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Union Pacific (UNP) Strong on Freight Revenues & Dividends

Zacks Equity Research

We have recently issued an update research report on Union Pacific Corporation UNP. High freight revenues and consistent rewards to shareholders buoy optimism on the stock.

The Omaha, NE-based company is being aided by strong growth in freight revenues for quite some time. Freight revenues, which contribute significantly to the top line, increased 8% year over year in 2018. Also, volume growth driven by high freight revenues is expected to drive the company’s first-quarter 2019 results.

Furthermore, improvement in operating ratio (operating expenses as a percentage of revenues) and reduced tax rates are other positives for the company. Operating ratio improved 1.1 points compared with the adjusted year-ago figure to 61.6% during 2018. Notably, lower value of the key metric bodes well. Also, Union Pacific expects the metric to be below 61% in 2019.

Moreover, we are impressed with the company’s efforts to reward investors in the form of dividend payouts and share buybacks. Evidently, the company hiked quarterly dividend by 10% to 88 cents per share on February 7, 2019.  This is the fourth dividend hike announced by the company since November 2017. On the same date of dividend hike announcement, the company's board approved a new share repurchase program to buy up to 150 million of its common stock. In fact, Union Pacific returned around $10.5 billion to stockholders in 2018. Of the $10.5 billion, $8.2 billion and $2.3 billion were returned through buybacks and dividends, respectively.

Union Pacific Corporation Price


Union Pacific Corporation Price | Union Pacific Corporation Quote


Additionally, we are positive on Union Pacific’s efforts toward promoting safety and enhancing productivity.  To this end, the company's progress toward installing positive train control (PTC) on its network is commendable. The Unified Plan 2020 program, which focuses on improving service reliability and network efficiency apart from promoting safety, is expected to be fully implemented by mid-2019.

The positivity surrounding the Zacks Rank #2 (Buy) stock can be gauged from the Zacks Consensus Estimate being revised up 0.5% in the past 60 days for current-quarter earnings. The company also has an impressive Growth Score of B.

Other Stocks to Consider

Investors interested in the Zacks Transportation Sector may consider SkyWest, Inc. SKYW, Azul S.A. AZUL and Fly Leasing Limited FLY, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

All the three stocks boast an impressive surprise history. SkyWest outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average being 16.9%.  Azul beat the Zacks Consensus Estimate in three of the trailing four quarters, the average being 63.1%. Fly Leasing surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 42.2%.  

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