Catching up with Union Pacific: The Updated 2016 Investor's Guide
Union Pacific’s automotive freight revenues
Previously in this series, we dealt with Union Pacific Corporation’s (UNP) agriculture revenues. In this part, we’ll look at the company’s automotive freight revenues.
The company has access to more than 40 vehicle distribution centers. Union Pacific has a higher market share as an automotive carrier, surpassing one of its biggest rivals in the railroad world, BNSF Railway. In 2014, Union Pacific’s automotive freight segment contributed 9% to the company’s total revenues.
What auto carloads in 4Q15 could be telling us
Union Pacific’s motor vehicles and equipment carloads in the last quarter of 2015 jumped by 8% from the same period in 2014. However, the traffic of intermodal containers, which also transports auto parts, was down by 5% during the same period. Still, automotive freight revenues in 3Q15 rose slightly compared with 2014.
US vehicle sales in 2016
The sales of light vehicles including cars and light trucks are expected to set a new record in 2016, according to the National Automobile Dealers Association in the US. Pre-owned car prices are expected to drop in 2016, fueling hauling prospects for railroads. Cheap gasoline is also expected to drive spectacular automotive sales in 2016. For this year, the association forecasted sales of 17.6 million new cars including light trucks, which was up from 17.2 million predicted for 2015.
According to IHS Automotive (IHS), buying conditions in 2016 and 2017 would remain positive and the US market would absorb ~18.0 million units over next two years. But we don’t expect automotive freight revenue headwinds for Union Pacific in 2016. UNP’s current stock price reflects decent automotive revenue growth for the next four fiscal quarters.
Union Pacific’s peer group
Even Union Pacific’s eastern US peers like CSX Corporation (CSX) and Norfolk Southern Corporation (NSC) are bullish about automotive hauling over the next four quarters. Including Canadian Pacific (CP) and Canadian National Railway (CNI), the peer group represents some of the biggest Class I railroads in the US.
The Vanguard Dividend Appreciation ETF (VIG) holds 0.59% in CSX and 0.57% in NSC. VIG holds approximately 1.2% in Class I railroads.
Now let’s examine the prospects for Union Pacific’s chemical freight.
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