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Union Pacific Stock Gained ~21% YTD: What Drove This Rally?

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Outperformed broader market

Union Pacific (UNP) has risen ~21% YTD as of June 13. The stock has outperformed the gains of major US indexes including the NASDAQ, the S&P 500, and the Dow Jones, which have gained 18.1%, 15.3%, and 11.9%, respectively.

Union Pacific has also outpaced the iShares Transportations Average ETF’s (IYT) returns. IYT has risen 13.2% during the same period. The ETF invests in Dow Jones transportation stocks and has allocated ~51% of its fund in the Ground Freight and Logistics industry.

Strong quarterly results, initiatives to improve operating efficiency, and shareholders’ friendly moves have driven the stock higher. Union Pacific has beaten analysts’ earnings estimates in the previous five quarters and has registered strong double-digit growth as well.

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The significant boost in Union Pacific’s stock price came after the company appointed Jim Vena as the new executive vice president and COO in mid-January. The industry veteran is well known for his achievements at the Canadian National Railway (CNI). Vena helped the Canadian railroad company achieve its best operating ratio as well as the best safety ratio in the North American rail industry. Therefore, investors are optimistic that Union Pacific will be able to achieve its target of bringing the operating ratio below 60% by 2020.

A new share repurchase program and a 10% dividend hike announcement in the first week of February made investors confident about Union Pacific’s sound financial position. Later on February 25, the railroad company announced entering an accelerated share repurchase program worth $2.5 billion with Morgan Stanley (MS) and Bank of America (BAC).

Peers’ performance

Although Union Pacific stock has outperformed the broader market, its YTD returns have remained lower compared to most of its Class I railroad peers’ gain. With a YTD return of 31.4%, Norfolk Southern (NSC) is the highest gainer. CSX (CSX) and Kansas City Southern (KSU) have registered YTD gains of 25% and 22.6%, respectively.

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