Is Union Pacific’s Valuation At A Premium To Its Peers?

Union Pacific Corporation’s (NYSE: UNP) valuation is at a premium to its peers. It has garnered higher or in-line revenue growth, as well as higher adjusted net earnings margin, when compared to its peers. Its total volume shipped and average revenue per unit is better than that of its peers. It has also been able to significantly bring down its operating ratio, and aims to be under the 60% level by next year. These factors justify the premium in earnings multiple over its peers, in our view. In this note we compare Union Pacific’s valuation vis-a-vis its peers. You can look at our interactive dashboard analysis ~ UNP Valuation: How Does Union Pacific’s Valuation Compare To Its Peers? ~ for more details.

Union Pacific’s Market Cap Is Higher Than Its Peers CSX Corporation And Norfolk Southern

• Union Pacific’s market cap of $118 billion compares with $56 billion for CSX Corporation, and $49 billion for Norfolk Southern.

Union Pacific’s P/E Multiple Is Higher Than That of Its Peers, Based On Expected 2019 Earnings.

• Union Pacific’s P/E Multiple of 20x is higher than CSX Corporation’s 17x, and 18x for Norfolk Southern.
• Union Pacific’s higher P/E multiple could be attributed to its Unified Plan 2020, under which the company aims to improve efficiency and margins, and it could result in higher profitability in the coming years.
• Union Pacific has shown steady revenue growth, along with higher shipments, better average revenue per carload, focus on reducing its operating ratio, and higher margins. All of these factors, as shown in the below sections, also justify the premium in valuation to its peers, in our view.

Union Pacific’s Revenues Grew At A Faster Pace When Compared To CSX Corporation But At A Slightly Slower Pace Than That of Norfolk Southern.

• Union Pacific’s revenues grew at an average annual rate of 7% between 2016 and 2018.
• This compares with average annual growth rate of 5% for CSX, and 8% for Norfolk Southern.
• The growth in Union Pacific’s revenue in 2018 was driven by its Intermodal business, which benefited from capacity constraints in the trucking industry.
• However, revenues are expected to decline in 2019 for all railroad companies, primarily due to the ongoing trade tensions, which is impacting the exports, and the trends in natural gas prices, which has resulted in lower coal demand.
• Look at our interactive dashboard analysis ~ UNP Revenues: How Does Union Pacific Make Money? ~ for more details.

Union Pacific Carries More Carloads Than CSX Corporation And Norfolk Southern.

• Union Pacific total carloads grew from 8.4 million in 2016 to 8.9 million in 2018, and it could be north of 9.0 million by 2021.
• This compares with around a 6.5 million figure for CSX, and 7.9 million for Norfolk Southern.

Union Pacific’s Average Revenue Per Carload Is Much Higher Than That of CSX Corporation And Norfolk Southern.

Union Pacific’s Operating Ratio Is On A Decline, And It Could Reach Sub 60 Levels By 2020.

• Union Pacific’s operating ratio declined from 63.7% in 2016 to 62.7% in 2018, and it expected to reach sub-60 levels by 2020.
• This compares with CSX’s operating ratio, which declined from 69.2% in 2016 to 60.3% in 2018, and the company expects to be under 60% this year.
• Norfolk Southern’s operating ratio declined from 69.6% in 2016 to 65.4% in 2018, and it could decline to 63.5% by 2021.

Union Pacific’s Net Income Margin Is Higher Than That of CSX Corporation And Norfolk Southern

• Union Pacific’s Net Income Margin is higher than that of CSX and Norfolk Southern.
• Union Pacific’s Net Income Margin grew from 21.2% in 2016 to 26.1% in 2018.
• For railroad companies in general, margins improved in 2018, led by favorable tax rates, and higher pricing amid capacity constraints in the trucking industry.

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