Union Pacific (UNP 150.27, +11.62, +8.38%) is up after hiring former Canadian National (CNI 77.62, +0.19, +0.25%) veteran Jim Vena as COO. That is a huge move for the largest U.S. railroad with a market cap over $100 bln.
Jim Vena is a disciple of the late rail legend Hunter Harrison. Vena worked his way up at CNI over a 40-year career before retiring in 2016. Union Pacific noted that during Vena's tenure as executive vice president and chief operating officer, Canadian National generated the North American rail industry's best operating ratio and achieved the best safety incident ratio in the company's history.
Investors are a big fan of this news because Mr. Vena is a pioneer of what is known as Precision Scheduled Railroading, which focuses on improving productivity by restructuring and simplifying operations, reducing the locomotive fleet, and improving utilization.
Vena lead implementation of the company's Unified Plan 2020, which it launched in October.
Union Pacific is targeting an operating ratio of 60% by 2020 and at least $500 mln in productivity gains in 2019. The company reported an operating ratio (operating expense over/ revenue) of 61.7% in the third quarter.
CSX (CSX) stock surged in 2017 after Hunter Harrison joined the company to implement Precision Scheduled Railroading. He passed away in late 2017 but his plans have been executed thus far. CSX reported an operating ratio down 970 basis points to 58.7% in the third quarter as its Precision Scheduled Railroading initiatives took hold.
Union Pacific trades at ~17x earnings estimates, based on Wall Street's projection of 14% earnings growth this year. That valuation represents a modest premium to Eastern US Class I rails Norfolk Southern (NSC) and CSX (CSX).
Enthusiasm on Wall Street is palpable after three different firms upgraded the stock this morning.
Union Pacific will report fourth quarter results on January 24.