The railroads have been on a tear since the Great Recession. Union Pacific Corporation ( UNP ) reported record first quarter results in April. Despite shares hitting new 10-year highs, this Zacks #2 Rank (Buy) still has value, with a forward P/E of 14.1.
Union Pacific operates Union Pacific Railroad which operates in 23 western states and serves 6 Mexico gateways. It transports agricultural products, autos, chemicals, energy products, industrial products and intermodal.
Record First Quarter
On Apr 19, Union Pacific reported first quarter results and surprised on the Zacks Consensus by 9.2%. Earnings were $1.79 compared to the consensus of $1.64. This was the fourth earnings beat in a row but it continued an impressive earnings surprise record. It has only missed once in the last 5 years.
It saw revenue growth in all six of its business groups despite the weakness in coal. Automotive led the way, up 26% followed by Industrial Products which rose 25%.
2012 Zacks Consensus Estimate Rises
Out of 23 estimates, 1 has risen and 1 has been lowered for the full year in the last 30 days.
However, over the last 90 days, the Zacks Consensus has risen 5 cents to $8.12. The analysts clearly don't see a slowdown yet.
That is still earnings growth of 20.8% as the company only made $6.72 in 2011.
Shares At 10 Year Highs
It has paid to be in the railroad stocks the last few years and Union Pacific is no exception.
Shares recently traded at new 10-year highs.
However, due to rising earnings, valuations are still attractive.
In addition to a P/E under 15, which is my cut-off for value, it has a price-to-book ratio of 2.9. A P/B ratio under 3.0 usually indicates value.
Is it the cheapest value stock in the universe? No. But it still has value characteristics.
Shareholders are also rewarded with a dividend, currently yielding 2.1%.
Railroad demand is an indicator of health in the economy. I will be closely watching this sector in the upcoming earnings season for clues about the strength of the recovery.
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