The Uptrend In Union Pacific Is Intact And Ongoing
A look at the long-term chart of monthly Union Pacific NYSE: UNP candlesticks makes one thing glaringly evident. This stock is in a long-term uptrend and only going higher. Based on the Q4 results, our outlook for 2022, and the stock’s price action post-release we think the next move may be starting right now. Shares of UNP pulled back from the most recent all-time high and are now confirming support. While the fresh high may act as resistance in the near term, we see this stock making a break for new highs this year and those highs could be well above the $255 level.
Union Pacific Has Strong Quarter Despite Challenges
Union Pacific had a strong quarter despite challenges facing the entire global economy. The number one is bottlenecking within the container shipping industry that has container volume for UNP down double-digits on a YOY basis. Considering the amount of demand within the economy we think that is just crazy.
Regardless, the company reported $5.73 billion in net revenue for a gain of 11.5% over last year and beat the Marketbeat.com consensus estimate by 215 basis points as well. The gain in revenue is due to higher fuel surcharges, business mix, and pricing gains that were offset by a 4% decline in total volume. Looking within the volume data, it looks like shipments are on the rise on many key markets despite the decline in container volume. In our view, this is setting the company for added momentum as container shipping begins to flow more smoothly.
Moving down the report, the company experienced a contraction in the margin that has the operating ratio at 57.4% versus last year’s 59.2%. This, however, was less than expected and not enough to fully offset the company’s revenue gains. The $2.66 in adjusted earnings is not only up $0.30 from last year but it also beat the consensus by $0.03. Union Pacific did not give any guidance but the outlook is favorable. Not only do we see strong demand throughout the system but the latest railcar data suggests volume is picking up.
Union Pacific Delivers Capital To Shareholders
Part of Union Pacific’s appeal is the dividend which has been growing for the last 14 years. The stock yields about 2.0% with shares at $240.00 and there is a high expectation for future increases. The balance sheet has some leverage on it but nothing major and coverage is ample. The payout ratio is running about 48% of the consensus estimate which leaves plenty of room in that regard. The CAGR is running near 13% so the next increase could be a large one too. Regardless, we view this payment as safe and growing and one we wouldn’t mind owning.
The Technical Outlook: Union Pacific Confirms Support
Shares of Union Pacific have pulled back from the all-time high but are now confirming support at the $140 level. The support is indicated by a strong green candle and bullish reversal pattern that, if held until the close of trading, will likely result in sideways or upward drift in share prices. If support at this level does not hold, shares of Union Pacific could pull back to the $230 level before moving higher.
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