This LTL Company Is A Better Pick Over Union Pacific Stock

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UNP: Union Pacific logo
UNP
Union Pacific

We believe Saia stock (NASDAQ: SAIA), a less-than-truckload company, is currently a better pick than Union Pacific stock (NYSE: UNP), given its better prospects and comparatively lower valuation. Union Pacific is trading at 5.7x trailing revenues, vs. 2.2x for Saia. Although Union Pacific is more profitable, we believe this valuation gap will narrow in favor of Saia, as discussed below.

Looking at stock returns, UNP has fared marginally better with -14% returns over the last twelve months, vs. -17% returns for SAIA. This compares with a 17% fall for the broader S&P500 index. There is more to the comparison, and in the sections below, we discuss why we believe SAIA stock will offer better returns than Union Pacific stock in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Union Pacific vs. SaiaWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Saia’s Revenue Growth Is Better

  • Both companies posted double-digit sales growth over the last twelve months. Still, Saia’s revenue growth of 28.2% is higher than 12.5% for Union Pacific.
  • Even if we look at a longer time frame, Saia fares better, with its sales rising at an average annual growth rate of 11.9% to $2.3 billion in 2021, compared to around $1.7 billion in 2018. In comparison, Union Pacific’s sales grew at an average rate of 1% to $21.8 billion in 2021, compared to $21.4 billion in 2018.
  • Union Pacific’s freight business saw sales decline 5.3% between 2018 and 2021, as a 4.9% rise in average revenue per carload was more than offset by a 9.8% decline in the volume of carloads over this period.
  • However, the company did well in the first three quarters of 2022, and we forecast a significant 15% jump in freight revenue for the full-year, driven by an expected 13% y-o-y rise in average revenue per carload, and a 2% growth in the volume of carloads.
  • Saia’s revenue growth over the recent years is being led by higher revenue per shipment and an increase in fuel surcharges.
  • Strong demand outlook and higher price realization will likely aid Saia’s sales growth in the near term.
  • Our Union Pacific Revenue Comparison and Saia Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, Saia’s revenue is expected to grow faster than Union Pacific’s over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 10.8% for Saia, compared to just a 3.5% CAGR for Union Pacific, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. Union Pacific Is More Profitable But Comes At A Higher Risk

  • Union Pacific’s operating margin of 28.5% over the last twelve months is better than 17.4% for Saia.
  • This compares with 39.4% and 8.9% figures seen in 2019, before the pandemic, respectively.
  • Union Pacific’s free cash flow margin of 41.8% is also better than 16.7% for Saia.
  • Our Union Pacific Operating Income Comparison and Saia Operating Income Comparison dashboards have more details.
  • Looking at financial risk, Saia is better placed with <1% debt as a percentage of equity compared to 45.8% for Union Pacific, while its 7.0% cash as a percentage of assets is higher than 2.0% for the latter, implying that Saia has a better debt position and it has more cash cushion.

3. The Net of It All

  • We see that Saia has demonstrated better revenue growth over Union Pacific over the last twelve months and the last three years. It comes at a lower financial risk with a better debt position and more cash cushion and is available at a comparatively lower valuation. On the other hand, Union Pacific is more profitable.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Saia is currently the better choice of the two.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 19% for Saia vs. a 5% expected return for Union Pacific stock, implying that investors are better off buying SAIA over UNP, based on Trefis Machine Learning analysis – Union Pacific vs. Saia – which also provides more details on how we arrive at these numbers.

While SAIA stock may outperform UNP, it is helpful to see how Union Pacific’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for CSX vs. Amerco.

With inflation rising and the Fed raising interest rates, among other factors, Union Pacific stock fell 14% in the last twelve months. Can it drop more? See how low Union Pacific stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Jan 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
UNP Return 3% 3% 105%
SAIA Return 11% 11% 426%
S&P 500 Return 2% 2% 75%
Trefis Multi-Strategy Portfolio 5% 5% 229%

[1] Month-to-date and year-to-date as of 1/11/2023
[2] Cumulative total returns since the end of 2016