COMPANY DESCRIPTION

Union Pacific, through its operating subsidiary, Union Pacific Railroad Co., is a railroad operator. As of Dec 31 2013, Co.'s network included 31,838 route miles, linking Pacific Coast and Gulf Coast ports with the Midwest and eastern U.S. gateways and providing several corridors to key Mexican gateways. Co. serves the western two-thirds of the country and maintains coordinated schedules with other rail carriers for the handling of freight to and from the Atlantic Coast, the Pacific Coast, the Southeast, the Southwest, Canada, and Mexico. Co. transports freight or other materials from its agricultural, automotive, chemicals, coal, industrial products, and intermodal commodity groups.

 

ECONOMIC MOAT

UP's economic moat is based on cost advantages and efficient scale. While barges, ships, aircraft, and trucks also haul freight, railroads are the low-cost option by far especially for freight with low value per unit weight. Moreover, railroads claim quadruple the fuel efficiency of trucking per ton-mile of freight, and thanks to greater railcar capacity and train length make more effective use of manpower.

 

OUTLOOK

UNP has performed well. It continues to increase in size.  UNP is also committmed to getting better through strategic investments.  UNP should benefit from repricing of old contracts as they come up for negotiation.  UNP has been rewarding shareholders will a strong dividend policy.   UNP should remain active in buying back stock.   In our opinion the stock has good capital appreciate potentail and dividend growth is a plus.

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STRENGTHS

  • Diversified end markets mitigates revenue volatility

  • Strong operational network helps to cater to broad spectrum of customer demands

  • Robust cash flow from operations lends greater stability to operations 

WEAKNESSES

  • Heavy dependence on few suppliers of rail and locomotives could increase operating cost

  • Increasing debt burden could adversely distress business and competitiveness 

THREATS

  • Intense competition may distress earnings Government regulations may increase operating cost

  • Price volatility in fuel markets could have an adverse effect on operations 

OPPORTUNITIES

  • Growing railroads sector in the US could provide significant business opportunities Infrastructure enhancement could help to improve revenues 

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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