What’s going on with Union Pacific Stock?

[Updated: 6/3/2021] Union Pacific Update

Union Pacific (NYSE: UNP) has seen its stock price rise 33% over the past year, in line with larger markets, with the S & P500 up 36%. The company shipped a lower volume of carloads in 2020, due to the impact of the Covid-19 pandemic on aggregate demand. Union Pacific released its first quarter results at the end of April, with revenue still down 4.4% from the previous year quarter. However, now that 40% of the US population is fully vaccinated against Covid-19, the economy is expected to rebound, and that should bode well for railways, including Union Pacific.

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Union Pacific is expected to experience a recovery in demand in its segments – bulk, industrial and premium – in the coming quarters. While the overall increase in industrial production will bolster demand for industrial deliveries, the expected increase in electricity consumption globally and a favorable comparison to last year’s lows are likely to result in higher deliveries. of coal in the coming quarters. Note that the EIA forecasts an 8% growth in US coal production in 2021.

In addition, the driver shortage issue in the trucking industry will bode well for Union Pacific. In intermodal transport, trains are used for the long distance portion of the shipment, while trucks are used to deliver the goods to the originating intermodal terminal as well as to the final destination, in the case of shipments. interior. Union Pacific’s intermodal business (which is part of the Premium segment) recorded solid volume growth of 12% in the first quarter, a trend that is expected to continue in the near term. In another development, Union Pacific recently entered into an accelerated share buyback program for $ 2 billion. The company is now planning share buybacks worth $ 6 billion in 2021. This will boost the company’s EPS growth going forward.

While there are many positive developments for Union Pacific, and its stock has already appreciated 11% since the start of the year, we believe the stock still has room for growth. Through our Union Pacific Assessment of $ 250 per share, based on expected Adjusted EPS of $ 9.60 for the full year 2021 and a P / E multiple of 26x, there is upside potential of more than 10 % for the UNP action.

[Updated: 4/20/2021] UNP First Quarter Results Snapshot

Union Pacific Stock (NYSE: UNP) is expected to release its first quarter 2021 results on Thursday, April 22. We expect Union Pacific to likely post revenues and profits above street expectations, due to higher demand for rail, especially intermodal, amid continued driver shortages facing the trucking industry. The overall rebound in the economy has likely helped freight revenues for its other segments, including Industrial and Premium.

Our forecast indicates that Union Pacific’s valuation is around $ 245 per share, which is 10% above the current market price of around $ 222. Our interactive dashboard analysis on Union Pacific pre-wins has additional details.

(1) Expected revenue slightly higher than consensus estimates

Trefis estimates Union Pacific’s revenue in the first quarter of 2021 to be around $ 5.1 billion, slightly above the consensus estimate of $ 5.0 billion. The gradual opening of economies and vaccination programs in the United States have led to a resumption of economic activities, which should bode well for Union Pacific’s freight business. The trucking industry still faces a shortage of drivers, and railways, including Union Pacific, have likely benefited with higher intermodal revenues. In the fourth quarter of 2020, revenue fell 1% to $ 5.1 billion, with coal freight revenue down 21%, a trend that is expected to continue in the near term given weaker demand. electricity. Our dashboard on Union Pacific revenues offers more details on the business segments.

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2) EPS should also be higher than consensus estimates

Union Pacific’s earnings per share in the first quarter of 2021 is expected to be $ 2.10 per Trefis analysis, slightly above the consensus estimate of $ 2.05. Union Pacific’s net income of $ 1.38 billion in the fourth quarter of 2020 reflects a 2% decline from its $ 1.40 billion figure in the previous year quarter. This can be attributed to lower revenues and higher operating costs due to the pandemic. That said, margins will likely improve in the future, thanks to the company’s willingness to lower its operating ratio. For the whole of 2021, we forecast EPS of $ 9.50 compared to $ 7.88 in 2020.

(3) Estimate of the share price 10% above the current market price

Based on our Union Pacific’s valuation, with an EPS estimate of around $ 9.50 and a P / E multiple of around 26x in 2021, that translates to a price of $ 245, or 10% at the above the current market price of about $ 222. At the current price of $ 222, the UNP share is trading at 23 times its estimate of 2021 earnings of $ 9.50 per share, which compares to the 26-fold levels seen in late 2020, implying that there are has more room for growth.

While persistent challenges in the coal and other energy freight business will impact Union Pacific’s overall revenue growth rate in 2021, we believe industrial and premium freight demand will rebound, driven by the resumption of economic activities and the increased demand for transport.

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Note: P / E multiples are based on the stock price at the end of the year and reported (or expected) profits for the entire year

While the UNP stock may have more room for growth, 2020 has created many price discontinuities that may provide some exciting trading opportunities. For example, you’ll be surprised at how counterintuitive stock valuation is to Canadian Pacific Railway c. DR Horton

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