Union Pacific Corporation (UNP) is another company that can currently be found on GuruFocus.com’s Buffett-Munger Screener. Union Pacific operates the world’s largest U.S. railroad system. The company has a network that spreads almost 32,000 miles and links the Pacific Coast port and the Gulf Coast port to midwestern and eastern areas.
Key Historical Dates:
1848: The first ten miles of the “Galena and Chicago Union Railroad” were completed.
1862: Abraham Lincoln signed The Pacific Railroad Act of 1862, which calls for two major companies (Union Pacific and Central Pacific) to create a transcontinental railroad system.
1880: Union Pacific purchased the Kansas Pacific and Denver Pacific railroads.
1890: Union Pacific Coal Company, the first subsidiary of Union Pacific, is established.
1897: After filing for bankruptcy, a group of investors buy Union Pacific for $110 million.
1901: Union Pacific purchased 38% of Southern Pacific and gains control of the railroads.
1941: The largest steam locomotive ever created, the “Big Boy”, went into service on Union Pacific railroads.
1969: The Union Pacific Corporation is established as a holding company, with Union Pacific Railroad as one of its operating companies.
1980: President Jimmy Carter signed the Staggers Rail Act, partially deregulating the rail industry.
1995: UP merged with C&NW after acquiring the remaining 75% of its stock.
2001: Union Pacific tightened security across its system following terrorist attacks in New York City. UP began adding large American flag decals to the sides of its locomotives.
2004: James R. Young was named president of Union Pacific Railroad.
2005: James R. Young was elected chief executive officer of Union Pacific Corporation.
2012: 150th anniversary of the signing of the Pacific Railway Act of 1862, which chartered The Union Pacific Railroad Company to build west from the Missouri River for the transcontinental railroad.
Financial Strength
Union Pacific has an average Free Cash Flow growth of 41.7% over the last 5 years. The company also has averaged over 45% Revenue growth and EBITDA growth over the last 12 months. The company’s revenue per share has also shown pretty consistent growth.
Here, in my opinion, are some pretty impressive statistics: for the last ten years ending 2013, revenues rose at a compound annual growth rate (CAGR) of 6.04%, operating profit at 14.4%, net income at 21.9% and earnings per share at 23.4%. Below are some select financial data from the company’s most recent 10-K filing.
The company also currently has more in total assets than total liabilities, but the current assets versus current liabilities are about a wash. The majority of debt is being refinanced as it matures.
Back in 2011 the company’s Board of Directors authorized 40 million shares (of common stock) to be repurchased by the end of March is 2014. As of the end of 2013, Union Pacific had repurchased $9.3 billion of its common stock. In November of 2013, an early renewal of the repurchase program was approved by the Board of Directors, which authorized an additional 60 million shares to be repurchased by the end of 2017. The company currently holds a 1.58% dividend yield with a 30.5% dividend growth rate over the last 5 years.
Management
In 2012, Jack Koraleski was elected President and Chief Executive Officer of Union Pacific. The compensation policy for the company is valued similar to those of other companies, weighing heavily on performance of the organization. Below is a table detailing the most recent compensation breakdown.
Valuation
Union Pacific is currently trading at a P/E of 14.3. Utilizing the Peter Lynch valuation method, the value of the stock is theoretically 75% higher than its current price. Looking at a chart of the Peter Lynch method (price at P/E 15), we can see that the company is currently undervalued at a price of $114.58 versus the estimated $200.75.
One should also utilize GuruFocus.com’s DCF Calculator for the company. By using this tool we can develop a fair value price of $228.60, which gives a 50% margin of safety. This margin is more than acceptable for most value investors.
End Notes
Disclosure: No current position held at the time of writing.
Disclaimer: The opinions and ideas in this article are for informational and educational purposes only. They are not a recommendation to buy or sell any stock at any given time. As always, it is imperative for each individual investor to do their own due diligence and perform their own research on any and all stocks before making an investment decision.
