Union Pacific (NYSE:UNP) is scheduled to report its Q4 2021 results on Thursday, January 20. We expect the company to post revenue and earnings above the consensus estimates. The company likely navigated well over the latest quarter, driven by an expected increase in coal transportation as well as a rebound in industrial freight, in our view.
However, the margins in Q4 may face some pressure due to inflationary headwinds as the company renews its contracts. While we estimate the revenue and earnings to be above the consensus estimates, our forecast indicates that Union Pacific’s valuation is around $262 per share, which offers only 6% upside potential, implying that UNP stock is appropriately valued at its current levels. Our interactive dashboard analysis on Union Pacific’s Pre-Earnings has additional details.
- This Company Is Likely To Offer Better Returns Over Union Pacific Stock
- Union Pacific Stock Has More Room For Growth
- Union Pacific’s Strong Q4 Will Aid Its Stock Price Growth
- Forecast Of The Day: Union Pacific’s Bulk Carloads
- What’s Happening With Union Pacific’s Coal Freight Business?
- Will Union Pacific Stock Fall After Outperforming Its Peers?
(1) Revenues expected to be above the consensus estimates
Trefis estimates Union Pacific’s Q4 2021 revenues to be around $5.7 billion, slightly above the $5.6 billion consensus estimate. The rise in the vaccination rate in the U.S. has resulted in a pickup in economic activities, and this should bode well for Union Pacific’s freight business. The company’s 13% revenue growth in Q3 was driven by a 14% rise in bulk revenues, a 22% jump in industrial, and 1% growth for its premium freight. Automotive freight was down 13% due to the impact of chip shortages on the overall production, and, in turn, its transportation.
The company’s largest segment – industrial freight – likely saw strong sales in Q4 given the economic growth. However, a drop in natural gas prices in Q4 due to rising output and the spread of Omicron may impact the overall sales growth in Q4 and Q1. Our dashboard on Union Pacific’s Revenues offers more details on the company’s segments.
2) EPS also likely to be below the consensus estimates
Union Pacific’s Q4 2021 earnings per share (EPS) is expected to be $2.71 per Trefis analysis, 10 cents above the consensus estimate of $2.61. Union Pacific’s net income of $1.7 billion in Q3 2021 reflected a 23% rise from its $1.4 billion figure in the prior-year quarter. This can be attributed to higher revenues, and a 240 bps fall in operating ratio to 56.3%. Looking forward, inflationary pressure and rising wages likely impacted the company’s margins in Q4, weighing on overall earnings growth. The impact may be minimal if the company successfully passes on the increased costs to the customers during the contract renewals in Q4 and Q1. For the full-year 2022, we expect the EPS to be higher at $11.35, compared to $7.88 in 2020, and an estimated $10.00 in 2021.
(3) Stock price estimate 6% above the current market price
We estimate Union Pacific’s Valuation to be around $262 per share which is 6% above the current market price. This represents a P/EBITDA multiple of 19.1 for the company based on our forecast for Union Pacific EBITDA for the current fiscal year. Overall, UNP stock appears to be appropriately priced at its current levels and investors may be better off waiting for a dip to buy the stock for higher gains, in our view.
While UNP stock appears to be appropriately priced, the Covid-19 crisis 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 Heartland Express vs. Altice USA.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.
|S&P 500 Return||-2%||-2%||108%|
|Trefis MS Portfolio Return||-7%||-7%||264%|
 Month-to-date and year-to-date as of 1/18/2022
 Cumulative total returns since the end of 2016