What will happen to Union Pacific stock?

0
3

Union Pacific stock (NYSE: UNP) has seen an 11% drop this year, outperforming the broader S&P500 index, which is down 17%. There are a few trends that have driven the stock lower lately. The demand for rail transport is mainly linked to economic growth. Current high inflation, rising interest rates, fears of a slowdown in economic growth and weakness in broader markets have weighed on rail stocks, including UNP.

Looking to the longer term, UNP stock is up 67% from its level at the end of 2017. This marks an in-line performance with some of its competitors, including CSX stock, which rose 73%, and Norfolk Southern stock. stocks, which rose 68% over the period. This compares to the 48% gain for the broader S&P 500 index.

This 67% increase for UNP shares since the end of 2017 can mainly be attributed to: 1. company P/S ratio increases 19% to 6.0x
ZRX
lagging revenue, from 5.0x in 2017, 2. Union Pacific’s earnings growth of 10% to $23.4 billion in the past twelve months, compared to $21.2 billion in 2017, and 3. a significant decrease of 22% in the total number of outstanding shares. Union Pacific
UNP
has spent a whopping $28 billion on share repurchases since late 2017, resulting in a 22% drop in total shares outstanding, boosting revenue per share, which now increased 41% to $37.45, compared to $26.60 in 2017.

Union Pacific’s revenue growth in recent years has been driven by higher average freight revenue per carload, which grew 9% to $2,519 in 2021, compared to $2,310 in 2017, marking a 6% decline in total carloads to 8. 0 million was offset from 8.6 million over the same period.

The company has seen an uptick in rail demand in the past year. Looking at the performance of some individual segments in the recent past, Premium (including automotive transportation and intermodal operations) saw its volume decline due to the shortage of semiconductor chips and supply chain disruptions in the automotive industry that weighed on overall production. However, coal has positive momentum with production rising in the US and increased global demand due to higher natural gas prices. In fact, in the first half of 2022, coal and renewable energy revenues grew a solid 31%, driven by a 15% increase in volume and a 14% increase in average revenue per car load.

While the company managed to reduce its operating ratio to 57.2% in 2021, compared to 61.2% in 2021, higher inflation in 2022 has led to an increase in the metric to 59.8% in the first half. from 2022, which equates to over 200 basis points joh get up. However, looking ahead, inflation is expected to decline in the coming quarters, likely resulting in an improved operating ratio for Union Pacific.

we estimate Union Pacific’s valuation to $250, reflecting an 11% increase from its current $225 level. While UNP shares are trading at a higher P/S multiple than the levels seen in 2017, this is largely justified given the company’s ability to reduce its corporate ratio and robust shareholder returns with massive share buybacks.

While UNP stocks look like there’s a little more room for growth, it’s helpful to see how Peers of Union Pacific rate on metrics that matter. Other valuable comparisons for companies in different sectors can be found at Pear Comparisons.

In addition, the Covid-19 crisis has led to many price discontinuities that can provide attractive trading opportunities. For example, you will be amazed at how counterintuitive stock valuation is CSX vs America.

Due to rising inflation and raising interest rates by the Fed, the UNP share has fallen by 11% this year. Can it go down even more? See how low Union Pacific stocks can go by comparing the decline in past market crashes. Here’s a performance breakdown of all stocks in past market crashes.

What if you’re looking for a more balanced portfolio instead? U.S high-quality wallet and multi-strategy portfolio have consistently beaten the market since late 2016.

Invest with Trefis Wallets that beat the market

See everything Trefis Price estimates