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Here's Why It is Worth Holding Union Pacific (UNP) Stock Now
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Union Pacific’s (UNP - Free Report) cost-cutting approach is boosting the company’s bottom line. UNP’s efforts to reward its shareholders are also commendable. However, the freight market downturn is severely impacting the top line.
Factors Favoring UNP
To mitigate the revenue decline from the freight downturn, Union Pacific focuses on cost-cutting measures to improve its bottom line. The company enhances efficiency by deploying longer trains and increasing freight car velocity. These cost-control efforts helped keep operating expenses stable year over year in the fourth quarter of 2023 and reduced them by 3% in the first quarter of 2024.
Union Pacific generated a strong financial performance in 2023, with $8.38 billion in cash from operations and $1.54 billion in free cash flow. The company returned $3.9 billion to shareholders through dividends and buybacks. With a proactive dividend policy, including two hikes in 2021 and a 10% increase in May 2022 to $1.30 per share, UNP underscores its 125-year history of consistent dividends, highlighting its commitment to shareholders.Management expects to resume buying back shares in the second quarter of 2024.
Union Pacific’s total operating expenses of $3.66 billion declined 3% year over year in the first quarter of 2024. Fuel expenses plunged 14%. Expenses on purchased services and materials fell by 6%. Other cost items, too, declined 1% year over year. The operating ratio (operating expenses as a percentage of revenues) improved by 140 basis points year over year to 60.7%.
A glimpse at Union Pacific’sprice trend reveals that its shares have risen 10.5% in the past year compared with its industry’s 4.2% appreciation.
Image Source: Zacks Investment Research
Key Risks
UNP is grappling with a freight market downturn.Below-par freight rates are hurting Union Pacific's prospects. The Cass Freight Shipments Index fell 1.3% in April and has declined in five of the last six months, highlighting weak freight demand. Freight revenues, accounting for 93.2% of the top line, decreased 1% to $5.62 billion.
Compensation and benefits, accounting for 46% of the operating expenses, were up 4% year over year.
Union Pacific exited the first quarter of 2024 with cash and cash equivalents of $925 million compared with $1.06 billion in the same time period in 2023. Debt (due after a year) increased to $31.20 billion at the March-end quarter from $31.16 billion at 2023-end.
SkyWest has an expected earnings growth rate of 787% for the current year.
SKYW has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 128%. Shares of SkyWest have jumped 106.8% in the past year.
KEX has an expected earnings growth rate of 42.5% for the current year.
The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 10.3%. Shares of Kirby have climbed 61.2% in the past year.
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Here's Why It is Worth Holding Union Pacific (UNP) Stock Now
Union Pacific’s (UNP - Free Report) cost-cutting approach is boosting the company’s bottom line. UNP’s efforts to reward its shareholders are also commendable. However, the freight market downturn is severely impacting the top line.
Factors Favoring UNP
To mitigate the revenue decline from the freight downturn, Union Pacific focuses on cost-cutting measures to improve its bottom line. The company enhances efficiency by deploying longer trains and increasing freight car velocity. These cost-control efforts helped keep operating expenses stable year over year in the fourth quarter of 2023 and reduced them by 3% in the first quarter of 2024.
Union Pacific generated a strong financial performance in 2023, with $8.38 billion in cash from operations and $1.54 billion in free cash flow. The company returned $3.9 billion to shareholders through dividends and buybacks. With a proactive dividend policy, including two hikes in 2021 and a 10% increase in May 2022 to $1.30 per share, UNP underscores its 125-year history of consistent dividends, highlighting its commitment to shareholders.Management expects to resume buying back shares in the second quarter of 2024.
Union Pacific’s total operating expenses of $3.66 billion declined 3% year over year in the first quarter of 2024. Fuel expenses plunged 14%. Expenses on purchased services and materials fell by 6%. Other cost items, too, declined 1% year over year. The operating ratio (operating expenses as a percentage of revenues) improved by 140 basis points year over year to 60.7%.
A glimpse at Union Pacific’sprice trend reveals that its shares have risen 10.5% in the past year compared with its industry’s 4.2% appreciation.
Image Source: Zacks Investment Research
Key Risks
UNP is grappling with a freight market downturn.Below-par freight rates are hurting Union Pacific's prospects. The Cass Freight Shipments Index fell 1.3% in April and has declined in five of the last six months, highlighting weak freight demand. Freight revenues, accounting for 93.2% of the top line, decreased 1% to $5.62 billion.
Compensation and benefits, accounting for 46% of the operating expenses, were up 4% year over year.
Union Pacific exited the first quarter of 2024 with cash and cash equivalents of $925 million compared with $1.06 billion in the same time period in 2023. Debt (due after a year) increased to $31.20 billion at the March-end quarter from $31.16 billion at 2023-end.
Zacks Rank
UNP currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportationsector include SkyWest (SKYW - Free Report) and Kirby Corporation (KEX - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
SkyWest has an expected earnings growth rate of 787% for the current year.
SKYW has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 128%. Shares of SkyWest have jumped 106.8% in the past year.
KEX has an expected earnings growth rate of 42.5% for the current year.
The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 10.3%. Shares of Kirby have climbed 61.2% in the past year.