Union Pacific Strong on Dividends Despite Freight Downturn
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Union Pacific’s UNP efforts to reward its shareholders through dividends and buybacks are encouraging. However, soft freight revenues are concerning as they are hurting growth.Factors Favoring UNPUNP is focused on rewarding its shareholders. Strong free cash flow supports the shareholder-friendly activities at Union Pacific. Free cash flow in 2023 was $1.54 billion. In 2023, the company returned $3.9 billion to its shareholders. Union Pacific hiked dividends twice in 2021. In May 2022, UNP upped its quarterly dividend by a further 10% to $1.30 per share. In July 2024, UNP increased its dividend by a further 3% to $1.34 per share. The company has paid dividends on common stock for 125 consecutive years, reflecting its pro-shareholder approach. Management resumed buying back shares in the second quarter of 2024. UNP bought back shares worth $1.5 billion in 2024.U.S. equity markets have been experiencing extreme volatility lately, largely due to escalating trade tensions. Stocks have been tumbling on fears of a recession as uncertainty grows over President Trump’s tariff policies. In view of the prevalent uncertainties surrounding the economy and the rise in inflation over the past few months, the railroad industry is likely to suffer.As it is, Union Pacific is suffering big time due to a decline in volumes as a result of soft consumer markets. Geopolitical uncertainty and high inflation continue to hurt consumer sentiment. To combat the revenue weakness due to the freight downturn, UNP is looking to cut costs to drive the bottom line. To improve efficiency, UNP is using longer trains, boosting freight car velocity. Due to the cost-cut efforts, operating expenses declined 3% year over year in 2024.Price Performance of the UNP StockShares of Union Pacific have gained 2.6% so far this year, outperforming the Zacks Transportation - Rail industry’s 1.5% decline.YTD Price ComparisonImage Source: Zacks Investment ResearchKey Risks for the UNP StockWith consumer spending and business investments remaining low, production levels have decreased in response to reduced demand. As a result of low demand, there is less need for transportation services to move goods, resulting in a freight recession. Below-par freight rates are also hurting UNP’s prospects.Due to low revenues, the operating ratio (operating expenses as a percentage of revenues) at UNP increased 220 basis points to 62.3% at the end of 2023 from the 2022 reading. Operating ratio is likely to deteriorate i.e. increase, since a lower value of the metric is preferable, going forward due to the costs associated with the recently inked labor deals. Geopolitical uncertainty and high inflation continue to hurt consumer sentiment. Reduced fuel surcharge revenues, too, are a concern. UNP's financial metrics indicate that leverage is elevated and a massive negative for its shareholders. The long-term debt burden of the company was $29.8 billion at the end of the fourth quarter of 2024, which translates into a debt-to-capitalization of 66.4%. The figure is well above the sub-industry’s 49.4%.UNP’s Zacks RankUNP currently carries a Zacks Rank #3 (Hold).Stocks to ConsiderInvestors interested in the Transportation sector may consider SkyWest SKYW and Frontier Group ULCC.SkyWest currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.SKYW has an expected earnings growth rate of 16% for the current year. The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average beat of 16.7%. Shares of SKYW have risen 11% over the past six months.Frontier Group sports a Zacks Rank of 1 at present. ULCC has an expected earnings growth rate of more than 300% for the current year.The company has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed once. The average surprise is 1.1%. Shares of ULCC have gained 19% in the past six months.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.3% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Union Pacific Corporation (UNP): Free Stock Analysis Report SkyWest, Inc. (SKYW): Free Stock Analysis Report Frontier Group Holdings, Inc. (ULCC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks
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Nachrichten zu Union Pacific Corp.
Analysen zu Union Pacific Corp.
Datum | Rating | Analyst | |
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17.07.2019 | Union Pacific Hold | Cascend Securities | |
13.06.2019 | Union Pacific Equal Weight | Barclays Capital | |
23.04.2019 | Union Pacific Outperform | Cowen and Company, LLC | |
08.01.2019 | Union Pacific Buy | Seaport Global Securities | |
08.01.2019 | Union Pacific Outperform | Cowen and Company, LLC |
Datum | Rating | Analyst | |
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23.04.2019 | Union Pacific Outperform | Cowen and Company, LLC | |
08.01.2019 | Union Pacific Buy | Seaport Global Securities | |
08.01.2019 | Union Pacific Outperform | Cowen and Company, LLC | |
24.05.2018 | Union Pacific Hold | Stifel, Nicolaus & Co., Inc. | |
08.01.2018 | Union Pacific Buy | UBS AG |
Datum | Rating | Analyst | |
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17.07.2019 | Union Pacific Hold | Cascend Securities | |
13.06.2019 | Union Pacific Equal Weight | Barclays Capital | |
26.10.2018 | Union Pacific Market Perform | Cowen and Company, LLC | |
01.06.2018 | Union Pacific Market Perform | Cowen and Company, LLC | |
28.02.2018 | Union Pacific Market Perform | Cowen and Company, LLC |
Datum | Rating | Analyst | |
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15.07.2005 | Update Union Pacific Corp.: Underweight | JP Morgan | |
20.01.2005 | Update Union Pacific Corp.: Underperform | Credit Suisse First Boston | |
04.01.2005 | Update Union Pacific Corp.: Underperform | Bear Stearns |
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