Insights

• Union Pacific demonstrates strong profitability and operational efficiency, with margins significantly above industry averages.
• The company's liquidity position is a concern, as indicated by a current ratio below 1 and the industry average.
• The company's focus on strategic investments and operational excellence positions it well for future growth.
• Monitoring macroeconomic conditions, industry trends, and potential risk factors will be crucial to sustain financial performance.
• The company's capital allocation strategy prioritizes organic growth and shareholder returns, enhancing long-term value.

Analysis

• Revenue - Revenue growth is modest but consistent, driven by increased volume and core pricing gains. - The company's diverse business mix and strong service capabilities help navigate varying market conditions. - Management's focus on strategic initiatives and business development efforts supports future revenue growth.
  • Profitability
    • Profitability margins are strong and improving, driven by cost control and operational efficiency.
    • The company's ability to achieve price increases accretive to the operating ratio demonstrates its pricing power.
    • Strategic investments in technology and automation are expected to further enhance profitability.
  • Liquidity
    • The current ratio is below the industry average and less than 1, indicating potential liquidity issues.
    • Working capital management needs improvement to optimize cash flow.
    • The company's strong operating cash flow provides some cushion against short-term obligations.
  • Solvency
    • The company relies heavily on debt financing, but debt levels are manageable relative to earnings.
    • The total debt to total equity ratio is decreasing, suggesting improving solvency.
    • Free cash flow generation supports long-term solvency and financial flexibility.
  • Operational Efficiency
    • The company demonstrates strong operational efficiency, as evidenced by decreasing COGS and SG&A expenses.
    • Workforce productivity improvements and technology investments contribute to cost control.
    • The operating ratio is improving, reflecting the company's focus on operational excellence.
  • Cash Flow Analysis - Operating cash flow is strong and growing, driven by net income and depreciation. - Capital expenditure is consistent with the company's long-term investment strategy. - The company's capital allocation strategy prioritizes organic growth and shareholder returns.
  • Risk Factors
    • Fluctuations in demand for rail services and network capacity constraints pose a risk to revenue growth.
    • Exposure to severe weather events and natural disasters could disrupt operations and impact financial results.
    • Ongoing antitrust litigation and potential environmental liabilities could create financial risks.
  • Future Outlook
    • Management expects continued EPS growth, driven by operational excellence and strategic investments.
    • The company plans to invest in technology and automation to improve productivity and efficiency.
    • Monitoring macroeconomic conditions and industry trends will be crucial to sustain revenue growth and profitability.

Benchmarks (as of 2025-03-17)

• Performance Comparison:

  • Union Pacific Corp. (UNP) has shown mixed performance compared to the Industrial Select Sector SPDR Fund (XLI). Year-to-date, UNP has outperformed XLI by 3.14%, with returns of 4.39% versus 1.25%. However, over longer periods such as 1 year, 2 years and 3 years, UNP has underperformed XLI. For example, over the past year, UNP's return was 0.2% compared to XLI's 9.41%, representing a -9.21% underperformance.
  • The consistency of UNP's performance relative to XLI has varied. While UNP has shown periods of outperformance in the short term (e.g., Year-to-date and 1 Month), it has generally lagged behind XLI over longer investment horizons.

• Risk and Return Analysis:

  • The annualized returns of UNP have been lower than those of XLI over the 1-year, 2-year, and 3-year periods. The 3-year annualized return for UNP is -1.2%, while for XLI it is 10.67%.
  • UNP has generally exhibited higher annualized volatility compared to XLI, especially during periods of market uncertainty. For example, in Q1 2023, UNP's volatility reached as high as 39.4%, while XLI's peaked at 19.18%.
  • UNP experienced larger drawdowns than XLI. The maximum drawdown for UNP was -31.83% on 2022-10-20, while for XLI it was -21.64% on 2022-09-30. This indicates that UNP is subject to greater peak-to-trough declines than XLI.

• Risk-Adjusted Performance:

  • The Sharpe Ratio for Industrial Select Sector SPDR Fund (XLI) is generally higher than that of Union Pacific Corp. (UNP) indicating better risk-adjusted returns for the benchmark. As of Q1 2025, UNP's Sharpe Ratio is 0.08 and XLI's is 0.76.
  • The beta of UNP has generally been below 1, indicating that it is less volatile than the market. As of Q1 2025, UNP's beta is 0.53 and XLI's is 0.84.

• Overall Assessment:

  • Union Pacific Corp. (UNP) has demonstrated mixed performance compared to the Industrial Select Sector SPDR Fund (XLI). While UNP has shown short-term outperformance, it has generally underperformed XLI over longer periods. UNP exhibits higher volatility and larger drawdowns, suggesting a riskier investment profile compared to XLI. The Sharpe Ratio indicates that XLI offers better risk-adjusted returns. The lower beta of UNP suggests it is less sensitive to market movements, but this has not translated into superior returns.
  • A significant trend is UNP's higher volatility and drawdown compared to XLI, indicating a need for investors to carefully consider their risk tolerance.

Peers Price History(as of 2025-03-17)

• Performance Comparison:

  • Union Pacific Corp. (UNP) has generally outperformed Norfolk Southern Corp. (NSC) and CSX Corp. (CSX) over the specified periods. For example, over the last two years, UNP's return was 31.24%, compared to 19.72% for NSC and 6.92% for CSX. However, in the most recent week, UNP underperformed its peers, with a return of 0.16% compared to 1.49% for NSC and 2.64% for CSX.

• Risk and Return Analysis:

  • UNP has provided higher annualized returns compared to NSC and CSX over the 1-year, 2-year, and 3-year periods. For example, the 2-year annualized return for UNP is 14.56%, while it is 9.41% for NSC and 3.4% for CSX.
  • UNP generally exhibited lower annualized volatility compared to NSC and CSX. For example, in early Q1 2022, UNP's volatility was around 27.67%, while NSC's was 35.77% and CSX's was 36.46%.
  • UNP's maximum drawdown was -31.22% on 2023-03-22, while NSC's was -35.64% on 2023-10-27 and CSX's was -29.43% on 2022-10-11. This suggests that UNP's risk profile, as measured by maximum drawdown, is better than NSC's but worse than CSX's.

• Risk-Adjusted Performance:

  • UNP generally had higher Sharpe Ratios than NSC and CSX, indicating better risk-adjusted returns.
  • The beta values for all three companies were generally below 1, indicating that they were less volatile than the market.

• Overall Assessment:

  • Union Pacific Corp. (UNP) has generally outperformed Norfolk Southern Corp. (NSC) and CSX Corp. (CSX) in terms of historical performance and annualized returns. UNP also exhibited lower annualized volatility compared to its peers. However, UNP's maximum drawdown was higher than CSX's, indicating a slightly riskier profile. The Sharpe Ratios suggest that UNP offers better risk-adjusted returns compared to NSC and CSX. The beta values indicate that all three companies are less volatile than the market.
  • One significant trend is the fluctuating volatility experienced by all three companies throughout the period. Another trend is the recent underperformance of UNP compared to its peers in the most recent week.

Peers Fundamentals(as of 2024-12-31)

1. Market Position and Size:
   • Union Pacific Corp. (UNP) is the largest company in the peer group, with a market capitalization significantly exceeding that of Norfolk Southern Corp. (NSC) and CSX Corp. (CSX). This size advantage is reflected in UNP's significantly higher revenue, EBITDA, and net income compared to its peers.
2. Profitability and Efficiency:
   • UNP exhibits significantly higher profitability compared to its peers and industry averages, as evidenced by its superior Gross Profit Margin, EBITDA Margin, and Net Profit Margin. This superior profitability is likely driven by UNP's larger scale and efficient operations. UNP also demonstrates superior efficiency in generating returns compared to its peers and industry averages, as evidenced by its high Return on Average Assets, Return on Average Total Equity, Return on Average Total Capital, and Return On Average Invested Capital.
3. Financial Health and Stability:
   • UNP's liquidity and solvency metrics are generally in line with its peers and industry averages, although it exhibits a higher level of debt. Despite its higher debt levels, UNP's strong cash flow generation and profitability provide a buffer against potential liquidity and solvency risks.
4. Valuation and Market Perception:
   • UNP's valuation metrics are generally in line with its peers and industry averages, although it trades at a premium to its peers on a price-to-free cash flow basis. This suggests that the market may be valuing UNP's strong cash flow generation at a premium compared to its peers.
5. Cash Flow and Capital Management:
   • UNP generates significantly more cash flow than its peers, considering their respective market caps. This strong cash flow generation allows UNP to invest in its business, return capital to shareholders, and manage its debt effectively.
6. Growth and Future Prospects:
   • UNP exhibits a mixed growth profile compared to its peers. While UNP demonstrates superior growth in certain areas, particularly free cash flow and free cash flow margin, it lags behind in others, such as revenue and net income growth. This suggests that UNP is focusing on generating cash flow and improving its operational efficiency, but may be facing challenges in expanding its market share or capturing new growth opportunities.
7. Potential for Investment:
   • Union Pacific Corp. (UNP) presents an attractive investment opportunity for investors seeking exposure to the railroad industry. UNP's dominant market position, strong profitability, robust cash flow generation, and efficient asset utilization make it a financially sound and well-managed company. However, investors should monitor UNP's ability to accelerate its revenue and net income growth to maintain its competitive edge and justify its premium valuation.
8. Key Risks and Considerations:
   • While UNP's financial health is strong, investors should be aware of potential risks such as its relatively slow revenue and net income growth compared to its peers, its higher debt levels, and potential challenges in the railroad industry, such as regulatory changes, competition, and economic downturns.
9. Overall Assessment:
   • Union Pacific Corp. (UNP) is a financially strong and well-managed company with a dominant market position in the railroad industry. Its superior profitability, robust cash flow generation, and efficient asset utilization make it a compelling investment opportunity. However, investors should monitor UNP's ability to accelerate its revenue and net income growth to maintain its competitive edge and justify its premium valuation.