Union Pacific Corp (UNP, Financial) recently experienced a daily loss of 3.56%, contributing to a three-month decline of 6.03%. Despite these fluctuations, the company maintains an Earnings Per Share (EPS) of 10.48. This raises a pivotal question: is Union Pacific fairly valued at its current market price? This article delves into a comprehensive valuation analysis to address this query.
Company Overview
Based in Omaha, Nebraska, Union Pacific is the largest public railroad in North America. The company operates over 30,000 miles of track predominantly in the western two-thirds of the United States. In 2023, Union Pacific generated $24 billion in revenue by transporting a diverse range of goods including coal, industrial products, and automotive goods. The corporation also holds a significant stake in Mexican railroad Ferromex, which historically accounts for approximately 10% of its revenue from freight services to and from Mexico. Comparing the current stock price of $234.96 to the GF Value of $241.92 suggests that Union Pacific is fairly valued. This assessment sets the stage for a deeper exploration of the company's intrinsic value.
Understanding GF Value
The GF Value is a proprietary measure calculated to represent the intrinsic value of a stock. This valuation considers historical trading multiples such as PE Ratio and Price-to-Free-Cash-Flow, adjusts for past returns and growth, and incorporates future business performance estimates. According to this method, Union Pacific's stock, with a market cap of $143.40 billion, aligns closely with its GF Value, indicating it is fairly priced. This positioning suggests that the long-term return of Union Pacific's stock should mirror the rate of its business growth.
Financial Strength and Risks
Investing in companies with robust financial health is crucial to mitigate the risk of capital loss. Union Pacific's cash-to-debt ratio is 0.03, ranking lower than 95.77% of companies in the Transportation sector. This metric, along with a financial strength rating of 5 out of 10 from GuruFocus, underscores the importance of cautious investment in this stock.
Profitability and Growth Prospects
Union Pacific has demonstrated strong profitability, maintaining a high operating margin of 38.08%, which surpasses 93.42% of its industry peers. The company's consistent profitability over the last decade and its revenue growth rate of 11.2% annually positions it well within the transportation industry. However, its 3-year average EBITDA growth rate of 8.6% suggests there is room for improvement compared to industry standards.
Comparative Analysis of ROIC and WACC
An effective measure of a company's profitability is the comparison between its Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC). Union Pacific's ROIC of 10.87 exceeds its WACC of 9.24, indicating efficient management of capital relative to the cost of obtaining it. This favorable comparison is essential for potential growth and value creation.
Conclusion
In conclusion, Union Pacific (UNP, Financial) appears to be fairly valued based on comprehensive financial metrics and GF Value estimation. The company's stable financial condition and strong profitability are promising, although its growth metrics show potential for enhancement. For a deeper dive into Union Pacific's financials and to explore potential investment opportunities, visit Union Pacific's 30-Year Financials.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
