Union Pacific (UNP, Financial) has done well in recent times, and going forward, the company should benefit from its public-private partnerships. It has completed construction for its major capacity projects such as The Tower 55 project in Fort Worth, Texas, under this partnership. The company expects this project to enhance its operational efficiency and extra capacity. Also, it should assist the company adding additional track through a key bottleneck in its network. This project should additionally assist the company to address operational glitches amid growing volume.
Strong growth across its product lines
Union Pacific is seeing strong growth trends in most of its product lines. The increasing grain shipments, strong demand for ethanol, imported beer delivery and recovery in the housing market should drive its growth going forward. It should also benefit from the increased activities in the construction and shale gas production.
Meanwhile, the company should benefit from the rebound in the automotive market. According to Zacks, light vehicle sales increased 3.2% to 16 million units in fiscal 2014 from 15.5 million units in 2013. This growth should alleviate demand for finished vehicles and auto parts. Also, the low inventory levels and higher natural gas prices should now accelerate demand for coal. These positive trends should lead to growth in volume for Union Pacific.
Ending remarks and valuation
Union Pacific looks good with its investments in tracks, locomotives, networks and productivities that should enhance its growth in the long run. The analysts expect its earnings to grow at CAGR of 14.47% for the next five years. This indicates reasonable growth for the company in the future. Also, the stock offers good short-term return. Its earnings are expected to grow 19.30% this year and 15.30% next year respectively.
The stock shares cheap valuations. Its trailing P/E of 20.17 and forward P/E of 17.34 indicate strong growth for the stock over the years. Also, it has PEG ratio of 1.38 that continues to support its growth in the coming five years. In fact, the company carries rich performance and wealth metrics. It has profit and operating profit margins of 20.98% and 35.60% respectively, while its ROE stands at 23.26% for trailing twelve months. Its balance sheet carries total cash of $1.89 billion and total debt of $11.50 billion. Union Pacific has operating cash flow of $7.30 billion and free cash flow of $2.99 billion, which is quite impressive and reflects its ability to generate cash flows.
