Union Pacific’s Bulk Freight Will Likely Drive Its Q1

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UNP: Union Pacific logo
UNP
Union Pacific

Union Pacific (NYSE: UNP) will report its Q1 2023 results on Thursday, April 20. We expect it to post upbeat results, with revenue and earnings coming in slightly above the street expectations. The company should continue to benefit from better price realization. However, our forecast indicates that UNP stock has little room for growth, as discussed below. Our interactive dashboard analysis of Union Pacific Earnings Preview has additional details.

(1) Revenues expected to be slightly above the consensus estimates

  • Trefis estimates Union Pacific’s Q1 2023 net revenues to be around $6.15 billion, reflecting a 5% y-o-y growth and slightly above the $6.08 billion consensus estimate.
  • Higher inflation has resulted in some shippers turning to low-cost alternatives, such as railroads. With rising costs, the company should be able to expand its average revenue per carload, boding well for its top-line growth.
  • The company should benefit from robust demand for its bulk business, primarily coal, renewables, and biofuels.
  • Our dashboard on Union Pacific Revenues has more details on the company’s segments.
  • Union Pacific reported an 8% rise in revenue to $6.2 billion in Q4 2022. Its freight revenues were up 9%, led by an 8% growth in average revenue per carload and a 1% rise in the total volume of carloads.
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(2) EPS likely to be above the consensus estimates

  • Union Pacific’s Q1 2023 earnings per share (EPS) is expected to be $2.63 per Trefis analysis, slightly above the consensus estimate of $2.60.
  • The company’s net income of $1.6 billion in Q4 2022 reflected a 4% fall from its $1.7 billion figure in the prior-year quarter. Higher revenue growth was more than offset by over 360 bps y-o-y rise in the operating ratio to 61%. Our Union Pacific Operating Income Comparison dashboard has more details.
  • For the full-year 2023, we expect the EPS to be higher at $11.48 compared to $11.21 in 2022.

(3) UNP stock looks reasonably valued

  • We estimate Union Pacific’s Valuation to be around $211 per share, which reflects only a 6% upside from the current market price of $199.
  • Our forecast is based on an 18x forward earnings estimate of $11.48, compared to the last three-year average of 20x.
  • We have assigned a slightly lower multiple for railroad stocks, given the rising operating ratio and global recession concerns.
  • However, if the company reports upbeat Q1 results and provides a 2023 outlook better than the street estimates, the P/E multiple will likely be revised upward, resulting in higher levels for UNP stock.

While UNP stock looks appropriately priced, 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, UNP stock has fallen 4% this year. 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 Apr 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 UNP Return -1% -4% 92%
 S&P 500 Return 0% 7% 83%
 Trefis Multi-Strategy Portfolio 0% 8% 239%

[1] Month-to-date and year-to-date as of 4/13/2023
[2] Cumulative total returns since the end of 2016

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