Union Pacific Corp (UNP) carried its strong momentum into the third quarter and delivered yet another positive earnings surprise. The railroad giant hasn’t missed on earnings in over 5 years.
Union Pacific recognized strong volume and pricing gains in every business segment in the third quarter. Analysts have been revising their estimates higher as they expect the company to continue to benefit from an economic recovery.
Despite a huge run up in share price, the company is still reasonably valued and offers attractive upside from here.
Third Quarter Results
On October 21, Union Pacific announced its third quarter results. The company delivered earnings per share of $1.56, beating the Zacks Consensus Estimate by 6 cents. It was a 54% increase over the same quarter in 2009.
Total revenues grew by 20% as the company saw strong gains from an improved economy. Operating income jumped 46% year-over-year due to the company’s operating leverage.
Union Pacific also bought back more than 7.6 million shares in the quarter for approximately $560 million, reflecting the company’s strong cash flow and improved outlook for the future.
Estimates
Analysts have been revising their estimates upward since the most recent earnings beat, prompting a Zacks #2 Rank (Buy).
The Zacks Consensus Estimate for 2010 is $5.41, representing a 50% increase in EPS over 2009. The 2011 estimate is currently $6.30, corresponding to 16% annual growth.
Dividend
Union Pacific cut its dividend in 1997, but has raised it or held it steady every year since then. Since 2000, the company has raised its dividend at a compound annual rate of 12.7%.
Its payout ratio is only 26%, as the company must spend a lot of its operating cash flow on capital investments. The stock has a dividend yield of 1.5%.
Shares are trading at 15.9x forward earnings, a discount to the industry average of 18.8x. Its PEG ratio is a very reasonable 1.1.
It trades at premium on price to book value (2.5 vs. 1.3), but its stellar return on equity (14.8% vs. 7.0%) justifies the premium.
Read the August 3 article here.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
Last Week’s Growth & Income Zacks Rank Buy Stocks:
H.J. Heinz Co (HNZ) is trading near a 52-week high as the company continues to benefit from the booming middle class in emerging markets. The company recently reported a solid first quarter marked by strong sales growth and an expanding gross margin. Read the full article.
McDonald’s Corp (MCD) continues to deliver impressive results by sticking with what it does best – delivering food fast and cheap – and also expanding its menu to offer deluxe coffees and smoothies. Read the full article.
Snap-on Inc (SNA) recently reported solid third quarter results driven by excellent sales growth and an improvement in the gross margin. Analysts have been raising their estimates recently, moving the stock to a Zacks #1 Rank (Strong Buy). Read the full article.
Tupperware Brands Corp (TUP) recently reported third quarter earnings that beat the Zacks Consensus Estimate by 10%. Management raised guidance following the solid quarter, prompting analysts to raise their estimates. Read the full article.
UNION PAC CORP (UNP): Free Stock Analysis Report
Zacks Investment Research
