What to expect from Union Pacific’s fourth quarter?

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Union Pacific (NYSE: UNP) is expected to report its fourth quarter 2022 results on Tuesday, January 24. We expect Union Pacific
UNP
to record mixed results, with sales below and profits above street expectations. The company should continue to benefit from a shift to cheaper transportation alternatives. However, our forecast indicates that UNP stock has little room for growth, as discussed below. Our interactive dashboard analysis of Profit Example Union Pacific has additional details.

(1) Revenue is expected to be slightly below consensus estimates

  • Trefis estimates Union Pacific’s net income in Q4 2022 to be approximately $6.2 billion, up 9% yoy and slightly below the consensus estimate of $6.3 billion.
  • Higher inflation has led some shippers to turn to low-cost alternatives, such as railroads. With costs rising, the company should be able to increase its average revenue per load, which bodes well for its revenue growth.
  • Our dashboard on Union Pacific earnings has more details on the segments of the company.
  • Union Pacific reported an 18% revenue increase to $6.6 billion in Q3 2022. Freight revenues grew a solid 18%, led by a 15% growth in average revenue per car load and a 3% increase in total volume of car loads.

(2) EPS will likely be above consensus estimates

  • Union Pacific’s earnings per share in Q4 2022 are expected to be $2.92 per Trefis analysis, well above the consensus estimate of $2.80.
  • The company’s net income of $1.9 billion in the third quarter of 2022 reflected a 13% increase from the $1.7 billion figure in the same quarter last year. The higher revenue growth was partially offset by an operating ratio increase of more than 360 basis points yoy to 59.9%.
  • For the full year 2023, we expect adjusted earnings per share to be higher at $12.60 compared to earnings per share of $9.95 in 2021 and an estimated $11.61 in 2022.

(3) UNP stocks seem fairly valued

  • We estimate Union Pacific valuation approximately $232 per share, reflecting only an 8% increase from the current market price of $214.
  • Our forecast is based on an 18x expected earnings estimate of $12.60, compared to the three-year average of 22x.
  • We allocated a slightly lower multiple for rail stocks given the rising operating ratio and concerns about slowing economic growth.
  • However, if the company reports optimistic Q4 results and offers a better 2023 outlook than street estimates, the P/E multiple will likely be revised upwards, resulting in higher levels for UNP stocks.

While UNP stock looks well priced, it’s helpful to see how Peers from Union Pacific rate on metrics that matter. Other valuable comparisons for companies in different industries can be found at Peer comparisons.

In addition, the Covid-19 crisis has led to many price discontinuities which can provide attractive trading opportunities. For example, you’d be surprised how counterintuitive stock valuation is CSX vs Amerco.

With inflation rising and the Fed raising rates, among other things, UNP stock is down 10% over the past 12 months. Can it go down even more? See how low Union Pacific shares can go by comparing the drop from past market crashes. Here’s a performance summary of all stocks in previous market crashes.

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