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Union Pacific Corp UNP

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Morningstar’s Analysis

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Union Pacific’s Investor Day Offers Favorable Outlook for Volume and Margin Gains; 55% OR in Sight

Matthew Young, CFA Equity Analyst

Analyst Note

| Matthew Young, CFA |

Class I railroad Union Pacific hosted an investor day, its first since early 2018. Management discussed key strategic initiatives, namely those linked to driving incremental network productivity and bolstering volume growth, which relies in part on leveraging solid precision scheduled railroading-related service enhancements already in place. Overall, we noted no major surprises in the presentation, though management’s medium-term expectations for volume expansion and incremental operating margins came in slightly higher than our forecasts. Given its vast geographic footprint and improving network service capabilities over the past two years (including velocity and locomotive productivity gains), we are comfortable giving the rail more credit for a longer growth runway, especially in terms of truck-to-rail conversion opportunities. Thus, we tweaked our carload and margin forecasts for 2023-24 higher, which will likely boost our $179 fair value estimate by 2%-3%.

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Company Profile

Business Description

Omaha, Nebraska-based Union Pacific is the largest public railroad in North America. Operating on more than 30,000 miles of track in the western two thirds of the U.S., UP generated roughly $20 billion of revenue in 2020 by hauling coal, industrial products, intermodal containers, agriculture goods, chemicals, and automotive goods. UP owns about one fourth of Mexican railroad Ferromex and derives about 10% of its revenue hauling freight to and from Mexico.

Contact
1400 Douglas Street
Omaha, NE, 68179
T +1 402 544-5000
Sector Industrials
Industry Railroads
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 29,755

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