Can Freight Demand Aid Union Pacific (UNP) Q2 Earnings?

Union Pacific Corporation UNP is slated to release second-quarter 2018 results on Jul 19, before the market opens.

Last reported quarter, the company delivered a positive earnings surprise of 1.8%. The company posted better-than-expected earnings and revenues in the quarter. Moreover, both metrics improved on a year-over-year basis. Higher freight revenues boosted results. The company also boasts an impressive earnings history, having outperformed the Zacks Consensus Estimate in three of the last four quarters with an average beat of 1.9%.

Let’s see how things shape up for this earnings season.

What the Zacks Model Unveils

Our proven model shows that Union Pacific is likely to beat on earnings this quarter as well on the back of the following two key ingredients:

Zacks ESP: Union Pacific has an Earnings ESP of +0.14% as the Most Accurate estimate is pegged at $1.94, above the Zacks Consensus Estimate of $1.93. A positive ESP indicates a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Union Pacific carries a Zacks Rank #3 (Hold). Notably, stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 when combined with a positive ESP have significantly higher chances of beating estimates.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Union Pacific Corporation Price and EPS Surprise

 

Union Pacific Corporation Price and EPS Surprise | Union Pacific Corporation Quote

What is Driving This Better-Than-Expected Earnings?

Higher freight revenues are expected to boost Union Pacific's second-quarter results. Overall, volume growth is anticipated to aid growth in freight revenues. The metric comprises the maximum share of total revenues. Thus an uptick in this segment is highly beneficial to the overall results. It is to be noted that United States is currently witnessing high freight demand.

The new tax law is also anticipated to boost the company’s bottom line in the quarter. The huge savings from the reduced corporate tax rate are likely to generate higher cash flow, leading to an uptrend in shareholder-friendly activities such as dividend hikes and share buybacks. In fact, the company flaunts an encouraging dividend payment history, having meted out the same for consecutive 119 years.

However, the declining coal production raises a concern and might as well hamper volume growth of the same. As railroads are heavily dependent on coal for its fortunes, any adverse development pertaining to the commodity is likely to hurt the company’s performance.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also check out a few other stocks worth considering like United Parcel Service, Inc. UPS, Canadian National Railway Company CNI and CSX Corporation CSX as these too possess the right combination of elements to beat estimates in their next releases.

UPS has an Earnings ESP of +0.53% and a Zacks Rank of 3. The company will report second-quarter earnings on Jul 25.

Canadian National Railway has an Earnings ESP of +0.73% and is a Zacks #3 Ranked player. The company will report second-quarter earnings on Jul 24.
 
CSX has an Earnings ESP of +1.02% and a Zacks Rank #2. The company is scheduled to report second-quarter earnings numbers on Jul 17. You can see the complete list of today’s Zacks #1 Rank stocks here.

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