Markets
NSC

Will Weak Coal Hurt Union Pacific's (UNP) Q2 Earnings?

Leading railroad operator Union Pacific CorporationUNP is slated to release its second-quarter 2016 results on Jul 21, before market opens. Last quarter, the company recorded a positive earnings surprise of 6.42%. Let's see how the company performs in the second quarter.

Factors at Play this Quarter

Union Pacific has made consistent efforts to improve productivity and operational performance. The company is focused on providing safe and reliable services and if the economic conditions are favorable, it could witness solid pricing gains. The company also has one of the strongest balance sheets in the industry and its shareholder returns policy is impressive.

A cause of concern for railroad companies is declining coal volumes. Most stocks in the industry such as Kansas City Southern KSU , Norfolk Southern Corporation NSC , among others, have been struggling due to slow-paced economic growth resulting in lower demand for coal. We expect low coal volumes to hurt the company's top line in this quarter as well. Additionally, the expansion of the Panama Canal could lower freight volumes for Union Pacific as it witnesses high freight volumes from the U.S. West to East Coast. The train derailment in Oregon has also increased concerns about safety in the railroads industry. As a result, new safety measures could increase costs. It remains to be seen how the company performs in wake of the present challenges.

UNION PAC CORP Price and EPS Surprise

UNION PAC CORP Price and EPS Surprise | UNION PAC CORP Quote

Earnings Whispers

Our proven model does not conclusively show that Union Pacific is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Most Accurate estimate stands at $1.16, while the Zacks Consensus Estimate is pegged at $1.17. Hence, the ESP is -0.86%.

Zacks Rank: The company carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, the negative ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

A Stock to Consider

Here is a stock you may want to consider as our model shows it has the right combination of elements to post an earnings beat this quarter.

United Parcel Services Inc. UPS has an Earnings ESP of +2.11% and a Zacks Rank #2.

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 >>

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

KANSAS CITY SOU (KSU): Free Stock Analysis Report

UNION PAC CORP (UNP): Free Stock Analysis Report

NORFOLK SOUTHRN (NSC): Free Stock Analysis Report

UTD PARCEL SRVC (UPS): Free Stock Analysis Report

To read this article on Zacks.com 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

NSC UNP UPS

Other Topics

Earnings Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More