Union Pacific: Buy for Gains

Union Pacific (UNP) is continuously focusing on improving fluid capability and efficient network, which has enabled Union Pacific to improve its operating ratio in the last reported quarter. For example, the company during the quarter improved terminal productivity through reducing number of cars switched. This helped the company to improve rail productivity by 8% during the quarter. Also, it train length performance across major categories have increased that generated significant gain to network productivity.

Benefiting from the right areas

Union Pacific should benefit from the strong growth in automobile markets across the United States.
As per a report from IHS, the low interest rates coupled with low gas price will allow the auto market to remain positive throughout 2016. IHS sees plenty of upside potential for auto market in the region with the growth of US economy and stronger employment rate. It expects these factors to boost auto market to 18 million units over the next couple of years.

Also, it expects tremendous growth potential for automotive markets across the globe. IHS calls for sales of approximately 89.8 million units, which is just shy of the possibility of a global automotive light vehicle market reaching 90 million units.

Union Pacific looks pretty strong to tap this growth in the automotive segment. It plans to spend approximately $965 million for its equipment and locomotive segment. In fact, it remains on track to buy 230 new locomotives and 450 freight cars this year. Also, the company is investing approximately $395 million in capacity or commercial facilities that should permit the company to tap this strong growth in the automotive segment. Overall it plans to spend nearly $3.75 billion in replacement, growth and productivity in 2016.

Union Pacific is focused on improving its fundamental through its costs and productivity initiatives that will partially offset this decline in coal and drive its bottom line performance. Let us have a glimpse on these initiatives.

Conclusion

Union Pacific is making significant progress with respect to costs reduction and improvement in the train productivity that should help the company to partially offset the decline in coal and oil related businesses. Also, the company is investing in the franchises and new technology that will help the company to tap the growing automotive market efficiently. Overall, the company has done well and is expected to do well once the uptick in the commodity market takes place.
Published on Feb 19, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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