We believe that railroad companies Union Pacific stock (NYSE: UNP) and CSX Corporation stock (NYSE: CSX) will likely offer similar returns over the next three years. Both companies are trading at a similar valuation between 4x and 5x trailing revenues. If we look at stock returns, CSX, with a 9% fall in the last twelve months, has fared better than UNP, down 15%, and both have underperformed the broader S&P 500 index, down 8%. There is more to the comparison, and in the sections below, we discuss the possible returns for UNP and CSX 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. CSX: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
1. CSX’s Revenue Growth Is Better
- Both companies posted double-digit sales growth over the last twelve months. Still, CSX’s revenue growth of 18.6% is higher than 14.1% for Union Pacific.
- Even if we look at a longer time frame, CSX fares better, with its sales rising at an average annual growth rate of 8.5% to $14.9 billion in 2022, compared to $11.9 billion in 2019. In comparison, Union Pacific’s sales grew at an average rate of 5.2% to $24.9 billion in 2022, vs. $21.7 billion in 2019.
- Union Pacific’s freight business saw sales rise 14% between 2019 and 2022, driven by a 9% rise in average revenue per carload and a 5% growth in the volume of carloads over this period.
- CSX’s revenue growth over the recent years was driven by a nearly 3x rise in its Trucking & Other segment sales to $1.9 billion in 2022. CSX acquired Quality Carriers – a trucking company focused on bulk liquid chemicals transportation – in 2021, bolstering revenue growth in recent quarters.
- The company’s freight business saw a 14% rise in average revenue per carload, while its volume remained flat between 2019 and 2022.
- Our Union Pacific Revenue Comparison and CSX Revenue Comparison dashboards provide more insight into the companies’ sales.
- Looking forward, Union Pacific’s revenue is expected to grow faster than CSX’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 3.7% for Union Pacific, compared to a 2.3% CAGR for CSX, 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 45% over the last twelve months is better than 36% for CSX.
- This compares with 39% and 35% figures seen in 2019, before the pandemic, respectively.
- Our Union Pacific Operating Income Comparison and CSX Operating Income Comparison dashboards have more details.
- Looking at financial risk, CSX is better placed with 28% debt as a percentage of equity compared to 53% for Union Pacific. Furthermore, CSX’s 7% cash as a percentage of assets is also higher than 1% for the latter, implying that CSX has a better debt position and has more cash cushion.
3. The Net of It All
- We see that CSX has demonstrated better revenue growth over Union Pacific in 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. 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 both Union Pacific and CSX will offer similar returns in the next three years.
- The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 9% for Union Pacific vs. an 8% expected return for CSX stock, implying that investors can choose either of the two, based on Trefis Machine Learning analysis – Union Pacific vs. CSX – which also provides more details on how we arrive at these numbers.
While UNP and CSX may offer similar returns, 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.
|S&P 500 Return||0%||3%||77%|
|Trefis Multi-Strategy Portfolio||0%||7%||238%|
 Month-to-date and year-to-date as of 3/1/2023
 Cumulative total returns since the end of 2016