Leading freight railroad company,
Union Pacific Corp.
) announced on Nov 21 that it intends to repurchase 60 million
shares over the next four years, representing 13% of its current
shares outstanding. The company plans to start this program on
Jan 1, 2014 replacing the ongoing share repurchase authorization
ending Dec 31, 2013.
Market sentiments remain positive to this news and share price
appreciated approximately 2% since last Thursday
The share repurchase reflects the company's strong free cash
flow and confidence in generating solid reinvestable returns for
its shareholders. Despite making huge investments, Union Pacific
possesses one of the industry's strongest balance sheets with
solid free cash flow ($1,317 million in the third quarter), which
encourages it to raise dividends and repurchase shares driving
improved shareholder returns.
The company boosted its annual dividend by 15.0% during 2012
and attained a payout ratio of approximately 30.0%. In Aug 2013,
the company raised its dividend by 14.5% to 79 cents per
share. As of Sep 30, 2013, Union Pacific bought back nearly
9.6 million shares for $1.4 billion and has roughly 5.4 million
shares remaining under its current authorization.
Investor confidence in Union Pacific was also solidified with
its recent earnings beat. The company reported third quarter
adjusted earnings of $2.48 per share, surpassing the Zacks
Consensus Estimate of $2.47 and year-ago earnings of $2.19. The
increase was aided by higher pricing and an improvement in
operating ratio, which more than offset flat volumes.
Most of Union Pacific's segments reported steady performance
in the third quarter. We believe such strong segmental growth has
also allowed Union Pacific to raise investor returns.
Nevertheless, concerns related to agricultural and coal volumes,
stringent regulations, rising expenditures and competitive
threats keep us wary on the near-term results of the company.
Additionally, the export business of the company is exposed to
global uncertainties, which also pose threats in the current
Union Pacific, which operates with other railroad companies
Kansas City Southern
Canadian Pacific Railway Ltd
), currently has a Zacks Rank #4 (Sell).
CDN PAC RLWY (CP): Free Stock Analysis Report
CSX CORP (CSX): Free Stock Analysis Report
KANSAS CITY SOU (KSU): Free Stock Analysis
UNION PAC CORP (UNP): Free Stock Analysis
To read this article on Zacks.com click here.