Key takeaways
View moreUnion Pacific's current valuation appears justified given its superior profitability metrics and strong competitive position, balanced against liquidity concerns and economic uncertainties. While the company trades at valuation multiples close to industry averages, its operational excellence and pricing power support the current valuation, even as it faces potential headwinds from economic uncertainty and intermodal volatility.
- Union Pacific exhibits strong profitability, with a net profit margin of 26.98% as of March 31, 2025, significantly exceeding the industry average of 22.46%.
- The company faces potential liquidity challenges, as indicated by a current ratio of 0.73 as of March 31, 2025, which is below the industry average of 1.11.
- Revenue growth has been modest, with revenue at $6.027 billion for the quarter ending March 31, 2025, compared to $6.121 billion for the quarter ending December 31, 2024.
- UNP has underperformed the Industrial Select Sector SPDR Fund (XLI), with a year-to-date performance of 1.58% compared to XLI's 13.04%.
- The earnings call highlighted concerns about economic uncertainty and the sustainability of pricing power, emphasizing the need for operational efficiency and agility.
- Ongoing legal matters and regulatory risks pose financial and reputational threats to the company.
- Management is focused on maintaining its three-year targets, with 2025 EPS growth consistent with a high single to low double-digit CAGR.
- The company returned $2.5 billion to shareholders in Q1 2025 through share repurchases and dividends, demonstrating a commitment to shareholder value.
- The debt-to-EBITDA ratio is 2.71 as of March 31, 2025, lower than the industry average of 4.73, indicating a manageable debt load relative to earnings.
- The intermodal segment faces significant uncertainty due to potential shifts in trade flows and competition from the trucking industry, requiring careful resource management.
Evaluation summary
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Company Overview:
- Union Pacific Corp. (UNP) is a Class I railroad company operating in the United States. It provides railroad and freight transportation services, connecting customers and communities to the global economy. The company's network spans 32,880 route miles, linking 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, such as grain, coal, industrial chemicals, plastics, finished automobiles, and intermodal containers. Major customers include agricultural producers, industrial manufacturers, and logistics/intermodal providers.
- The primary competitors are other Class I railroads, such as Norfolk Southern Corp. (NSC) and CSX Corp. (CSX). The Industrial Select Sector SPDR Fund (XLI) is used as a benchmark to evaluate UNP's performance against the broader industrial sector.
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Financial Performance:
- Union Pacific's financial performance shows modest revenue growth. For example, revenue was $6.027 billion for the quarter ending March 31, 2025, compared to $6.121 billion for the quarter ending December 31, 2024.
- Gross profit margin has remained relatively stable, at 45.21% for the quarter ending March 31, 2025, compared to 45.58% for the quarter ending December 31, 2024. These margins are higher than the industry average of 39.92%.
- Net profit margin was 26.98% for the quarter ending March 31, 2025, compared to 28.79% for the quarter ending December 31, 2024. This is also higher than the industry average of 22.46%.
- Return on Assets (ROA) was 9.92% for the quarter ending March 31, 2025, compared to 9.89% for the quarter ending December 31, 2024, significantly exceeding the industry average of 6.33%. Return on Equity (ROE) was 42.47% compared to 42.60%, and Return on Invested Capital (ROIC) was 14.13% compared to 14.24%, also surpassing the industry average of 8.78%.
- The earnings call highlighted that 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.
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Operational Efficiency:
- Total assets were $68.492 billion as of March 31, 2025, compared to $68.479 billion as of December 31, 2024. Total liabilities were $52.453 billion as of March 31, 2025, compared to $51.589 billion as of December 31, 2024.
- Working capital was negative, at -$1.683 billion as of March 31, 2025, and -$1.233 billion as of December 31, 2024, indicating potential short-term liquidity challenges.
- Net operating cash flow was $2.210 billion for the quarter ending March 31, 2025, compared to $2.662 billion for the quarter ending December 31, 2024. Total capital expenditure was $906 million for the quarter ending March 31, 2025, compared to $922 million for the quarter ending December 31, 2024.
- Free cash flow to equity was $1.304 billion for the quarter ending March 31, 2025, compared to $1.740 billion for the quarter ending December 31, 2024.
- The company paid cash dividends of $804 million for the quarter ending March 31, 2025, and repurchased shares worth $1.720 billion.
- The current ratio was 0.73 as of March 31, 2025, and 0.77 as of December 31, 2024, below the industry average of 1.11, indicating potential liquidity concerns. The quick ratio was 0.61 as of March 31, 2025, and 0.62 as of December 31, 2024, also below the industry average of 1.02.
- The debt-to-equity ratio was 211.38% as of March 31, 2025, and 192.20% as of December 31, 2024, comparable to the industry average of 209.41%. Debt/EBITDA was 2.71 as of March 31, 2025, and 2.58 as of December 31, 2024, lower than the industry average of 4.73.
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Growth Opportunities:
- Union Pacific is focused on safety, service, and operational excellence. The company 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 is focused on agility and the ability to react to changing market conditions, which is critical for achieving its long-term goals.
- 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:
- The earnings call highlighted that 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 emphasized their commitment to long-term guidance and their ability to react to changing market conditions.
- 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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Risks and Threats:
- Union Pacific faces risks related to fluctuations in demand and network capacity, including potential service disruptions.
- The company is exposed to risks associated with transporting hazardous materials and the potential for accidents/incidents.
- Reliance on technology and exposure to cybersecurity risks are also significant concerns.
- The company is vulnerable to severe weather events and natural disasters.
- Dependence on key suppliers of locomotives and rail poses a risk.
- Potential for labor strikes or workforce shortages could disrupt operations.
- Exposure to governmental regulation and environmental laws is a constant challenge.
- Ongoing legal matters, particularly environmental claims and antitrust litigation, pose financial and reputational risks.
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Valuation Analysis:
- Enterprise Value to EBITDA was 14.32 for the quarter ending March 31, 2025, and 13.89 for the quarter ending December 31, 2024, compared to the industry average of 14.45.
- Enterprise Value to Sales was 7.20 for the quarter ending March 31, 2025, and 6.99 for the quarter ending December 31, 2024, compared to the industry average of 6.82.
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Price Performance:
- Union Pacific's stock price has fluctuated in recent months. From May 2, 2025, to June 30, 2025, the stock price increased from $216.98 to $230.08.
- UNP has generally underperformed the Industrial Select Sector SPDR Fund (XLI) across most time periods. For instance, the year-to-date performance shows UNP at 1.58% compared to XLI at 13.04%.
- UNP has also generally underperformed Norfolk Southern (NSC) over most periods, including Year-To-Date (YTD), 3 Months, 6 Months, 1 Year, and 3 Years. For example, the YTD performance shows UNP at 1.58% compared to NSC at 10.37%.
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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. They are closely monitoring market conditions and remain agile in their response.
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Summary:
- Union Pacific Corp. 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 a vast network, diversified commodity mix, and strong profitability. Weaknesses include potential liquidity issues and modest revenue growth. Opportunities include leveraging technology to improve efficiency and pursuing business development opportunities. Threats include economic uncertainty, regulatory changes, and competition from other transportation modes.
- The company's financial health is generally strong, with a solid equity base and manageable debt levels. However, monitoring key balance sheet and cash flow metrics is crucial to ensure adequate liquidity and manage debt levels effectively.
- Critical factors for future performance include managing economic uncertainty, maintaining pricing power, and improving operational efficiency. Areas requiring further monitoring include liquidity ratios, working capital, and the impact of tariffs on trade flows.
- Overall, Union Pacific presents a mixed investment profile. While the company demonstrates strong profitability and efficient asset utilization, it faces potential liquidity challenges and modest revenue growth. The company's ability to navigate these challenges and capitalize on growth opportunities will be critical for its future success.
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 2025-06-30)
Industrial Select Sector SPDR Fund (XLI)
- Performance Comparison:
- Union Pacific Corp. (UNP) has generally underperformed the Industrial Select Sector SPDR Fund (XLI) across most time periods. For instance, the year-to-date performance shows UNP at 1.58% compared to XLI at 13.04%, indicating a significant underperformance of -11.46%. Similarly, over the past three years, UNP has returned 14.64% while XLI has returned 75.68%, a substantial difference of -61.04%. There was a slight overperformance in the past month, with UNP at 5.11% and XLI at 3.74%, a difference of 1.37%.
- Risk and Return Analysis:
- The annualized returns further highlight UNP's underperformance. Over the past year, UNP's annualized return was 4.66% compared to XLI's 24.13%, a difference of -19.47%. The annualized volatility shows that UNP's volatility ranged from 11.42% to 41.62%, while XLI's volatility ranged from 8.85% to 41.26%. The maximum drawdown for UNP was -31.22% on 03/22/2023, which is more severe than XLI's maximum drawdown of -21.64% on 09/30/2022. This suggests UNP has a riskier profile with potentially larger declines from peak values.
- Risk-Adjusted Performance:
- The Sharpe Ratio, a measure of risk-adjusted return, indicates that XLI generally offers better risk-adjusted returns compared to UNP. As of Q2 2025, UNP's Sharpe Ratio is 0.28, while XLI's is 1.13. The beta values for both UNP and XLI have generally remained below 1, indicating that they are less volatile than the broader market. UNP's beta is consistently lower than XLI's, suggesting it is less sensitive to market movements. As of Q2 2025, UNP's beta is 0.69, while XLI's beta is 0.87.
- Overall Assessment:
- Based on the data, Union Pacific Corp. (UNP) has underperformed Industrial Select Sector SPDR Fund (XLI) in terms of historical performance, annualized returns, and risk-adjusted returns. UNP also exhibits higher maximum drawdowns, indicating a riskier investment profile. While both UNP and XLI have beta values below 1, UNP's lower beta suggests it is less sensitive to market movements compared to XLI. The Sharpe Ratio consistently favors XLI, indicating better risk-adjusted returns.
Peers Price History(as of 2025-06-30)
- Performance Comparison:
- Union Pacific (UNP) has generally underperformed Norfolk Southern (NSC) over most periods, including Year-To-Date (YTD), 3 Months, 6 Months, 1 Year, and 3 Years. For example, the YTD performance shows UNP at 1.58% compared to NSC at 10.37%. UNP has shown periods of overperformance compared to CSX Corp (CSX), particularly over 1 Year and 2 Year periods. For instance, UNP's 1-year performance is 4.66% compared to CSX's -1.39%.
- Risk and Return Analysis:
- The annualized returns show that UNP has provided lower returns compared to NSC over 1 Year and 3 Year periods. UNP's 1-year annualized return is 4.66% compared to NSC's 22.29%. However, UNP has provided higher returns than CSX over 1 Year and 2 Year periods.
- The annualized volatility for UNP, NSC, and CSX fluctuated throughout the analyzed period. UNP's volatility ranged from approximately 11.42% to 41.62%. Periods of high volatility were observed in Q4 2022, Q1 2023, Q3 2023, Q4 2023, Q1 2024 and Q2 2025 for UNP and NSC.
- The maximum drawdown for UNP was -31.83% on 2022-10-20, for NSC was -35.64% on 2023-10-27, and for CSX was -29.44% on 2025-04-08. This indicates that NSC experienced the largest peak-to-trough decline during the analyzed period.
- Risk-Adjusted Performance:
- The Sharpe ratios for UNP, NSC, and CSX fluctuated significantly. CSX generally exhibited higher Sharpe ratios compared to UNP and NSC, indicating better risk-adjusted returns.
- The beta values for UNP, NSC, and CSX were generally below 1, indicating that these stocks were less volatile than the overall market. UNP's beta ranged from approximately 0.51 to 0.88.
- Overall Assessment:
- UNP has shown mixed performance compared to its peer companies. While it has underperformed NSC in terms of historical performance and annualized returns, it has outperformed CSX in certain periods. UNP's risk profile, as indicated by annualized volatility and beta, is relatively stable and below the market average. However, its Sharpe ratios have generally been lower than CSX, suggesting lower risk-adjusted returns.
- Recent trends indicate that the magnitude of drawdowns has generally decreased for all three companies. In the most recent periods (Q1 2025 and Q2 2025), the Sharpe ratios for all three companies have decreased, suggesting a decline in risk-adjusted returns.
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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