (SKYW - Free Report) . Each stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GATX has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the past four quarters (missing the mark in the remaining one). The average beat is 16.47%.
The Zacks Consensus Estimate for 2024 earnings has been revised 6.1% upward over the past 90 days. GATX has an expected earnings growth rate of 3.7% for 2024. Shares of GATX have risen 19.5% in the past year.
SkyWest's fleet modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 11.1% over the past 90 days. Shares of SkyWest have surged 222.1% in the past year.
The company has an expected earnings growth rate of more than 100% for 2024. SKYW delivered a trailing four-quarter earnings surprise of 128.02%, on average.