Union Pacific Corporation (UNP) is a storied name in the history of railroad stocks.
During America’s territorial and economic expansion in the latter half of the 19th century, the railroad was the Internet of its day — and UNP stock was the the center of it. Rail was considered a technological marvel: it connected the vast continent’s two coasts, it moved goods at a speed and efficiency once thought unimaginable, and it made its owners rich and powerful.
The fortunes of railroad operators also moved in tandem with the overall economy, prompting analysts back then to scrutinize rail as a bellwether for the health of the nation’s businesses.
That remains very much the case today, too.
UNP Stock Still Chugging Along
In the 21st century, rail — and Union Pacific Corporation, along with peers Norfolk Southern Corp. (NSC) and CSX Corporation (CSX) — still play this pivotal role of economic baramoter despite the advent of alternate transportation methods. Rail traffic remains a measure of the nation’s economy and, as the United States increasingly recovers from the Great Recession, railroad operators are thriving.
UNP stock in particular is prospering from the exponential growth in carloads of oil shipped out of the prolific North American shale formations. Union Pacific stock also is benefiting from operational streamlining that makes UNP one of the most efficiently run railroads in the nation.
Phenomenal production growth in the shale formations of the Northern Midwest and southern Canada is stretching infrastructure to its limits, compelling energy companies to lean on the “old line” transportation method of rail via companies like UNP. Crude oil by rail represents only 2 percent of overall industry volume. However, in the landlocked Bakken shale formation, nearly three quarters of crude is transported by rail and only 20% is shipped by pipeline.
Union Pacific Corporation operates in 23 states in the central and western half of the U.S., coveted territory that gives it enormous flexibility in raising prices. If you’re an energy company in this booming part of the energy patch, Union Pacific is the logical recourse to get your product to market.
Union Pacific Stock, By the Numbers
In the third quarter of 2014, higher shipping rates boosted Union Pacific’s adjusted earnings per share, which came in at $1.53, a whopping increase of 23% compared to $1.24 in the same period a year ago. UNP stock also posted a revenue increase of 11% year over year to $6.2 billion in the third quarter. Both earnings and revenue growth stemmed from higher volumes (carloads) combined with pricing gains for Union Pacific stock. Carloads jumped grew 7% year over year; average revenue per car increased 3% year over year.
Union Pacific also is benefiting from the resurgence of the automobile sector this year. As consumers feel wealthier, they’re increasingly making car and truck purchases that they had deferred in the wake of the Great Recession. In the third quarter, the company’s automotive shipments accounted for $527 million of total revenue, up 3% year over year.
Even coal, which has experience a slump in recent years, was in the upswing in the quarter; UNP stock saw coal revenues increase 2% year over year to $1.1 billion; average revenue per coal-laden car also rose 2% year over year.
One hot trend in the shipping industry is “intermodal” transportation, whereby truck, rail and seafaring craft transport the same shipments within an interconnect network of multi-use containers. Union Pacific stock saw its intermodal segment revenue rose 15% year over year to $1.2 billion; average revenue per car was up 4% year over year.
Growing strength in the energy and automotive industries will continue to lift rail freight volumes this year and next, while higher prices for truck fuel will displace long-distance freight off the highways and onto the rails. For American transportation, railroads are a profitable trip back to the future.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
