What Fueled 40% Growth In Union Pacific’s Stock Over The Last 2 Years?

by Trefis Team
Union Pacific Corporation
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Union Pacific’s (NYSE: UNP) stock price grew 40% from around $125 levels by the end of 2017 to $176 in 2019, primarily driven by expansion of net income margin, and P/E multiple, along with slight revenue growth, and lower share count. Union Pacific’s stock price growth was higher than that for CSX Corporation and Norfolk Southern’s stock over the same period. This outperformance can primarily be attributed to the company’s relatively higher net income margin.

In this note we focus on the factors that drove growth for Union Pacific’s stock over the last 2 years. We can break down the movement in the stock price into three factors: 1. growth in revenue, 2. change in net income margin and share count, and 3. expansion of P/E multiple. You can look at our interactive dashboard analysis ~ What Factors Drove 40% Growth In Union Pacific’s Stock Over The Last 2 Years? ~ for more details.

#1. Revenues Are Expected To Grow 4.9% From $21.2 Billion In 2017 To An Estimated $22.3 Billion In 2019. The Biggest Change In Revenue Will Likely Be Driven By The Company’s Industrial Segment.

  • Capacity constraints in the trucking industry aided the revenue growth in 2018, but 2019 could see a dip in revenues for Union Pacific, with improved trucking capacity, lower demand for coal, and lower exports amid trade tensions.
  • Look at our interactive dashboard analysis for an in depth view on Union Pacific’s revenues: How Does Union Pacific Make Money?

#1.1 Union Pacific’s Revenue Growth Over The Recent Years Has Been In Line With That of CSX But Lower Than That of Norfolk Southern

#2. Net Income Is Expected To Grow At A Faster Pace Compared To Union Pacific’s Revenues

  • Union Pacific’s net income will likely grow from $4.6 billion in 2017 to $6.2 billion in 2019.
  • This can be attributed to margin expansion and mid-single-digit growth in revenues, as discussed above.
  • Total Expenses will likely decline from $16.6 billion in 2017 to $16.1 billion in 2019, reflecting a dip of 3%, which compares with 4.9% revenue growth over the same period. We discuss the factors that impacted the expenses in the section below.

#2.1 Total Expenses Will Likely Decline From $16.6 Billion In 2017 To $16.1 Billion In 2019

#2.2 Adjusted EPS Likely To See Strong Growth, Led By Higher Net Income

  • Union Pacific’s EPS could grow from $5.79 in 2017 to $8.75 in 2019, driven by higher net income.
  • No. of shares will likely decline from 802 million to 708 million over the same period.

#3. Price To Earnings Multiple for Union Pacific Expanded Over The Last Two Years, And It Has Been Higher Than That of CSX And Norfolk Southern

  • Union Pacific’s P/E multiple expanded from 15.9x in 2017 to 18.4x in 2019. This can partly be attributed to the company’s focus on reducing its expenses, which resulted in strong earnings growth over the recent quarters.
  • This compares with CSX, which saw its P/E multiple expand from 14.1x to 16.6x over the same period.
  • Norfolk Southern’s P/E multiple also expanded from 14.4x to 17.1x over the same period.
  • Note these multiples are arrived at by using the average stock prices for the month of December for the respective year, and adjusted earnings reported (or expected) for the following year.


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