Shares of Union Pacific Corporation UNP gained 2.9% on Jan 8, 2021, closing the trading session at $218.82. This upside can be attributed to the upbeat predictions issued by the company’s management for the December quarter. Detailed results will be available on Jan 21, 2021.

With the freight scenario improving in the United States, we expect freight revenues, which account for bulk of the railroad operator’s top line, to have grown in the final quarter of 2020. Evidently, the Zacks Consensus Estimate for fourth-quarter freight revenues, is currently pegged at $4,716 million, indicating a 2.5% improvement from the reported figure in third-quarter 2020. Rise in freight revenues is likely to have bolstered the overall top line in the to-be-reported quarter. Union Pacific expects fourth-quarter operating revenues to be approximately $5.1 billion, which is above the Zacks Consensus Estimate of $5.05 billion.

The company’s efforts to check costs are likely to have driven its bottom line in the quarter to be reported. Performance with respect to the operating ratio (operating expenses as a % of revenues) is also likely to have bettered, mainly owing to cost cuts.

The railroad operator expects its operating expenses and operating income to be approximately $3.1 billion and $2 billion, respectively, for the December quarter. However, excluding the $278-MILLION non-cash impairment charge, adjusted operating expenses are projected to be $2.9 billion while the adjusted operating ratio is anticipated at 55.6% compared with 59.7% reported in the fourth quarter of 2019. Notably, a lower value of the ratio is favorable.

Zacks Rank & Stocks to Consider

Union Pacific currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Zacks Transportation sector are FedEx Corporation FDX, Landstar System, Inc. LSTR and Herc Holdings Inc. HRI. Landstar carries a Zacks Rank #2 (Buy) while FedExand Herc Holdings sport a Zacks Rank #1 (Strong Buy), presently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for FedEx, Landstar and Herc Holdings is pegged at 12%, 12% and 12.6%, respectively.

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