UNP: A Rail Stock To Consider Now
Mitchell Clark | Apr 30, 2014 02:29AM ET
Moody’s Investors Service just boosted Union Pacific Corporation’s (NYSE:UNP) senior unsecured debt after the company reported another really good quarter.
The railroad company’s numbers were extremely good, considering the weather in the first quarter. Total operating revenues for the quarter grew seven percent to $5.6 billion, with particularly strong growth in agricultural shipments.
A number of the company’s financial metrics improved during the first quarter. Fuel costs and total operating expenses only rose marginally, contributing to an impressive 14% gain in operating income to $1.85 billion.
The company’s operating ratio (an important industry metric) improved two basis points to 67.1%, and diluted earnings per share grew a substantial 17% to $2.38.
Spending $683 million during the first quarter on share repurchases, the company bought back 3.8 million of its own shares at an average price of $178.85. This obviously helped with the diluted earnings-per-share gain.
Not one of Union Pacific’s main customer groups produced a decline in its comparative first-quarter freight revenues. Automotive was flat compared to last year, while chemicals and coal were up two and three percent, respectively.
Intermodal revenues grew four percent during the quarter, but the big growth came from industrial product revenues, up 10%, and agricultural product revenues, up 16%, comparatively.
All this from a very mature, old economy franchise. Union Pacific has been making money for shareholders left, right, and center. And with the expectation of slightly improving economic conditions domestically, there’s no reason why this position can’t keep ticking higher. The company’s medium-term stock chart is featured below:
This stock experienced a material consolidation in the bottom half of 2013, but since then the position’s been soaring on renewed investor interest.
I don’t like buying or recommending stocks in mature businesses at their all-time highs. Very recently, Union Pacific’s share price retrenched close to $180.00 per share. With all the buying the company is effecting in its own shares, 2014 should be another good year for shareholders.
Most (but not all) of the other domestic railroads reported very good first-quarter financial results; it’s actually an exciting time to be in this industry.
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New regulations are on tap regarding tanker railcar safety, and the entire railcar services group is worth having on your radar if it’s not already. New railcar safety rules aren’t a worry for the railroads themselves because the order backlog is vast, and frankly, they can easily afford it.
Union Pacific’s balance sheet is in good shape, and Wall Street analysts are increasing their earnings expectations on the company for this year and next.
All in all it was a very good quarter; the company’s been consistently producing good numbers for some time now.
The Association of American Railroads produces very good statistics on the North American railroad industry, as well as Amtrak. If you’re interested in these railroad stocks or the industry, then it’s worthwhile to read up on the numbers because they are very good barometers.
U.S. rail traffic is growing compared to last year, especially with its most recent numbers. It’s a strong sign that a company like Union Pacific will keep producing record results.
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