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Where Union Pacific’s Stock Returns Stand among Industry Peers in 2017

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UNP’s market capitalization

Union Pacific’s (UNP) closing price on November 27, 2017, was $117.2 per share. Based on that closing price, UNP has a market capitalization of $92.2 billion—the highest among all the major railroads in the US.

UNP’s stock price performance

UNP’s 52-week highest price was $119.7 per share on November 27, 2017, while its lowest was $100.0 per share. The current level of its stock is very close to its 52-week high.

In the past year, UNP’s return was ~15%. The company’s YTD (year-to-date) as of November 27 return was 13%. In the past two months, its stock price has moved sideways.

UNP’s peers have seen the following YTD returns as of November 27:

  • CSX (CSX): 41%
  • Norfolk Southern (NSC): 18%
  • Kansas City Southern (KSU): 25%
  • Canadian National Railway (CNI): 17%
  • Canadian Pacific Railway (CP): 22%
  • Genesee & Wyoming (GWR): 7.1%

Analyst views of Union Pacific

Overall, the analysts surveyed by Thomson Reuters have a “hold” opinion of UNP stock. While 41% of the analysts suggest a “buy,” 55% recommend a “hold.”

Although UNP was able to beat its 3Q17 earnings estimates, this was due to the non-recurring items included in its other income. The company’s other income jumped to $122.0 million in 3Q17 from $29.0 million in 3Q16. The substantial jump in other income was due to a gain on the sale of land and settlements of an old litigation case.

Meanwhile, UNP’s operating margin hasn’t improved significantly since it started its G55+0 program to curtail operating costs. The company also has a sizeable exposure to coal, and in recent weeks, coal volumes for most of US class-I railroads have fallen YoY (year-over-year), suggesting headwinds on that front.

Notably, the intermodal business has been slow due to strong competition from the trucking industry.

Summary

Union Pacific’s 10% rise in quarterly cash dividends suggests the possibility of a not-so-good 2018 business outlook. Its dividend payout has been high among US class-I railroads (IYJ).

At the same time, we could see dull freight volume growth for UNP in 2018. Given the current level of UNP’s stock price, the company’s stock may slide in the near future.

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