Despite an 11% rise over the last six months, at the current price of around $245 per share, we believe Union Pacific stock (NYSE: UNP) has more to go. UNP stock has rallied from $220 to $245 since late August 2021, outperforming the broader indices, with the S&P falling 6% over the same period. This can be attributed to the company’s success in cutting down costs despite the inflationary environment. UNP Stock is also up a solid 77% from levels seen in early 2019.
Now, much of this growth over the last three years was driven by the company’s P/S ratio, which rose from 4.1x in early 2019 to 7.3x currently. Union Pacific’s revenue increased 0.4% between 2019 to 2021. The pandemic resulted in lower revenues in 2020, but the recovery in 2021 was strong. While automotive shipments were adversely impacted due to the semiconductor chip shortage affecting the overall production, the rise in natural gas prices boded well for coal demand, bolstering the coal shipments growth for Union Pacific in 2021. The company’s revenue of $21.8 billion in 2021, compares with $21.7 billion in 2019.
Given the rebound in economic and industrial activity over the recent quarters, Union Pacific can look forward to steady revenue growth in the future. Its continued efforts to bring down its operating ratio are positive. For perspective, despite the challenges during the pandemic, and inflationary headwinds in 2021, Union Pacific reported a low operating ratio figure of 57.2% in 2021, compared to 59.9% in 2020 and 60.6% in 2019. Furthermore, the company has stated that it expects its operating ratio to decline to 55.5% in 2022.
We estimate Union Pacific’s Valuation to be around $267 per share, 9% above the current market price of $244. This represents a P/S multiple of 7.3x for the company based on our RPS forecast of $36.63 for Union Pacific in 2022. That said, there are near-term headwinds. Given the geopolitical tensions between Russia and Ukraine, it is likely that the broader markets may see lower levels in the near term. A further dip in UNP stock can be used as a buying opportunity for better gains in the long run.
While UNP stock looks poised for more gains in the future, it is helpful to see how its peers stack up. Check out how Union Pacific’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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|S&P 500 Return||-6%||-11%||89%|
|Trefis MS Portfolio Return||-5%||-14%||239%|
 Month-to-date and year-to-date as of 2/24/2022
 Cumulative total returns since the end of 2016