Union Pacific (UNP) Down 2.7% in the Past 3 Months: Here's Why
Delta-mutant induced weak volumes are likely to have ailed Union Pacific's (UNP) third-quarter 2021 performance.
It is a well-known fact that freight revenues have improved from the 2020 levels this year so far with gradual recovery in economic activities. This is a welcome development for the railroads as freight revenues comprise the bulk of their top lines. Evidently, at Union Pacific Corporation UNP, second-quarter 2021 freight revenues improved 29% year over year.
However, the spread of the highly contagious Delta variant of COVID-19 in the United States proved to be a dampener and is threatening to derail the economic growth trend witnessed since the start of the year. This naturally affected freight revenues. Due to the Delta variant-induced supply-chain woes, shipment volumes declined 4.2% and 3.1% month over month in June and July, respectively.
Also, per data released by the Association of American Railroads, U.S. rail traffic (including carloads and intermodal units) has dipped year over year in each of the past three weeks (week ended Sep 18, Sep 25 and Oct 2). Mainly, due to the above-mentioned headwinds, shares of Union Pacific, currently carrying a Zacks Rank #4 (Sell), have declined 2.7% in the past three months against its industry’s 2.3% rise in the period.
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Delta-strain induced volume softness is likely to have hurt Union Pacific’s third-quarter 2021 performance. Moreover, operational disruptions due to Hurricane Ida are likely to have dented Union Pacific's overall volumes in the September quarter. Increasing fuel costs per gallon as oil prices move north are likely to have dented bottom-line growth in the same period.
The Zacks Consensus Estimate for the September quarter’s fuel price per gallon is currently pegged at $2.27, indicating a rise from $2.16 recorded in the June quarter. Detailed results are scheduled to be out on Oct 21.
The Zacks Consensus Estimate for September-quarter earnings has been revised 2.33% downward over the past 60 days. The company’s Momentum Score of F further highlights its short-term unattractiveness.
Stocks to Consider
Some better-ranked stocks in the broader Zacks Transportation sector are Schneider National, Inc. SNDR, Landstar System, Inc. LSTR and TFI International Inc. TFII, all carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term expected earnings per share (three to five years) growth rate for Schneider National, Landstar and TFI International is pegged at 17.9%, 12% and 31.6%, respectively.
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