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Union Pacific Stock Gains on Bullish FY18 Operational Update

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Shares of Union Pacific Corporation (UNP - Free Report) gained during after-hours trading on Jan 9, following the upbeat update issued by the company for full-year 2018.

The railroad powerhouse said in a SEC filing that carloadings for the month of December surpassed expectations. Impressive performance pertaining to international container imports contributed to the bullish carloadings scenario.

The Omaha, NE-based railroad operator also painted a bright picture with respect to a keenly watched metric — operating ratio (operating expenses as a percentage of revenues).  The company expects the metric (on an adjusted basis) to improve 0.1 points year over year to 62.7% in 2018.  The bullish operational update is a boost for the company as it prepares to unveil its fourth quarter and full-year 2018 results on Jan 24.

The upbeat projection with respect to operating ratio comes on the back of higher revenues, lower diesel fuel prices and cost-related improvements. Improvement on the cost front is reflective of the impressive initial performance of Union Pacific’s new operating plan — Unified Plan 2020. The plan was launched in October 2018.

Notably, lesser the value of operating ratio the better, as it implies that more cash is available to the company to reward shareholders through dividends/buybacks. A lower value of the ratio is indicative of higher profitability and efficiency.

The latest projection is a remarkable improvement from the gloomy picture painted by the company on November 29, 2018, with respect to its operating ratio. At that time, the railroad operator did not foresee an operating ratio improvement for full-year 2018 compared to the year-ago levels. Factors like sluggish revenue growth, higher employee severance-related expenses and operational inefficiencies led to the bearish prediction.

Zacks Rank & Key Picks

Union Pacific carries a Zacks Rank #3 (Hold). Some better-ranked transportation stocks are Azul SA (AZUL - Free Report) , Allegiant Travel Company (ALGT - Free Report) and Spirit Airlines, Inc. (SAVE - Free Report) , each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Azul and Spirit Airlines have rallied more than 13% and 32%, respectively, in a year’s time. Meanwhile, Allegiant boasts an impressive earnings surprise history, having trumped the Zacks Consensus Estimate in three of the last four quarters, the average beat being 18.7%.

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