VALUATION HIGHLIGHTS

1. Industrial Freight constitutes 37% of the Trefis price estimate for Union Pacific Corporation's stock.
2. Premium Freight constitutes 29% of the Trefis price estimate for Union Pacific Corporation's stock.
3. Bulk Freight constitutes 29% of the Trefis price estimate for Union Pacific Corporation's stock.

WHAT HAS CHANGED?

Latest Earnings: Fourth Quarter and Full Year 2025

Union Pacific reported fourth quarter 2025 revenue of $6.09 billion, representing a flat year-over-year performance that slightly missed analyst estimates of $6.12 billion. Adjusted earnings per share reached $2.86, also a minor miss against the $2.87 consensus, primarily due to lower fuel surcharge revenue and a 1.8 percentage point contraction in operating margin to 39.5%. Despite the top-line stagnation, the company achieved record full-year net income of $7.1 billion, up 6%, driven by strong core pricing gains and best-ever operational records in freight car velocity and locomotive productivity.

Note: Union Pacific Corporation's FY'25 ended on December 31, 2025.

Major Transcontinental Merger Announcement

Union Pacific has announced a definitive agreement to acquire Norfolk Southern for $71.5 billion, a move set to create the first true transcontinental railroad in the United States. The transaction, which is currently undergoing a rigorous regulatory review by the Surface Transportation Board, aims to integrate over 50,000 miles of track across 43 states. Management anticipates the merger will reduce interchange times by 24 to 48 hours and generate approximately $2.75 billion in annual synergies by converting long-haul truck traffic to a more efficient, seamless rail network.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Union Pacific Corporation's value that present opportunities for upside or downside to the current Trefis price estimate:

Rail Operations and Network Efficiency

• Operating Ratio Recovery: While the Q4 operating ratio worsened to 60.5%, the full-year adjusted figure improved to 59.3%. Management's focus on "PSR 2.0" and a 2026 capital plan of $3.3 billion are designed to restore margins to the sub-60% range. If productivity gains in train length and fuel consumption continue to set records, there is significant upside to Trefis margin projections. However, rising diesel prices—recently testing multi-year highs due to geopolitical tensions—pose a substantial downside risk to operating costs.


• Bulk and Intermodal Volume Growth: Carload volumes have shown resilience in the bulk sector, particularly in grain and coal. The company is actively targeting a shift from truck to rail, which is 70% more carbon-efficient. Success in capturing high-margin domestic intermodal business amidst a volatile trucking market could drive revenue growth above the current 3.4% analyst forecast for the next 12 months.

For additional details, select a division from the interactive Trefis split for Union Pacific Corporation at the top of the page.

BUSINESS SUMMARY

Union Pacific Corporation operates one of the largest freight railroad networks in North America, covering 23 states in the western two-thirds of the United States. The company serves as a critical link in the global supply chain, transporting agricultural products, automotive parts, chemicals, and intermodal containers between major West Coast and Gulf Coast ports and the nation's heartland.

SOURCES OF VALUE

The company's immense scale and strategic geographic footprint across the Western U.S. provide a robust foundation for long-term cash flow generation.

Irreplaceable Infrastructure Moat

Union Pacific owns and operates over 32,000 miles of track, a physical asset base that is virtually impossible to replicate due to astronomical land costs and regulatory barriers. This network dominance allows the company to maintain high pricing power and serve as the primary logistics backbone for the American West.

Record Operational Productivity

Under CEO Jim Vena, the company has achieved record-breaking performance in freight car velocity and terminal dwell times. This operational excellence minimizes capital intensity and maximizes the throughput of its existing asset base, allowing Union Pacific to generate industry-leading free cash flow margins which reached 20.1% in late 2025.

KEY TRENDS

Industrial AI and Digital Twin Integration

Union Pacific is moving beyond pilot programs to scale industrial AI across its network for real-time operations and predictive maintenance. By leveraging AI to optimize grid movements and locomotive health, the company aims to achieve double-digit productivity gains while reducing the frequency of reportable safety incidents.

Energy Transition and Grid Modernization

The company is benefiting from a surge in demand for transporting heavy equipment, such as electric transformers and wind turbine components, required for U.S. grid modernization. This macro trend provides a high-margin growth lever that offsets historical declines in traditional thermal coal volumes.

Reshoring and Manufacturing Renaissance

The ongoing trend of "near-shoring" manufacturing to the U.S. and Mexico is driving increased demand for Union Pacific's cross-border services. With strategic gateways into Mexico, the company is uniquely positioned to capture the growth of automotive and consumer goods production moving closer to U.S. consumption centers.