Why You Should Get Rid of Union Pacific Ahead of Q4 Earnings

Union Pacific CorporationUNP is a stock that investors would do better to discard from their portfolios at the moment.

The negative sentiment surrounding the stock is evident from the Zacks Consensus Estimate for fourth-quarter 2018 earnings (scheduled to be released on Jan 24) being revised nearly 1% downward in the last 60 days. The same for full-year earnings has been trimmed by 3 cents. The company also has a VGM Score of D. Here V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of all three scores.

Let's delve into the factors responsible for the stock's dismal performance.

Union Pacific's high operating expenses are concerning. Operating costs have increased 8% in the first nine months of 2018, mainly due to a 41% rise in fuel-related expenses. The high operating expenses have potential to hamper bottom-line growth going forward.

Additionally, declining coal volumes due to pricing pressures might hurt the company's fourth-quarter results. At the Credit Suisse 6th Annual Industrials Conference held last November, the company stated that fourth-quarter volumes at the energy and agricultural segments dropped 10% and 4%, respectively, as of Nov 25.

Union Pacific Corporation Price and Consensus

Union Pacific Corporation Price and Consensus | Union Pacific Corporation Quote

The company's high debt levels are another downside. Debt/EBITDA ratio (adjusted) at Union Pacific is anticipated to increase to up to 2.7 in 2020. The ratio was 1.9 in 2017. A high Debt/EBITDA ratio often indicates that a company might be unable to service its debt appropriately.

In terms of price-to-book ratio, which is often used to value railroads, the stock's valuation appears to be unfavorable compared with the market at large. The company currently has a trailing 12-month P/B ratio of 4.9 compared with the industry's average of 4.3.

Due to these headwinds, shares of the company have shed more than 2% of value in the past six months.

The company carries a Zacks Rank #4 (Sell).

Key Picks

Some better-ranked stocks in the broader Transportation sector are United Continental Holdings UAL , Spirit Airlines SAVE and Azul AZUL . While United Continental holds a Zacks Rank #2 (Buy), Spirit Airlines and Azul flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Shares of United Continental, Spirit Airlines and Azul have rallied more than 24%, 29% and 16%, respectively, in 2018.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>

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

Spirit Airlines, Inc. (SAVE): Free Stock Analysis Report

United Continental Holdings, Inc. (UAL): Free Stock Analysis Report

Union Pacific Corporation (UNP): Free Stock Analysis Report

AZUL SA (AZUL): Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics

Earnings Stocks

Latest Markets Videos