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Union Pacific (UNP) Up 3.4% Since Earnings Report: Can It Continue?

Zacks Equity Research
Updated

A month has gone by since the last earnings report for Union Pacific Corporation UNP. Shares have added about 3.4% in the past month, underperforming the market and the DJIA in that time frame.

Will the recent positive trend continue leading up to their next earnings release, or is the stock due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Fourth Quarter Earnings

Union Pacific's fourth quarter 2016 earnings of $1.39 beat the Zacks Consensus Estimate of $1.34 per share. The bottom-line climbed 6.11% on a year-over-year basis.The bottom-line was aided by lower costs.

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Operating revenues of $5,168 million edged past the Zacks Consensus Estimate of $5,143.6 million. Revenues declined 1% on a year over year basis. The bulk of revenues at Union Pacific are derived from freight. A 1% decline in freight revenues contributed to the top line declining year–over–year basis. Declining coal shipments weighed on the company's results yet again. Volumes slipped 3%, with coal playing the biggest culprit. Lower fuel surcharge revenues also hurt results.

Operating income in the fourth quarter climbed 2% year over year to $2 billion. Operating ratio (defined as operating expenses as a percentage of revenues) came in at 62% as compared to 63.2% a year ago. During the quarter, the company bought back $9.6 million shares for $940 million.

Segment Details

Agricultural Products freight revenues were $961 million, up 7% year over year. Business volumes increased 8% year over year, while average revenue per car was flat.

Automotive accounted for $517 million of freight revenues, down 6% year over year. Business volumes were down 3% and average revenue per car also fell 3% year over year.

Chemicals contributed $857 million to freight revenues, flat year over year. Volumes were down 5%, while average revenue per car improved 4%.

Coal revenues (freight) decreased 6% year over year to $699 million. Volumes declined 9% and average revenue per car improved 4% year over year.

Industrial Products generated freight revenues of $829 million, down 2% year over year on an 5% volume decline. Average revenue per car was up 4%.

Intermodal segment freight revenues came in at $969 million, flat year over year. Volumes declined 1% year over year. However, average revenue per car improved 1%.

Other revenues declined 3% to $336 million in the fourth quarter of 2016.

Liquidity

Union Pacific exited 2016 with cash and cash equivalents of $1,277 million, compared with $1,391 million at the end of 2015. Long-term debt stood at $14.25 billion at the end of 2016 compared with $13.61 billion at the end of 2015. Adjusted debt-to-capitalization ratio increased to 47.3% from 45.7% at 2015-end.

How have estimates been moving since then?

Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter, while looking back an additional 30 days, we can see even more upward momentum. There has been three upward revisions in the last two months.

Union Pacific Corporation Price and Consensus

 

Union Pacific Corporation Price and Consensus | Union Pacific Corporation Quote

VGM Scores

At this time, Union Pacific's stock has a subpar score of 'D' on both growth and momentum front. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our styles scores.

Outlook

While estimates have been trending upward for the stock, the magnitude of these revisions has been net zero. Notably the stock has a Zacks Rank # 3 (Hold). We are expecting an inline return from the stock in the next few months.


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