Is Union Pacific Stock Fairly Priced?

by Trefis Team
Union Pacific Corporation
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Yes, Union Pacific’s (NYSE: UNP) stock is fairly priced in our view. We estimate the price to be $177 per share based on expected 2020 earnings, which compares with the current market price of $178. Union Pacific’s stock price has grown around 30% year-to-date, primarily driven by the company’s focus on reducing its expenses. This has boosted the company’s bottom line despite 2019 being a tough year for top line growth, amid export woes and increased trucking capacity. In this note we discuss our stock price valuation for Union Pacific. You can look at our interactive dashboard analysis ~ Union Pacific Valuation: Expensive Or Cheap? ~ for more details.

The Trefis Price Estimate For Union Pacific’s Stock Is Around $177 Per Share

  • Union Pacific is engaged in freight transportation in the western two-thirds of the United States.
  • Its customers include chemical producers, industrial manufactures, agricultural companies, steel processors, and automotive companies, among others.

We arrive at the stock price estimate for Union Pacific as:

Stock Price = (Total Revenue x Net Income Margin ÷ Shares Outstanding) x P/E Multiple

#1. Estimating Union Pacific’s Total Revenues:

  • Total Revenues have increased from $19.9 billion in 2016 to $22.8 billion in 2018, and it could grow to $23.6 Billion by 2020.
  • Our Interactive Dashboard Analysis, UNP Revenues: How Does Union Pacific Make Money?, Provides An In Depth View Of The Company’s Revenues.
  • It competes with other railroad companies, including CSX Corporation and Norfolk Southern.

Comparing trends in Union Pacific’s Total Revenues with that of its peers

#2. Deriving Union Pacific’s Net Income:

  • Net Income grew from $4.2 billion in 2016 to $6.0 billion in 2018, and we expect it to be around $6.4 billion in 2020.
  • Our Interactive Dashboard Analysis, How Does Union Pacific Spend Its Money?, Provides More Details On The Company’s Expenses.

#3. Determining Union Pacific’s EPS:

  • EPS has grown from $5.05 in 2016 to $7.91 in 2018, and we estimate it to be $9.56 in 2020.
  • EPS growth can be attributed to higher Net Income and Revenues, and lower Shares Outstanding.

#4. Estimating Union Pacific’s Share Price:

  • Our Price Estimate of $177 For Union Pacific’s stock is based on our Detailed Valuation Model, and implies an 18.6x P/E Multiple on expected 2020 EPS of $9.56.

Comparing Union Pacific’s P/E Multiple Over The Last Three Years With That of Its Peers

  • P/E Multiples are based on Share Price at the end of September of each year, and reported (or expected) Earnings for the full year.

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