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What's in Store for Union Pacific (UNP) This Earnings Season?

Union Pacific Corporation UNP is slated to release fourth-quarter 2020 results on Jan 21, before market open.

The railroad operator's earnings surpassed the Zacks Consensus Estimate in two of the last four quarters and lagged the same on the remaining two occasions. The average beat is 4.5%.

Union Pacific Corporation Price and EPS Surprise

Union Pacific Corporation price-eps-surprise | Union Pacific Corporation Quote

Moreover, the Zacks Consensus Estimate for fourth-quarter earnings has been revised 7.1% upward in the past 60 days.

Against this backdrop, let’s take a look at the factors that might have shaped the company’s December-quarter performance.

We expect Union Pacific's fourth-quarter performance to have been aided by the improving freight conditions in the United States. Owing to this positive, 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% rise from the reported figure in third-quarter 2020. The Zacks Consensus Estimate for overall volumes is flat with the sequentially reported figure. 

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 $5.1 billion, above the $4.9 billion figure recorded in third-quarter 2020. The bottom line is also likely to have been driven by this railroad operator’s cost-cutting measures. Increased efficiency owing to the precision scheduled railroading model is likely to have contained costs.

Owing to cost cuts, the operating ratio (operating expenses as a % of revenues) might have improved in the to-be-reported quarter. Notably, lower the value of the operating ratio, the better. The Zacks Consensus Estimate for the operating ratio hints at an improvement to 58% from the September quarter’s reported number of 59%. The company expects its adjusted operating ratio to improve to 55.6% from 60% reported in fourth-quarter 2019.

Moreover, despite the recent uptick in the freight scenario, freight revenues are likely to have declined year over year. Evidently, the Zacks Consensus Estimate for fourth-quarter freight revenues hints at a 2.8% dip from the number reported in the prior-year quarter.

What Does the Zacks Model Say?

The proven Zacks model does not predict an earnings beat for Union Pacific this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. However, that is not the case here as elaborated below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Union Pacific has an Earnings ESP of 0.00% as the Most Accurate Estimate is in line with the Zacks Consensus Estimate of $2.25. 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, currently.

Highlights of Q3 Earnings

Union Pacific's earnings of $2.01 per share missed the Zacks Consensus Estimate of $2.03. Moreover, the bottom line declined 9.5% on a year-over-year basis. Operating revenues of $4,919 million also missed the Zacks Consensus Estimate of $4,983 million. Moreover, the top line fell 10.8% on a year-over-year basis due to sluggish freight revenues

Stocks to Consider

Investors interested in the Zacks Transportation – Rail industry may consider Canadian Pacific Railway Limited CP, CSX Corporation CSX and C.H. Robinson Worldwide CHRW as these stocks possess the right combination of elements to beat on earnings this reporting cycle.

Canadian Pacific has an Earnings ESP of +0.12% and is Zacks #3 Ranked, presently. The company will release fourth-quarter 2020 results on Jan 27.

CSX has an Earnings ESP of +0.47% and a Zacks Rank of 3 at present. The company will release fourth-quarter 2020 results on Jan 21.

C.H. Robinson has an Earnings ESP of +1.01% and a Zacks Rank of 3 at present. The company will release fourth-quarter 2020 results on Jan 26.

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Union Pacific Corporation (UNP): Free Stock Analysis Report
 
CSX Corporation (CSX): Free Stock Analysis Report
 
C.H. Robinson Worldwide, Inc. (CHRW): Free Stock Analysis Report
 
Canadian Pacific Railway Limited (CP): Free Stock Analysis Report
 
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