What’s Happening With Union Pacific Stock?
[Updated: Oct 6, 2021] UNP Stock Rise
Last month we discussed that based on its historical performance Union Pacific (NYSE: UNP) stock will likely see higher levels, after falling 3% in a week. While UNP stock has risen 4.4% in last five trading days, it is trading at the same level it was nearly a month ago. The recent rise can be attributed to an upgrade by one of the wall street analysts on the stock with expectations of a strong rebound in demand in 2022. Given this movement of 4.4% in a week, UNP stock price forecast is 1.6% gains (to $213) over the next one month, based on the Trefis Machine Learning Engine. That said, we continue to believe that there is much more room for growth in UNP stock. While there are near term challenges due to rising input costs and wages, which may impact the margin growth in the near term, it is likely that these incremental costs will be passed on to the customers. As the economy continues to open up gradually, the demand for railroads is expected to rise, bolstering Union Pacific’s top-line growth.
Looking at the full-year 2021, we forecast revenues to grow in low double-digits to $21.3 billion, and net margins to expand by over 300 bps compared to 2020, which saw a larger impact of the pandemic on the company’s business. This clubbed with lower number of shares outstanding, due to share repurchases (around 19 million shares repurchased in the first half of the year), EPS is expected to rise 24% y-o-y to $9.79. Going by our Union Pacific Valuation of $255 per share, based on $9.79 EPS and 26x P/E multiple, there is more than 20% upside potential from its current levels of $210. The 26x figure is in-line with the levels seen for UNP in 2020, and it also largely in-line with Union Pacific’s peers, including Norfolk Southern and CSX Corporation.
[Updated: Sep 10, 2021] UNP Stock Decline
The stock price of Union Pacific (NYSE: UNP) reached its all-time high of around $231 in May this year before a recent sell-off resulted in UNP stock falling to $210 levels currently. UNP stock has declined 3% in the last five trading sessions. The stock prices of other railroad companies, including CSX, also saw losses of around 3% in the last week. The railroad companies have seen a rebound in demand over the recent quarters but the rise of Covid-19 cases over the last couple of months may impact the overall earnings growth in Q3. But will UNP stock continue its downward trajectory over the coming weeks, or is a recovery in the stock imminent?
According to the Trefis Machine Learning Engine, which identifies trends in the company’s stock price using ten years of historical data, returns for UNP stock average 4% in the next one-month (twenty-one trading days) period after experiencing a 3% drop over the previous week (five trading days). But how would the returns fare if you are interested in holding UNP stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Union Pacific stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just 1 day!
MACHINE LEARNING ENGINE – try it yourself:
IF UNP stock moved by -5% over five trading days, THEN over the next twenty-one trading days UNP stock moves an average of 6%, with a good 72% probability of a positive return over this period.
Some Fun Scenarios, FAQs & Making Sense of Union Pacific Stock Movements:
Question 1: Is the average return for Union Pacific stock higher after a drop?
Answer: Consider two situations,
Case 1: Union Pacific stock drops by -5% or more in a week
Case 2: Union Pacific stock rises by 5% or more in a week
Is the average return for Union Pacific stock higher over the subsequent month after Case 1 or Case 2?
UNP stock fares better after Case 1, with an average return of 6% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 2.2% for Case 2.
In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.
Try the Trefis machine learning engine above to see for yourself how Union Pacific stock is likely to behave after any specific gain or loss over a period.
Question 2: Does patience pay?
Answer: If you buy and hold Union Pacific stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.
Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!
For UNP stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:
You can try the engine to see what this table looks like for Union Pacific after a larger loss over the last week, month, or quarter.
Question 3: What about the average return after a rise if you wait for a while?
Answer: The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although UNP stock appears to be an exception to this general observation.
It’s pretty powerful to test the trend for yourself for Union Pacific stock by changing the inputs in the charts above.
While UNP stock may rebound, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Kansas City Southern vs Canadian Pacific Railway.