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Here's Why You Should Hold Union Pacific (UNP) Stock Now
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Union Pacific Corporation (UNP - Free Report) is benefiting from solid freight revenues and cash generating abilities. Yet, high debt levels are headwinds.
Factors Favoring UNP
We are bullish on Union Pacific’s ability to generate cash. Cash from operations in 2021 was $9 billion, up 6% year over year. Free cash flow increased 8.8% to $3,523 million.Increasing free cash flow supports UNP’s shareholder-friendly activities. 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. UNP returned $9.44 billion to its shareholders through dividends ($3.1 billion) and share repurchases ($6.3 billion).In first-quarter 2023, Union Pacific returned $1.4 billion to its shareholders through dividends ($795 million) and share repurchases ($575 million). Management anticipates a dividend payout of approximately 45% (of earnings) in 2023.
With economic activities gaining pace, freight revenues, which account for bulk of the company's top line, are improving. Freight revenues improved 14% year over year in 2022. Segment wise, freight revenues increased 13%, 12% and 18% in the bulk, industrial and premium units, respectively. Freight revenues increased 4% in first-quarter 2023.
Key Risks
We are concerned about Union Pacific's high debt levels. Debt/EBITDA ratio (adjusted) at Union Pacific deteriorated to 2.3 in 2018 from 1.9 in 2017. It increased to 2.5 at the end of 2019.The measure increased further to 2.9 at 2020 end. The reading was 2.7 at the end of 2021. It raised to 2.9 at 2022 end.The metric was 2.9 at the end of first-quarter 2023 as well. A high debt/EBITDA ratio often indicates that a firm may be unable to service its debt appropriately.
Zacks Rank
UNP currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors interested in the Zacks Transportation sector are Copa Holdings, S.A. (CPA - Free Report) and Triton International Limited .
Copa Holdings, which presently flaunts a Zacks Rank #1 (Strong Buy), is aided by improved air-travel demand. We are encouraged by the company’s initiatives to modernize its fleet. CPA's focus on its cargo segment is also impressive. You can see the complete list of today’s Zacks #1 Rank stocks here.
For second-quarter and full-year 2023, CPA’s earnings are expected to register 765.6% and 75.4% growth, respectively, on a year-over-year basis.
Triton, which currently carries a Zacks Rank #2 (Buy), is benefiting from its consistent efforts to reward shareholders through dividends and share repurchases.
Triton has an impressive liquidity position. TRTN’s current ratio (a measure of liquidity) was 3.97 at the end of first-quarter 2023. A current ratio of more than 1 often indicates that the company will be easily paying off its short-term obligations.
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Here's Why You Should Hold Union Pacific (UNP) Stock Now
Union Pacific Corporation (UNP - Free Report) is benefiting from solid freight revenues and cash generating abilities. Yet, high debt levels are headwinds.
Factors Favoring UNP
We are bullish on Union Pacific’s ability to generate cash. Cash from operations in 2021 was $9 billion, up 6% year over year. Free cash flow increased 8.8% to $3,523 million.Increasing free cash flow supports UNP’s shareholder-friendly activities. 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. UNP returned $9.44 billion to its shareholders through dividends ($3.1 billion) and share repurchases ($6.3 billion).In first-quarter 2023, Union Pacific returned $1.4 billion to its shareholders through dividends ($795 million) and share repurchases ($575 million). Management anticipates a dividend payout of approximately 45% (of earnings) in 2023.
With economic activities gaining pace, freight revenues, which account for bulk of the company's top line, are improving. Freight revenues improved 14% year over year in 2022. Segment wise, freight revenues increased 13%, 12% and 18% in the bulk, industrial and premium units, respectively. Freight revenues increased 4% in first-quarter 2023.
Key Risks
We are concerned about Union Pacific's high debt levels. Debt/EBITDA ratio (adjusted) at Union Pacific deteriorated to 2.3 in 2018 from 1.9 in 2017. It increased to 2.5 at the end of 2019.The measure increased further to 2.9 at 2020 end. The reading was 2.7 at the end of 2021. It raised to 2.9 at 2022 end.The metric was 2.9 at the end of first-quarter 2023 as well. A high debt/EBITDA ratio often indicates that a firm may be unable to service its debt appropriately.
Zacks Rank
UNP currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors interested in the Zacks Transportation sector are Copa Holdings, S.A. (CPA - Free Report) and Triton International Limited .
Copa Holdings, which presently flaunts a Zacks Rank #1 (Strong Buy), is aided by improved air-travel demand. We are encouraged by the company’s initiatives to modernize its fleet. CPA's focus on its cargo segment is also impressive. You can see the complete list of today’s Zacks #1 Rank stocks here.
For second-quarter and full-year 2023, CPA’s earnings are expected to register 765.6% and 75.4% growth, respectively, on a year-over-year basis.
Triton, which currently carries a Zacks Rank #2 (Buy), is benefiting from its consistent efforts to reward shareholders through dividends and share repurchases.
Triton has an impressive liquidity position. TRTN’s current ratio (a measure of liquidity) was 3.97 at the end of first-quarter 2023. A current ratio of more than 1 often indicates that the company will be easily paying off its short-term obligations.