Union Pacific: A Look at the Positives

Union Pacific (UNP) has been unable to do well in 2015 as low crude oil and coal shipments have taken a toll on its finances. But, Union Pacific is improving its network performance in terms of both velocity and terminal dwell. In addition, Union Pacific is illustrating positive trends and working tirelessly to align resources with demand while focused on improving services and controlling costs.

What next?

Moving ahead, Union Pacific is focused on expanding shareholder value driven by a moderate economy with diverse franchise opportunities.
The company is looking to deliver impressive volumes with solid pricing and enhanced productivity, healthy replacement and productivity growth delivering improved returns, growing cash generation with low to mid 40’s adjusted debt/cap and over 1.5 times adjusted debt/ adjusted EBITDA.

Further, Union Pacific is focused on lowering its capital expenditures for the quarter in the range of 16% to 17% of total revenue while expanding its dividend payout target to 35% with opportunistic share repurchases.

The company is observed to be growing its network performance through year-over-year improvement in terminal dwell and velocity of the railroad cars. Union Pacific is also strategically increasing the shareholder returns through planned share repurchases and dividend payments.

Net volumes during the second quarter declined 6 percent, allowed by a notable fall in coal. Agricultural products and industrial products also illustrated major volume contractions. Still, Union Pacific made significant progress optimizing its resources to present volumes while demonstrating robust safety performance.

Positives to watch

Union Pacific is seeing robust growth in 7-day monthly carloadings in thousands for Union Pacific till date in addition to satisfactory volume growth improvements for automotive and intermodal segments partially offset by volume declines for coal, industrial products and agricultural products compared to the fiscal year 2014 with a total volume decline of approximately 4% over the second quarter of 2014.

The analysts at BMO Capital Markets remain highly optimistic about the growth prospects of Union Pacific owing to its strong network, significant organic growth potential, notable margin enhancement opportunities and a well-established forecast for EPS growth and steadily improving free cash flows.


Overall, investors are advised to purchase equity in Union Pacific keeping its valuation in mind with trailing P/E and forward P/E ratios of 14.73 and 13.52, respectively, depicting a fairly valued stock and somewhat better than the industry’s average P/E of 20.85. The PEG ratio of 1.67 indicates healthy company growth and comparable to the industry’s growth average of 1.71. The profit margin of 22.06% is also outstanding.

Thus, investors should go long Union Pacific as its share price can recover in the long run.
Published on Oct 16, 2015
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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