Here's Why Investors Should Hold Union Pacific (UNP) Now
Union Pacific Corporation UNP is benefiting from shareholder-friendly measures and cost-control efforts.
Factors Favoring UNP
We are bullish on its ability to generate cash. Cash from operations in 2021 came in at $9 billion, up 6% year over year. Free cash flow increased 8.8% to $3,523 million in 2021. Increasing free cash flow supports the shareholder-friendly activities of Union Pacific. In 2021, the company returned $10.1 billion to its shareholders through dividends ($2.8 billion) and buybacks ($7.3 billion). It hiked dividend twice in 2021.
In May 2022, UNP upped its quarterly dividend by a further 10% to $1.30 per share. In the first nine months of 2023, it bought back shares worth $0.7 billion. The railroad operator paid dividends worth $2.38 billion in the first nine months of 2023.
In line with UNP's efforts to control costs, operating expenses declined 4% year over year in third-quarter 2023. Despite the current increase in oil price, fuel costs were down 18% year over year in the first nine months of 2023. Shares of UNP have gained 9.6% in the past year compared with the 1.7% rise of the industry it belongs to.
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Key Risks
A decline in volumes due to soft consumer markets and reduced fuel surcharge revenue is a concern. Volumes declined 2% year over year in first-half 2023. Given the soft freight market scenario, revenue weakness is likely to persist throughout 2023. This will hurt overall volumes or carloads.
Zacks Rank
UNP currently carries Zacks Rank #3 (Hold).
Key Picks
Some better-ranked stocks for investors interested in the Zacks Transportation sector are Air Canada ACDVF and SkyWest SKYW.
Air Canada currently sports a Zacks Rank #1 (Strong Buy). An uptick in passenger traffic is aiding ACDVF. Recently, management announced plans to launch a new year-round route between Montreal and Madrid. You can see the complete list of today’s Zacks #1 Rank stocks here.
The service will commence in May of the following year as part of its expanded international summer 2024 flying schedule to cater to increased demand.
SkyWest currently carries a Zacks Rank #2 (Buy). SKYW's fleet-modernization efforts are commendable. Initiatives to reward its shareholders also bode well. The Zacks Consensus Estimate for current-quarter earnings has surged 83.3% in the past 60 days.
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Union Pacific Corporation (UNP) : Free Stock Analysis Report
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