Leading railroad operator, Union Pacific Corporation UNP is slated to release third-quarter 2016 results on Oct 20, before the market opens.
Last quarter, the company reported in-line earnings. The bottom line, however, declined 15% on a year-over-year basis. Revenues decreased 12% year over year to $4.8 billion in the second quarter and narrowly missed the Zacks Consensus Estimate. Results were hurt by declining coal shipments.
Our quantitative model does not show conclusively that Union Pacific is likely to beat on earnings in the third quarter. According to our proven model, a company needs the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #3 (Hold) or better – to increase its odds of an earnings surprise. However, this is not the case as highlighted below.
Zacks ESP:The Earnings ESP for Union Pacific is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.39 per share.
Zacks Rank:Union Pacific holds a Zacks Rank #2 (Buy). Though the company has a favorable Zacks Racks, its 0.00% ESP complicates our surprise prediction. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Please note that the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
Factors Likely at Play
We expect Union Pacific’s third-quarter results to be hurt by coal-related headwinds yet again. At the 9th Annual Global Transportation Conference last month, the company's CFO – Rob Knight – stated that overall volumes are expected to decline around 6% in the third quarter. Coal volumes had decreased by 15% as of Sep 1. Knight further stated that overall volumes are expected to decline in the band of 6–8% in 2016.
Moreover, the opening of the expanded Panama Canal, earlier this year, may hurt the company’s business. The train derailment in Oregon has also increased concerns about safety in the railroads industry.
We are, however, impressed with Union Pacific’s efforts to reward its investors through share buybacks and dividend payments. Apart from dividend payouts, we are encouraged by the company's prudent cost management. The company’s operating expenses had declined 11% in the second quarter and we expect the trend to continue in this quarter as well. Lower costs are expected to drive the bottom line in the third quarter.
Stocks to Consider
Investors interested in the transportation space may consider the following stocks as our model shows they possess the right combination of elements to post an earnings beat this quarter.
Genesee & Wyoming Inc. GWR has an Earnings ESP of +4.26% and a Zacks Rank #3. The company, which will release its third-quarter results on Nov 1, has an impressive history with respect to earnings per share. It outpaced the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 5.71%.
American Airlines Group AAL has an Earnings ESP of +3.01% and a Zacks Rank #3. The company, which will release its third-quarter results on Oct 20, has an impressive history with respect to earnings per share. The company beat the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 4.27%.
Allegiant Travel Company ALGT has an Earnings ESP of +1.16% and a Zacks Rank #3. The company, which will release its third-quarter results on Oct 26, has an impressive history with respect to earnings per share. Allegiant outpaced the Zacks Consensus Estimate in three of the last four quarters with an average beat of 2.93%.
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