Union Pacific outperformed peers
Union Pacific (UNP) has been investors’ industry favorite since the start of 2019. In the YTD period, the stock has soared ~19%, significantly outperforming the returns of its peers.
Norfolk Southern (NSC), CSX (CSX), and Kansas City Southern (KSU) have gained 18.3%, 11.4%, and 7.7%, respectively, during the same timeframe. The YTD returns of Union Pacific stock have also outpaced the gains of the Industrial Select Sector SPDR ETF (XLI). The ETF, which tracks the performance of industrial sector stocks in the S&P 500, is up 14.1% YTD.
What’s driving this optimism?
A series of positive events including strong fourth-quarter 2018 results and dividend hikes have led to this massive upswing in Union Pacific’s share price over the past one month. However, the major boost came from the January 8 announcement of railroad industry veteran Jim Vena joining the company as its new executive vice president and chief operating officer (or COO).
Union Pacific has brought Vena from his retirement to lead its ambitious “Unified Plan 2020” announced in October last year. Under the plan, the railroad company intends to bring down its operating ratio to below 60% by 2020 and below 55% over the long run.
Vena is a well-known personality in the industry who retired from Canadian National Railway (CNI) in June 2016 after serving there for more than four decades as executive vice president and COO. During his tenure at CNI, the company had the best safety incident ratio in its history and the best operating ratio in the North American rail industry (IYT). Vena’s track record has turned investors increasingly optimistic about Union Pacific’s growth prospects.
Additionally, the recent optimism surrounding the stock has also been driven by its stellar fourth-quarter 2018 results reported on January 24. The company’s top and bottom line both surpassed analysts’ estimate and marked significant YoY improvement.
Furthermore, Union Pacific’s sustained focus on enhancing shareholder wealth through dividend payments and share buyback makes it investors’ favorite stock in the sector. The company last week raised its quarterly cash dividend rate by 10% and announced a new share repurchase program to buy 150 million of its common shares. Notably, Union Pacific had returned $10.5 billion last year to its shareholders through dividend payments and share buybacks.