Key takeaways
View moreUnion Pacific's current valuation appears fair, balancing strong profitability metrics and growth prospects against liquidity concerns and economic uncertainties. While the company's operational efficiency and pricing power support its valuation, potential risks from economic headwinds and ongoing legal matters are also reflected in the current price. The slight discrepancies between valuation metrics (e.g., EV/EBITDA suggesting slight undervaluation vs. P/E suggesting slight overvaluation) further support a balanced view.
- Union Pacific's profitability metrics (gross, net, and EBITDA margins) significantly exceed industry averages, indicating strong operational efficiency.
- The company's current ratio of 0.73, below the industry average of 1.11, signals potential liquidity concerns that require close monitoring.
- Revenue growth has been modest, with Q1 2025 revenue at $6.027 billion, highlighting the need for strategies to accelerate sales.
- UNP's debt/EBITDA ratio of 2.71 is lower than the industry average of 4.73, suggesting a manageable debt load relative to earnings.
- The company returned $2.5 billion to shareholders in Q1 2025 through share repurchases and dividends, demonstrating a commitment to shareholder value.
- Analysts are concerned about the potential impact of macroeconomic factors, particularly tariffs and consumer spending, on Union Pacific's performance, as highlighted in the earnings call.
- UNP has consistently underperformed the Industrial Select Sector SPDR Fund (XLI), with a YTD return of -6.15% compared to XLI's 2.48%, indicating sector-specific challenges.
- Management anticipates a potentially "bumpy ride" for the remainder of 2025 due to economic uncertainty, tariffs, and consumer behavior, requiring agility and responsiveness to market changes.
- Ongoing legal matters, particularly environmental claims and antitrust litigation, pose financial and reputational risks that bear close monitoring, as noted in the SEC filings.
- The company's strategic focus on safety, service, and operational excellence, combined with leveraging technology, is crucial for navigating a potentially challenging economic environment.
Evaluation summary
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Company Overview:
- Union Pacific Corp. (UNP) is a Class I railroad company providing freight transportation services across 32,880 route miles in the U.S. The company connects Pacific Coast and Gulf Coast ports with the Midwest and Eastern U.S. gateways.
- UNP's operations are divided into three main commodity groups: Bulk (32% of freight revenues), Industrial (37%), and Premium (31%). Key products and services include the transportation of freight, including grain, coal, industrial chemicals, plastics, finished automobiles, and intermodal containers.
- The benchmarks used for comparative analysis include the Industrial Select Sector SPDR Fund (XLI), and the industry peers are Norfolk Southern Corp. (NSC) and CSX Corp. (CSX).
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Financial Performance:
- UNP's financial performance shows modest revenue growth. For the quarter ending March 31, 2025, revenue was $6.027 billion, compared to $6.121 billion for the quarter ending December 31, 2024.
- The gross profit margin for the quarter ending March 31, 2025, was 45.21%, while the net profit margin was 26.98%. These margins are higher than the industry averages of 39.92% and 22.46%, respectively.
- Net income for the quarter ending March 31, 2025, was $1.626 billion, compared to $1.762 billion for the quarter ending December 31, 2024.
- UNP's Return on Average Assets (ROA) for the quarter ending March 31, 2025, was 9.92%, Return on Average Total Equity (ROE) was 42.47%, and Return on Average Total Capital was 19.57%. These figures are higher than the industry averages of 6.33%, 25.12%, and 12.79%, respectively.
- The earnings call highlighted that Q1 2025 EPS was $2.70, reflecting a $0.19 headwind from fuel and leap year. Freight revenue grew 1% versus last year, and 4% excluding fuel surcharge impacts.
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Operational Efficiency:
- UNP's total current assets as of March 31, 2025, were $4.539 billion, while total current liabilities were $6.222 billion, resulting in a negative working capital of $1.683 billion.
- Net operating cash flow for the quarter ending March 31, 2025, was $2.210 billion. Total capital expenditure was $906 million.
- Free cash flow to equity for the quarter ending March 31, 2025, was $1.304 billion.
- The company paid cash dividends of $804 million during the quarter ending March 31, 2025. Share repurchases amounted to $1.720 billion.
- UNP's current ratio as of March 31, 2025, was 0.73, and the quick ratio was 0.61, both below the industry averages of 1.11 and 1.02, respectively.
- The total debt to total equity ratio as of March 31, 2025, was 211.38%, comparable to the industry average of 209.41%. The debt/EBITDA ratio was 2.71, lower than the industry average of 4.73.
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Growth Opportunities:
- The company is focused on safety, service, and operational excellence, and remains agile and responsive to market changes.
- Union Pacific is leveraging technology such as energy management systems and Precision Train Builder to improve efficiency and train length.
- The company is actively pursuing business development opportunities, including new facilities and customer expansions.
- Management mentioned potential for Asia ex-China and Mexico to pick up share of trade if the trade war with China continues.
- The company is maintaining its three-year targets set at Investor Day, with 2025 EPS growth consistent with attaining the three-year EPS CAGR view of high single to low double-digit growth.
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Recent Developments and Market Sentiment:
- Analysts are highly focused on the potential impact of macroeconomic factors, particularly tariffs and consumer spending, on Union Pacific's performance.
- The company's ability to achieve record core pricing is a significant positive, but its sustainability is under scrutiny given potential volume declines.
- The intermodal segment faces significant uncertainty due to potential shifts in trade flows and competition from the trucking industry.
- Management's emphasis on agility and the ability to react to changing market conditions is critical for achieving its long-term goals.
- The earnings call highlighted concerns about slowing activity, particularly on the West Coast, and the potential impact of tariffs on Chinese goods.
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Risks and Threats:
- UNP faces risks related to managing fluctuations in demand and network capacity, including potential service disruptions.
- The company is exposed to the risks associated with transporting hazardous materials and the potential for accidents/incidents.
- Reliance on technology and exposure to cybersecurity risks are also significant concerns.
- UNP is vulnerable to severe weather events and natural disasters.
- The company is dependent on key suppliers of locomotives and rail.
- Potential for labor strikes or workforce shortages exists.
- UNP is exposed to governmental regulation and environmental laws.
- Ongoing legal matters, particularly environmental claims and antitrust litigation, pose financial and reputational risks.
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Valuation Analysis:
- The Enterprise Value to EBITDA ratio for the quarter ending March 31, 2025, was 14.32, compared to the industry average of 14.45.
- The Enterprise Value to Sales ratio for the quarter ending March 31, 2025, was 7.20, compared to the industry average of 6.82.
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Price Performance:
- UNP's stock price has fluctuated between $208.27 and $248.29 from March 10, 2025, to May 7, 2025.
- UNP has consistently underperformed the Industrial Select Sector SPDR Fund (XLI) across all time periods analyzed. For instance, the Year-To-Date (YTD) performance shows UNP with a -6.15% return compared to XLI's 2.48%.
- UNP has demonstrated mixed performance compared to Norfolk Southern and CSX Corp. While UNP has shown strong long-term returns and lower volatility, its short-term performance has been less consistent.
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Future Outlook:
- The company is maintaining its three-year targets set at Investor Day, with 2025 EPS growth consistent with attaining the three-year EPS CAGR view of high single to low double-digit growth.
- Management anticipates a potentially "bumpy ride" for the remainder of 2025 due to economic uncertainty, tariffs, and consumer behavior.
- The company expects to maintain accretive pricing, industry-leading operating ratio, and ROIC.
- Analysts are seeking clarification on potential outcomes for earnings and operating ratio given the uncertainty.
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Summary:
- Union Pacific demonstrates strong profitability and efficient asset utilization, with profitability metrics significantly higher than the industry average. However, the company faces potential liquidity challenges, as indicated by a current ratio below 1 and a decreasing trend in liquidity ratios.
- Revenue growth has been modest, and the company needs strategies to accelerate sales and improve its business mix. The company's focus on operational improvements, cost control, and shareholder returns should support future financial performance.
- Key strengths include high profitability, efficient operations, and a commitment to shareholder returns. Weaknesses include low liquidity and modest revenue growth. Opportunities include leveraging technology and pursuing business development. Threats include macroeconomic uncertainty, regulatory changes, and ongoing legal matters.
- UNP's overall financial health is stable, but liquidity needs to be monitored. Critical factors for future performance include managing costs, improving liquidity, and navigating economic uncertainty.
- Areas requiring further monitoring include the current ratio, working capital, and the impact of tariffs on international intermodal volumes.
- UNP presents a mixed investment profile. While the company exhibits strong profitability and a commitment to shareholder returns, concerns about liquidity and modest revenue growth warrant caution. The company's ability to navigate economic uncertainty and manage risks will be critical to its future performance.
Price history
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Fundamentals
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Insights
- Union Pacific demonstrates strong profitability and efficient asset utilization, with profitability metrics significantly higher than the industry average.
- The company faces potential liquidity challenges, as indicated by a current ratio below 1 and a decreasing trend in liquidity ratios.
- Revenue growth has been modest, and the company needs strategies to accelerate sales and improve its business mix.
- The company's focus on operational improvements, cost control, and shareholder returns should support future financial performance.
- Monitoring key balance sheet and cash flow metrics is crucial to ensure adequate liquidity and manage debt levels effectively.
Analysis
- Revenue
- Revenue growth has been modest, with a slight upward trend in sales.
- The company's revenue growth is linked to strong volume growth but is offset by lower fuel surcharge revenues and an unfavorable business mix.
- The most recent YoY growth is less than the 5-year CAGR, indicating a deceleration in revenue growth.
- Profitability
- Profitability metrics, such as gross profit margin, net profit margin, and EBITDA margin, are higher than the industry average.
- Decreasing COGS has positively impacted gross margins, while fluctuations in operating expenses have influenced operating margins.
- Net profit margin and EBITDA margin are trending downwards.
- Liquidity
- The current ratio and quick ratio are below 1 and lower than the industry average, indicating potential liquidity issues.
- Cash and short-term investments have increased significantly, improving the liquidity position.
- The current ratio and quick ratio are trending downwards, indicating worsening liquidity.
- Solvency
- The debt/EBITDA ratio is lower than the industry average, suggesting a manageable debt load relative to earnings.
- Long-term debt has decreased, indicating debt repayment.
- The total debt to equity ratio is comparable to the industry average, indicating a similar level of financial leverage.
- Operational Efficiency
- The company demonstrates efficient asset utilization, as indicated by consistent investments in property, plant, and equipment.
- Gross profit margin is significantly higher than the industry average, indicating efficient production and cost management.
- The company's focus on safety, service, and operational excellence should support future revenue and profitability.
- Cash Flow Analysis - Net operating cash flow is showing an acceleration in growth, as the most recent YoY growth is more than the 5-year CAGR. - High capital expenditures are essential for maintaining and improving the company's infrastructure. - The company's investment strategy focuses on organic growth through infrastructure development.
- Risk Factors
- Potential liquidity issues due to a current ratio below 1.
- Exposure to macroeconomic conditions, shifts in consumer preferences, and competition from other transportation modes.
- Ongoing legal matters, particularly environmental claims and antitrust litigation, pose financial and reputational risks.
- Future Outlook
- Expect continued modest revenue growth based on historical trends and management guidance.
- Project stable dividend payments and potential share repurchases to maintain shareholder returns.
- Monitor the current ratio and working capital to ensure adequate short-term liquidity.
- The company's financial flexibility should remain strong due to its solid equity base and manageable debt levels.
- Profitability
Financial statements
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Public filings
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- Union Pacific is a leading Class I railroad with a vast network and diversified commodity mix, but faces operational risks from fluctuating demand, severe weather, and transportation of hazardous materials
- The company has made significant safety improvements and is focused on enhancing service performance, but remains exposed to regulatory changes and competitive pressures in the industry
- Strong financial position with ample liquidity, though subject to macroeconomic conditions and potential cost inflation; management is actively managing capital investments and shareholder returns
- Ongoing legal matters, particularly environmental claims and antitrust litigation, pose financial and reputational risks that bear close monitoring
- Overall, Union Pacific appears to be executing well on its strategic priorities, but faces a range of operational, financial, and legal/regulatory risks that could impact its future performance
Core Business and Operations:
- Union Pacific Corporation is a Class I railroad operating in the U.S., with a network of 32,880 route miles connecting Pacific Coast and Gulf Coast ports with the Midwest and Eastern U.S. gateways
- The company's operations are divided into three main commodity groups: Bulk (32% of freight revenues), Industrial (37%), and Premium (31%)
- Key products/services include transportation of freight, including grain, coal, industrial chemicals, plastics, finished automobiles, and intermodal containers
- Major customers include agricultural producers, industrial manufacturers, and logistics/intermodal providers; main competitors are other Class I railroads like BNSF Railway
Industry and Market Trends:
- Railroad industry is highly capital-intensive and subject to significant government regulation, including by the Surface Transportation Board (STB)
- Demand for rail services can be impacted by macroeconomic conditions, shifts in consumer preferences, and competition from other transportation modes like trucks and barges
- Regulatory changes, environmental laws, and climate change-related policies could affect the company's operations and costs
Recent Events:
- Achieved significant improvements in safety metrics in 2024, with 23% reduction in personal injury rate and 20% reduction in derailment incident rate
- Improved service performance, with 2-4 point increases in intermodal and manifest service performance index in 2024
- Issued $2 billion in new debt securities in Q1 2025 to fund share repurchases and general corporate purposes
Risk Factors:
- Managing fluctuations in demand and network capacity, including potential service disruptions
- Transporting hazardous materials and potential for accidents/incidents
- Reliance on technology and exposure to cybersecurity risks
- Vulnerability to severe weather events and natural disasters
- Dependence on key suppliers of locomotives and rail
- Potential for labor strikes or workforce shortages
- Exposure to governmental regulation and environmental laws
Legal Matters:
- Received a putative class action lawsuit in 2019 related to use of biometric information, with uncertain outcome
- Subject to various environmental claims and lawsuits, with potential for significant remediation costs
- Involved in antitrust litigation related to fuel surcharge practices, which the company continues to defend
Management's Discussion and Analysis:
- Achieved 1% growth in freight revenues in 2024 driven by 3% volume increase and core pricing gains, offset by lower fuel surcharge revenues and unfavorable business mix
- Operating expenses decreased 3% in 2024 due to productivity, a gain on equipment sale, and lower fuel prices
- Maintained strong liquidity with $1 billion in cash, $2 billion in credit facility availability, and $800 million undrawn on receivables facility as of Q1 2025
- Generated $2.2 billion in cash from operations in Q1 2025 and $2.8 billion in free cash flow for the full year 2024
Earnings calls
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Earnings Report 2025Q1 (2025-04-24)
Key takeaways
- Economic Uncertainty Dominates Concerns: Analysts are highly focused on the potential impact of macroeconomic factors, particularly tariffs and consumer spending, on Union Pacific's performance.
- Pricing Power is a Key Strength: The company's ability to achieve record core pricing is a significant positive, but its sustainability is under scrutiny given potential volume declines.
- Operational Efficiency is Crucial: Union Pacific's focus on operational improvements and cost control is essential for navigating a potentially challenging economic environment.
- Intermodal Volatility Presents Challenges: The intermodal segment faces significant uncertainty due to potential shifts in trade flows and competition from the trucking industry.
- Agility and Flexibility are Paramount: Management's emphasis on agility and the ability to react to changing market conditions is critical for achieving its long-term goals.
Focus of management’s prepared remarks
- First Quarter Performance: Union Pacific had a solid start to the year, delivering record first-quarter operating performance. The reported operating ratio was 60.7%, flat compared to last year, despite headwinds from fuel and leap year.
- Financial Results: Q1 2025 EPS was $2.70, reflecting a $0.19 headwind from fuel and leap year. Net income was essentially flat versus last year. Freight revenue grew 1% versus last year, and 4% excluding fuel surcharge impacts.
- Revenue Drivers: Strong volume growth added 650 basis points to freight revenue. Core pricing was very strong, reaching the highest quarterly level in the past ten years.
- Expense Management: Operating expense was flat year-over-year, as productivity gains and lower fuel costs offset volume-related costs, inflation, and depreciation.
- Shareholder Returns: The company returned $2.5 billion to shareholders in the first quarter through share repurchases and dividends.
- 2025 Outlook: The company is maintaining its three-year targets set at Investor Day, with 2025 EPS growth consistent with attaining the three-year EPS CAGR view of high single to low double-digit growth.
- Business Segment Performance: Bulk revenue was up 1% due to strong customer demand for coal and grain. Industrial revenue was down 1% due to decreased petroleum and soda ash shipments. Premium revenue was up 5% due to increased intermodal shipments.
- Operational Improvements: Freight car velocity improved 6% to 215 miles per day, a first-quarter record. Terminal dwell improved 6% year-over-year, also setting a new first-quarter record.
- Safety: Both personal injury and derailment rates continue to improve versus their three-year rolling average.
- Strategic Focus: The company is focused on safety, service, and operational excellence, and remains agile and responsive to market changes.
Focus of the analyst Q&A
- 2025 Guidance:
- Concerns about slowing activity, particularly on the West Coast.
- Seeking clarification on potential outcomes for earnings and operating ratio given the uncertainty.
- Questions about the levers to accelerate earnings growth given a flat Q1.
- Pricing:
- How much of the strong pricing reflects the lag impact from inflation versus improved service performance?
- Sustainability of the strong pricing environment.
- Tariffs and Trade:
- Impact of potential tariffs on Chinese goods and potential shifts in trade flows.
- Plans for dealing with large tariffs and potential impacts on international intermodal volumes.
- Intermodal:
- Managing resources for volatility within the intermodal cycle.
- Trends in domestic intermodal conversions as the truck market softens.
- Outlook for intermodal revenue per carload given the mix of domestic versus international and softer truck pricing.
- Cost Management:
- Sustainability of managing salaries, wages, and benefits per employee.
- Major productivity initiatives planned for 2025.
- Mexico Cross-Border Volumes:
- Changes in cross-border Mexico volumes due to tariffs and geopolitical issues.
- Downside Risks:
- Framing the downside risk to the freight market given the existing freight recession.
- Potential impact of a consumer-led GDP recession on volumes and yields.
- Capital Allocation:
- How the capital return plan, specifically share repurchases, might be adjusted if economic conditions worsen.
- Grain Exports:
- How much of the grain export business is Mexico versus China oriented?
- International Intermodal:
- How much of the international intermodal business is West Coast or China oriented?
- Asia ex-China Trade:
- Potential for Asia ex-China and Mexico to pick up share of trade if the trade war with China continues.
Summary
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Financial Performance
Union Pacific reported Q1 2025 EPS of $2.70, flat year-over-year, despite a $0.19 headwind from fuel and leap year. Net income was $1.6 billion, also flat. The operating ratio was 60.7%, flat compared to the previous year, with a 90 basis point headwind from fuel and leap year. Freight revenue increased by 1% but increased 4% excluding fuel surcharge impacts. Cash from operations increased 4% year-over-year to $2.2 billion. The company returned $2.5 billion to shareholders through share repurchases and dividends.
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Revenue Drivers
Freight revenue growth was primarily driven by a 7% increase in volume, offset by lower fuel surcharge revenue and unfavorable business mix. Strong core pricing contributed positively, reaching the highest quarterly level in ten years. Bulk segment revenue increased due to strong demand for coal and grain products. Premium revenue increased due to intermodal shipments. Industrial revenue declined due to decreased petroleum and soda ash shipments.
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Profit Margins and Cost Management
The operating ratio remained flat due to increased volume-related costs, inflation, and depreciation offsetting productivity gains and lower fuel costs. Compensation and benefits expense decreased slightly due to workforce reductions, partially offset by wage inflation. Fuel expense decreased due to lower fuel prices and improved fuel consumption rates. Purchase services and materials expense increased due to inflation and volume-related costs. The company is focused on maintaining a volume variable cost structure.
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Guidance and Outlook
The company reaffirmed its three-year targets set at the Investor Day, including high single to low double-digit EPS CAGR. They anticipate a potentially "bumpy ride" for the remainder of 2025 due to economic uncertainty, tariffs, and consumer behavior. The company expects to maintain accretive pricing, industry-leading operating ratio, and ROIC. They are closely monitoring market conditions and remain agile in their response. Other revenue is now estimated to total about $325 million per quarter.
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Strategic Initiatives
Union Pacific is focused on safety, service, and operational excellence. They are leveraging technology such as energy management systems and Precision Train Builder to improve efficiency and train length. The company is actively pursuing business development opportunities, including new facilities and customer expansions. They are committed to returning value to shareholders through dividends and share repurchases.
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Management Commentary
Management emphasized their commitment to long-term guidance and their ability to react to changing market conditions. They highlighted the company's strong operational performance and focus on efficiency. The CEO expressed confidence in the company's strategy, team, and ability to unlock the franchise. They acknowledged uncertainty in the market but reiterated their commitment to delivering value for shareholders.
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Industry and Market Conditions
The company noted potential challenges in the food and beverage market and anticipates a slowdown in international intermodal in the second half of the year. They are closely monitoring tariff uncertainty and potential impacts on consumer spending. The company expects petroleum volume to remain challenged due to business shifts. They see favorable conditions in industrial chemicals and plastics markets. They are also closely watching natural gas prices and their impact on coal volumes.
Comparative analysis
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Benchmarks (as of 2025-05-07)
Industrial Select Sector SPDR Fund (XLI)
- Performance Comparison:
- Union Pacific Corp. (UNP) has consistently underperformed the Industrial Select Sector SPDR Fund (XLI) across all time periods analyzed. For instance, the Year-To-Date (YTD) performance shows UNP with a -6.15% return compared to XLI's 2.48%. Over a longer horizon, such as the 3-year period, UNP returned 1.82% while XLI returned 51.21%.
- The consistency of UNP's underperformance relative to XLI suggests that broader market trends or sector-specific factors may be influencing UNP's returns negatively compared to the more diversified industrial sector represented by XLI.
- Risk and Return Analysis:
- The annualized returns analysis further underscores UNP's underperformance. Over the past year, UNP's annualized return was -11.08%, significantly lower than XLI's 9.48%. The 2-year and 3-year annualized returns also show UNP lagging behind XLI.
- In terms of annualized volatility, UNP's volatility has generally been higher than XLI's, indicating that UNP's price is more sensitive to market changes. For example, in Q4 2022, UNP's volatility reached as high as 35.92%, while XLI's reached 29.71%.
- The drawdown figures reveal that UNP experienced larger peak-to-trough declines 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 a higher risk profile for UNP compared to XLI.
- Risk-Adjusted Performance:
- The Sharpe Ratio, which measures risk-adjusted return, is generally lower for UNP than for XLI. This suggests that UNP has not provided as favorable a return for the level of risk taken, compared to XLI. As of Q2 2025, UNP's Sharpe ratio was -0.34 and XLI's Sharpe ratio was 0.56.
- The Beta value for UNP has generally been below 1, indicating that it is less volatile than the overall market. However, UNP's beta values are consistently lower than XLI's, suggesting that UNP is less sensitive to market movements compared to the broader industrial sector represented by XLI. As of Q2 2025, UNP's beta was 0.63 and XLI's beta was 0.87.
- Overall Assessment:
- Based on the data, Union Pacific Corp. (UNP) has underperformed Industrial Select Sector SPDR Fund (XLI) across various performance metrics. UNP exhibits higher volatility and larger drawdowns, resulting in a less favorable risk-adjusted return compared to XLI.
- The trends suggest that UNP's performance may be influenced by factors specific to the railroad industry or the company itself, as it has not kept pace with the broader industrial sector represented by XLI. Investors may want to consider these factors when evaluating UNP's potential for future growth and profitability.
Peers Price History(as of 2025-05-07)
- Performance Comparison:
- Union Pacific's historical performance has varied compared to its peer companies, Norfolk Southern and CSX Corp. YTD, UNP underperformed NSC but outperformed CSX. Over a 1-year period, UNP underperformed NSC but outperformed CSX. However, over 2 and 3-year periods, UNP outperformed both NSC and CSX. These periods of outperformance and underperformance suggest that UNP's returns are not consistently superior or inferior to its peers, but fluctuate depending on the time frame.
- Risk and Return Analysis:
- The annualized returns show that UNP's returns were lower than NSC's but higher than CSX's over the 1-year period. However, over 2 and 3-year periods, UNP's annualized returns were higher than both NSC and CSX. This suggests that UNP has delivered better long-term returns compared to its peers.
- The annualized volatility data indicates that NSC generally exhibited higher volatility compared to UNP and CSX. UNP's volatility was generally lower than that of NSC and CSX, except for certain periods. This suggests that UNP may be a more stable investment compared to its peers.
- The maximum drawdown for UNP was -31.83% on 10/20/2022, while NSC had a maximum drawdown of -35.64% on 10/27/2023, and CSX had a maximum drawdown of -29.44% on 04/08/2025. This indicates that NSC experienced the largest peak-to-trough decline, while CSX experienced the smallest.
- Risk-Adjusted Performance:
- The Sharpe ratios for UNP, NSC, and CSX have fluctuated over time. UNP generally had higher Sharpe ratios compared to NSC, but lower than CSX in certain periods. This suggests that UNP's risk-adjusted returns have been competitive but not consistently superior to its peers.
- The beta values for UNP, NSC, and CSX have generally been below 1, indicating that these companies are less volatile than the market. There have been some discrepancies in the beta values, with NSC generally having higher beta values compared to UNP and CSX. This suggests that UNP and CSX are less sensitive to market movements compared to NSC.
- Overall Assessment:
- Based on the analysis, Union Pacific has demonstrated mixed performance compared to Norfolk Southern and CSX Corp. While UNP has shown strong long-term returns and lower volatility, its short-term performance has been less consistent. The Sharpe ratio indicates competitive risk-adjusted returns, and the beta values suggest lower sensitivity to market movements.
- Investors should consider UNP as a potentially stable, long-term investment option within the railroad industry. However, it is important to monitor short-term performance and risk metrics to make informed investment decisions.
Peers Fundamentals(as of 2025-03-31)
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Market Position and Size:
- Union Pacific (UNP) stands out with a significantly larger market capitalization of $127,770.24 million compared to Norfolk Southern (NSC) at $49,592.95 million and CSX Corp. (CSX) at $53,294.46 million.
- This substantial market cap is supported by higher revenue ($24,246 million), EBITDA ($12,126 million), and net income ($6,732 million) compared to its peers, indicating a strong correlation between market valuation and financial performance.
- UNP's dominant market position within the peer group is evident due to its significantly larger size, as reflected in its market capitalization and key financial metrics.
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Profitability and Efficiency:
- UNP exhibits superior profitability with a gross profit margin of 45.39%, exceeding NSC (36.25%), CSX (35.29%), and the industry average (39.92%).
- Its EBITDA margin of 50.01% is also higher than NSC (47.49%), CSX (47.0%), and the industry average (48.67%), demonstrating efficient operations.
- UNP's net profit margin of 27.77% surpasses NSC (27.38%), CSX (22.66%), and the industry average (22.46%), indicating strong bottom-line performance.
- These profitability metrics, combined with its size, suggest efficient operations and cost management, positioning UNP as a leader in profitability within its peer group.
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Financial Health and Stability:
- UNP's current ratio of 0.73 is lower than NSC (0.78), CSX (0.88), and the industry average (1.11), indicating potential liquidity concerns.
- Its quick ratio of 0.61 is also lower than NSC (0.7), CSX (0.75), and the industry average (1.02), further suggesting liquidity challenges.
- UNP's total debt to total equity ratio of 211.38 is higher than NSC (118.63) and CSX (161.18), and slightly above the industry average (209.41), indicating higher leverage.
- However, its debt/EBITDA of 2.71 is lower than NSC (2.99), CSX (2.85), and the industry average (4.73), suggesting manageable debt relative to earnings.
- Overall, UNP's financial health is characterized by strong earnings and manageable debt, but its liquidity position warrants attention.
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Valuation and Market Perception:
- UNP's enterprise value to sales of 7.2 is higher than NSC (5.77), CSX (5.19), and the industry average (6.82), suggesting a premium valuation based on sales.
- Its enterprise value to EBITDA of 14.32 is comparable to the industry average (14.45) but higher than NSC (12.14) and CSX (10.97).
- UNP's price-to-earnings ratio of 19.27 is higher than NSC (15.02) and CSX (16.91) but lower than the industry average (22.01).
- Its price-to-book ratio of 7.99 is higher than NSC (3.42), CSX (4.38), and the industry average (5.11), indicating a premium valuation based on book value.
- These valuation metrics suggest that the market perceives UNP as a premium company compared to its peers, reflecting confidence in its future performance.
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Cash Flow and Capital Management:
- UNP's net operating cash flow of $9,434 million is significantly higher than NSC ($4,163 million) and CSX ($5,418 million).
- Its total capital expenditure of $3,561 million is also higher than NSC ($2,274 million) and CSX ($2,724 million), reflecting its investment in infrastructure and assets.
- UNP's free cash flow of $5,873 million is substantially greater than NSC ($1,889 million) and CSX ($2,694 million), indicating strong cash generation capabilities.
- These cash flow metrics demonstrate UNP's ability to generate significant cash, which supports its investments and shareholder returns.
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Growth and Future Prospects:
- UNP's free cash flow and free cash flow margin show consistently higher growth compared to the peer group average.
- However, its recent growth in sales/revenue, net income, and basic earnings per share has been lower than the peer group average.
- UNP's growth rates have been inconsistent over the 5-year period, with significant year-to-year fluctuations.
- Its most recent year-over-year growth rates for EBITDA, net income, and basic earnings per share are higher than its 5-year CAGRs, indicating an acceleration trend.
- Overall, UNP's future prospects appear positive, driven by its strong cash generation and potential for improved growth in key metrics.
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Potential for Investment:
- UNP presents an attractive investment opportunity due to its strong profitability, cash flow generation, and returns on investment.
- Its premium valuation reflects the market's recognition of its superior performance.
- However, investors should be aware of its weaker liquidity position and higher debt levels.
- While its growth in revenue and earnings has lagged peers recently, its strong free cash flow growth is a positive sign.
- Overall, UNP offers a compelling investment profile with a balance of strengths and weaknesses.
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Key Risks and Considerations:
- UNP's weaker liquidity position poses a risk, as it may limit its ability to respond to unexpected financial challenges.
- Its higher debt levels could increase its vulnerability to changes in interest rates or economic downturns.
- The inconsistent growth rates in key metrics raise concerns about its long-term growth trajectory.
- Investors should carefully monitor UNP's liquidity, debt levels, and growth rates to assess its overall financial health and investment potential.
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Overall Assessment:
- Union Pacific (UNP) is a financially strong company with a dominant market position, superior profitability, and robust cash flow generation.
- Its weaker liquidity position and higher debt levels warrant attention, but its overall financial health remains sound.
- UNP's future prospects appear positive, driven by its strong cash generation and potential for improved growth in key metrics.
- Overall, UNP presents an attractive investment opportunity with a balance of strengths and weaknesses.
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