On Dec 28, 2015, we issued an updated research report on Union Pacific Corporation UNP. The Omaha, NE-based railroad operator has had a horrendous 2015 like most of its peers. Year to date, the stock has shed 34.24% of its value.
In the third quarter of the year, revenues at Union Pacific decreased 10% year over year to $5.56 billion, falling short of the Zacks Consensus Estimate of $5.65 billion. The bulk of the company’s revenues came from freight revenues. A 10% decline in freight revenues hurt the top line. Declining coal shipments weighed on the railroad operator’s results yet again. Volumes slipped 6%, with coal being the biggest culprit. Apart from coal, decreasing volumes of industrial products and agricultural products also induced the decline. The intermodal segment also performed disappointingly in the quarter. The company’s performance was lackluster in the first two quarters of 2015 as well.
What is worse is that the situation, particularly with respect to coal, is unlikely to improve any time soon. This means that further troubles lie ahead for operators like Union Pacific which have a large exposure to the commodity. Consequently, it is no surprise that earnings per share estimates for Union Pacific are on the downswing for 2015 as well as 2016.
While EPS estimates for 2015 are down 2 cents to $5.65 over the last 30 days, earnings estimates for 2016 have gone down 12 cents to $6.03 per share over the same period. This augments our view that tough times lie ahead for Union Pacific. To counter the declining revenues, Union Pacific is looking to control costs through measures like job cuts to drive bottom-line growth.
We however believe, that despite the cost-cutting initiatives, it is going to be a difficult phase for Union Pacific going ahead as demand for coal is not likely to improve radically any time soon. With the rail operator struggling big time and no respite in sight in the near term, we advise investors to dump this Zacks Rank #4 (Sell) stock from their portfolios.
Zacks Rank & Other Picks
To make things worse, none of the stocks in the Trans-Rail segment currently have a favorable Zacks Rank. At this juncture, investors interested in the transportation space should look elsewhere to buy rewarding stocks. Airline companies like Alaska Air Group ALK, Virgin America VA and JetBlue Airways Corp. JBLU are worth considering as all the three stocks bear a Zacks Rank #2 (Buy) at the moment.
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