Union Pacific (UNP) Poised to Gain from Automotive Division
Leading passenger and cargo carrier, Union Pacific Corporation (UNP), performed well in the third quarter of 2014, reporting higher-than-expected revenues and earnings. The impressive performance was driven by higher shipments and pricing gains. The company is progressing well on its operating and productivity improvement efforts to provide safe, efficient and high quality service.
The company is optimistic about growth trends across the majority of its product lines. We believe growth drivers for the company in the coming quarters will be broadly based on increased grain shipments, continued demand for ethanol, imported beer delivery and recovery in housing starts. We are also positive on the company’s near-term revenue and volume growth from the automotive division.
In 2014, light vehicle sales estimate of 16 million units, up from the 2013 projection of 15.5 million, will drive demand of finished vehicles and auto parts. Meanwhile, low inventory levels and higher natural gas prices will drive demand for coal, while strong projection of ethanol production will boost its volume.
On the flip side, Union Pacific faces intense competition from various transportation providers including railroads and motor carriers that operate similar routes across its service area and, to a less significant extent, from barges, ships and pipelines. The company’s primary rail competitor is Burlington Northern Santa Fe Corporation (“BNSF”), which operates across most of the company’s territory.
A major challenge for railroads is the uncertain regulatory environment in the U.S., Canada and Mexico. Some of the proposed regulations in these countries may work against railroad carriers, thus threatening to impact Union Pacific’s performance. Currently, railroads are subject to commercial regulation by the Surface Transportation Board (STB), which holds jurisdiction over some routes, rates and fuel surcharges, conditions of service, consolidation, merger or acquisition, and hours of service.
Union Pacific currently holds a Zacks Rank #3 (Hold).
Other Stocks to Consider
Better-ranked stocks worth considering in this sector include CSX Corp. (CSX), Kansas City Southern (KSU) and Delta Air Lines, Inc. (DAL). All these stocks sport a Zacks Rank #2 (Buy).
Read the Full Research Report on KSU
Read the Full Research Report on CSX
Read the Full Research Report on UNP
Read the Full Research Report on DAL
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