On Feb 15, we maintained our Neutral recommendation on
Union Pacific Corporation
), reflecting its diversified business base, favorable pricing
gains and high customer satisfaction level. However, the sluggish
economic growth, labor union issues and increased expenditures
somewhat dampened the positive aspects of the company. The rail
transportation service provider holds a Zacks Rank #3 (Hold).
Why Kept at Neutral?
On Jan 24, Union Pacific posted mixed fourth quarter 2012
financial results. The company's earnings moved ahead the Zacks
Consensus Estimate, while revenue missed our projection, hurt by
lower coal and agricultural shipments.
Although weakness in the grain market is anticipated to weigh
over agricultural revenue in the coming days, we believe that
Union Pacific is progressing well on its operating and
productivity improvements. The prime growth drivers of the
company, in the coming quarters, will be broadly based on crude
oil, chemicals, fracturing sand and automotive shipments along
with recovery in housing starts. Perked up activities in the
construction division will boost the performance of the
Industrial unit, offsetting the effects of low steel mill
We appreciate the company's commitment to make long-term
investments of about 17-18% of the total revenue over the next
several years. For 2013, the company expects to invest about $3.6
billion with more than half of the investments targeted toward
infrastructure replacement and enhancement of commercial plants.
The company aims to invest nearly $1 billion in service growth
and productivity projects that will lend it an edge over other
industry players such as
Canadian National Railway Company
Nevertheless, we stay on the sidelines due to the concerns
related to agricultural and coal volumes, stringent regulations,
inflationary cost conditions and competitive threats.
Additionally, the export business of the company is exposed to
For the first and second quarters of 2013, the Zacks Consensus
Estimates for earnings are $1.99 and $2.33 per share,
respectively. This reflects a respective year-over-year growth of
10.95% and 10.85%.
Other stocks operating within the sector that are worth
Genesee & Wyoming Inc.
) - with a Zacks Rank #1 (Strong Buy) - and
Canadian Pacific Railway Limited
) - with a Zacks Rank #2 (Buy).
CDN NATL RY CO (CNI): Free Stock Analysis
UNION PAC CORP (UNP): Free Stock Analysis
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