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Post Info TOPIC: Quarterly earnings preview: Union Pacific


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Quarterly earnings preview: Union Pacific
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spacer.gifQuarterly earnings preview: Union Pacific

(The following appeared at Zacks.com on July 19, 2010.)

NEW YORK An improving U.S. economy, significant surge in automotive shipments, and a sharp rebound in many of the companys end markets are expected to fuel future growth of Union Pacific Corp. (NYSE: UNP - News). In the previous quarter, the company benefited primarily from increased operating revenues due to growth in business volumes. Union Pacific will declare its second quarter 2010 financial results on July 22 before market opens.

Agreement of Analysts

The recent Zacks Consensus Estimate revision trend is extremely favorable for Union Pacific. Out of the total 25 analysts covering the stock, 12 analysts raised their EPS estimates for the second quarter 2010 during last 30 days but no one reduced it. For fiscal 2010, 13 analysts out of total 24 raised their EPS estimates during the last 30 days and just 1 analyst reduced it.

If the current Zacks Consensus EPS of $1.21 for the second quarter materialized, it would be a whopping 54.56% year-over-year growth. Similarly, the current Zacks Consensus Estimate of $4.79 for fiscal 2010 indicates a substantial gain of 32.81% year over year.

We believe the positive sentiments among analysts were driven by strong pricing and volume. As the U.S. economy continues to grow gradually, demand for carriage will become robust and the momentum is expected to sustain in the near future. Analysts are also convinced that rail transportation companies will continue to push the price increase to their customers.

Magnitude of Estimate Revisions

In accordance with the strong positive estimate revision trend, the Zacks Consensus Estimate for the second quarter was up by 5 cents during the last 30 days. Similarly, for fiscal 2010, the Zacks Consensus Estimate increased by a significant 9 cents during the last 30 days.

Earning Surprises

With respect to earnings surprises, Union Pacifics good track record is expected to persist in the coming quarters. Union Pacific produced a positive average earnings surprise of 3.45% in the last four quarters, which means that it beat the Zacks Consensus Estimate by that measure over the last year. The current Zacks Consensus Estimates for both the second quarter and fiscal 2010 contain upside potential (essentially a proxy for future earning surprises) of 0.83% and 0.63%, respectively.

Our Recommendation

Currently Union Pacific is a short-term Zacks #2 Rank (Buy) stock. This is primarily due to several positive industry trends that may allow Union Pacific to maintain healthy profit margins and cash flow. At the same time, this is also our view that one of the company's most important segments, coal, may continue to lag through the remainder of fiscal 2010. The long-term growth will be boosted if coal demand and the economy picks up in future. We thus maintain our long-term Neutral recommendation for Union Pacific.

Wednesday, July 21, 2010



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