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Union Pacific Chugs on Recovery Surge

By    |   Wednesday, 17 Aug 2011 11:47 AM

Union Pacific (UNP), the country’s largest railroad, has benefited from the end of recession, reporting strong earnings in the second quarter. Profit climbed 10 percent in the latest quarter, to $785 million from $711 million a year earlier. Revenue jumped 16 percent to $4.86 billion. Higher prices and rising freight volume sparked the improvement.

"We saw the benefits of our diverse franchise, with volume growth in five of our six commodity groups,” Union Pacific CEO Jim Young said. “We generated record second quarter operating income and cash from operations despite the impact of severe flooding in the Midwest."

As long as the economy can avoid falling back into a downturn, the company’s prospects look bright. "Looking to the second half of the year, we expect stronger performance despite some economic uncertainties and ongoing flood challenges," Young said.

Analysts are bullish on the company’s prospects too, with 22 of 31 tracked by Thomson/First Call rating Union Pacific shares a buy or a strong buy.

Standard & Poor’s analyst Kevin Kirkeby has a three-star hold rating on the stock. He expects Union Pacific’s revenue to increase 15 percent in 2011, thanks to a 4 percent gain in volume and an 11 percent improvement in yield.

“Fuel surcharges will contribute about four percentage points of the increase,” Kirkeby writes. “We look for volumes to become more balanced, as coal, export grain, and various industrial segments rise at a faster pace during the remainder of 2011.”

Growth to come

Contract renewals coming up in the fourth quarter of this year or during 2012 also will buoy earnings, Kirkeby says. He predicts revenue growth of 6 percent for next year.

The stock deserves a valuation above the middle of its long-term range, he says. Kirkeby’s 12-month share price target is $107, about 14 percent above recent levels. The company next reports around Oct. 21.

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Union Pacific (UNP), the country s largest railroad, has benefited from the end of recession, reporting strong earnings in the second quarter. Profit climbed 10 percent in the latest quarter, to $785 million from $711 million a year earlier. Revenue jumped 16 percent to...
Union Pacific,UNP,railroads,stocks
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2011-47-17
Wednesday, 17 Aug 2011 11:47 AM
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