Earnings Beat Ahead For Union Pacific Stock?

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Union Pacific

Union Pacific Stock (NYSE: UNP) will report its Q2 2023 results on Wednesday, July 26. We expect the company’s revenues to come in at $6.2 billion, marginally above the consensus estimate of $6.1 billion. This would mark a year-over-year decline of about 2%. Earnings will likely come in at about $2.80 per share, slightly above the consensus estimate of $2.76. See our interactive dashboard analysis on  Union Pacific’s Earnings Preview for more details on how the company’s revenues and earnings will likely trend for the quarter. So, what are some of the trends that are likely to drive Union Pacific’s results?

Union Pacific should benefit from robust bulk freight demand. However, with fuel prices cooling off, it will likely weigh on overall fuel surcharges and average revenue per carload. The total volume of carloads is also expected to see a marginal decline compared to the prior-year quarter. Looking at Q1’23, Union Pacific’s revenues of $6.1 billion reflected a 3% y-o-y growth, led by a 6% rise in average revenue per unit, while its total volume of carloads was down 1%, and other revenues were down 5%.

The fuel surcharge revenue for the company stood at $883 million in Q1, and it should be lower in Q2 vs. its prior-year figure of $976 million. The WTI price per gallon fell from $105 (end of June last year) to $79 now. Union Pacific’s net income of $1.6 billion in Q1’23 reflected no change from its prior-year quarter, as 3% sales growth was offset by a 270 bps fall in operating margin to 37.9%. Our Union Pacific Operating Income Comparison dashboard has more details. Looking at the bottom line, Union Pacific reported earnings of $2.67 per share in Q1’23, compared to $2.57 per share in the prior-year quarter, primarily due to a 3% fall in total shares outstanding, amid share repurchases.

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Although we expect Union Pacific to post an upbeat Q2’23, we believe its stock is fully valued. We estimate Union Pacific’s valuation to be $216 per share, marginally above its current price of $210. Our forecast is based on a 19x P/E multiple for UNP and expected earnings of $11.32 on a per-share basis for the full-year 2023. The 19x P/E multiple is slightly below the stock’s last three-year average of a little over 20x, as fears of a potential recession and its impact on the railroad business could weigh on UNP stock in the near term. That said, if the company were to report a Q2 beat and upward revision in guidance, it would likely see its stock rise post the results announcement.

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.

What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.

Returns Jul 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 UNP Return 3% 1% 102%
 S&P 500 Return 2% 18% 102%
 Trefis Multi-Strategy Portfolio 6% 25% 303%

[1] Month-to-date and year-to-date as of 7/18/2023
[2] Cumulative total returns since the end of 2016

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