Union Pacific's Impressive Growth Will Continue

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Dec 27, 2014
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Union Pacific (UNP, Financial) cheered the Street with its third quarter results that topped the analyst’s expectations. This was mainly driven by increased volumes along with hike in prices. Led by its strong performance, the stock jumped to its 52-week high few days back and the management is even more optimistic about its future prospects. Let us see in detail how the company performed during the quarter and what would be its future course of action.

A stronger performance can be expected

These are encouraging numbers for the company on the back of a challenging environment for its operating team that faced various headwinds during the quarter. Force majeure events such as flooding caused serious damage to its key routes and consequently affected its operations. In fact the management cites that, its third quarter recorded the most weather related incidents since 2005. We can only hope that such events do not occur frequently or might weigh on its performance in the days ahead.

On the bright side, Union Pacific completed its Tower 55 project further adding to its operational efficiencies. However, a project of this size also posed various challenges to the company as it had to reroute its paths to facilitate installation. But these are only short term pains and are expected to yield strong returns in the future. In fact it has decided to increase its fleet size with the addition of 32 locomotives this year even as it continues to improve its cash flow operation.

Conclusion

Going forward, the management believes that the same momentum will continue in the future. There is strong demand for its rail road projects from various companies, which will benefit it top line in the coming months. The company looks positive considering its future growth initiatives. The demand in the rail industry will get a new boost once the transportation of oil by rail starts in full swing. This is a significant factor that could strengthen its position in the days ahead. Union Pacific had a strong quarter leading its stock to 52-week highs and looking at its growth prospects we could see more upside to this stock. In the light of these factors investors can consider adding this stock to their portfolio.