5 Reasons There Is Only One Choice In This Industry: Union Pacific Corporation (UNP), CSX Corporation (CSX)

Page 1 of 2

In some industries, there isn’t one clear leader. For example, in the retail space you could argue that while Amazon.com, Inc. (NASDAQ:AMZN)appears the clear online leader, Wal-Mart Stores, Inc.(NYSE:WMT) is still the king when it comes to overall sales. However, if investors are looking for the best stock in the railroad industry, there is one leader and then everyone else. I’ve identified at least five different reasons that Union Pacific Corporation (NYSE:UNP) should be an investors first choice in this industry.

Union Pacific (UNP)They Make More Money:
There are three key numbers I look at whenever I pull apart an earnings report. I look for good revenue growth, good EPS growth, and good operating cash flow growth. Most of the time I have to be pleased if a company can increase two of the three categories, but Union Pacific scores a perfect three for three. The company’s major competition comes from CSX Corporation (NYSE:CSX) and Norfolk Southern Corp. (NYSE:NSC) and to be blunt, they just can’t keep up.

When it comes to revenue growth, Union Pacific increased this measure by 3% in the last quarter. This might not seem too impressive, until you consider that CSX saw revenue decrease 2%, and Norfolk Southern saw a decline of 4%. This top line growth also lead to better EPS performance, with Union Pacific showing a 10% increase. Their competition saw EPS come in flat at CSX, and down 8.45% at Norfolk Southern.

Since EPS can be manipulated, I always check operating cash flow growth. As you might have guessed, Union Pacific outperformed its rivals again. The company was actually the only one of the three to show operating cash flow increase. Union Pacific saw an increase of 4.9% versus declines of 15.61% at CSX, and 5.02% at Norfolk Southern.

Better Performance = Better Dividend Coverage And A Better Balance Sheet
It would be one thing if Union Pacific were generating better earnings and EPS growth by making short-term bets that harmed their balance sheet, or put their cash flow at risk. However, the company is doing the exact opposite. Union Pacific actually shows the best dividend coverage of the three and has the strongest relative balance sheet.

For long-term investors, a reasonable free cash flow payout ratio is essential. The bottom line is, a dividend is really only as attractive as the cash flow that covers the payout. On this score, Union Pacific’s recent payout ratio should make investors very happy. In the last quarter, the company’s free cash flow payout ratio was just 44%. Compared to the over 90% payout ratio at CSX, and the over 75% payout ratio at Norfolk Southern, you can see that Union Pacific shareholders have little to worry about.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!