Last Update22 Oct 25Fair value Increased 0.046%
Union Pacific's fair value estimate edged up slightly. Analysts raised their price targets by $12 to $272, citing improving rail volumes and constructive industry trends.
Analyst Commentary
Recent Street research reflects a mix of optimism and caution regarding Union Pacific’s future outlook. Analysts have responded to industry trends, recent corporate actions, and valuation considerations with a range of upgrades, downgrades, and price target revisions.
Bullish Takeaways
- Bullish analysts have lifted Union Pacific's price targets, citing constructive industry trends and a rebound in rail volumes that have closely tracked forecasts.
- Momentum in operational performance and execution is viewed positively. Growth projections are supported by improved volume consistency compared to prior quarters.
- Opportunities stemming from sector-wide consolidation and potential synergies offer further upside for future earnings and long-term valuation.
- Some analysts point to Union Pacific trading at relatively attractive valuation multiples compared to historical averages. This may indicate room for appreciation if execution continues to improve.
Bearish Takeaways
- Bearish analysts remain concerned about the proposed merger with Norfolk Southern, highlighting the risk of negative impacts to profitability and the uncertainty of regulatory approval.
- There is caution that the lengthy regulatory review process could weigh on share price performance, which could limit upside over the next several quarters.
- Export headwinds related to tariffs present ongoing challenges to growth and revenue expansion in the near term.
- While price targets have increased in some cases, ratings have also been downgraded. This reflects mixed confidence in Union Pacific’s ability to navigate industry and macroeconomic headwinds.
What's in the News
- Union Pacific is close to a $320 per share cash-and-stock deal to acquire Norfolk Southern, valuing the transaction at around $72 billion and representing the rail industry's largest-ever tie-up. (Bloomberg)
- President Trump has publicly endorsed the proposed merger between Union Pacific and Norfolk Southern, which is currently undergoing regulatory review. (Bloomberg)
- Seven freight railroad customer associations have asked regulators to block or set additional conditions on the Union Pacific and Norfolk Southern merger, raising concerns about competition and service standards. (Financial Times)
- CSX CEO Joe Hinrichs was dismissed after reportedly mishandling an informal merger approach from Union Pacific, an event that occurred before Union Pacific's agreement with Norfolk Southern. (Semafor)
- Activist investor Ancora Holdings is urging CSX to pursue its own merger or face a possible proxy fight, following Union Pacific's attempt to acquire Norfolk Southern. (Wall Street Journal)
Valuation Changes
- Fair Value Estimate has increased slightly from $261.56 to $261.68 per share.
- Discount Rate has edged up from 8.52% to 8.53%.
- Revenue Growth expectation is virtually unchanged, ticking down marginally from 5.76% to 5.76%.
- Net Profit Margin has improved modestly from 28.35% to 28.46%.
- Future P/E ratio has declined a little from 22.68x to 22.61x.
Key Takeaways
- Efficiency enhancements and resource management are expected to boost operational efficiency, net margins, and profitability.
- Expansion in high-growth areas and new infrastructure could drive volume growth and positively impact future revenue.
- Uncertainty in trade policies, tariffs, and economic factors could negatively affect Union Pacific's revenue and margins, especially in international and segment-specific volumes.
Catalysts
About Union Pacific- Through its subsidiary, Union Pacific Railroad Company, operates in the railroad business in the United States.
- Union Pacific is implementing multiple efficiency enhancements, such as energy management systems for locomotives and optimization tools, which are expected to improve operational efficiency and net margins.
- The company is expanding capacity with new infrastructure, such as facilities in Houston and Phoenix, which could support future growth and positively impact revenue.
- Strategic emphasis on core pricing appears strong, reaching record-high levels. This indicates potential for revenue growth and higher net margins as Union Pacific navigates the shifting competitive landscape.
- Union Pacific is focusing on business development in high-growth areas like renewable fuels and automotive, which could drive significant volume growth and positively impact future revenue.
- Active management of resources, including technology-driven optimization of operations, is expected to maintain operational stability and flexibility, supporting continued improvements in earnings and profitability (EPS).
Union Pacific Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Union Pacific's revenue will grow by 6.6% annually over the next 3 years.
- Analysts assume that profit margins will shrink from 28.4% today to 28.2% in 3 years time.
- Analysts expect earnings to reach $8.3 billion (and earnings per share of $14.71) by about September 2028, up from $6.9 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $7.2 billion.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.9x on those 2028 earnings, up from 18.5x today. This future PE is lower than the current PE for the US Transportation industry at 24.6x.
- Analysts expect the number of shares outstanding to decline by 2.18% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 8.47%, as per the Simply Wall St company report.
Union Pacific Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The company faces uncertainty related to trade policies, tariffs, and economic factors, which could impact international shipping routes and inventory planning, potentially affecting intermodal and bulk revenue.
- Changes in consumer preferences and potential economic slowdowns could negatively impact volumes and pricing in sectors like food and beverage, potentially reducing revenues and net margins.
- Volatility in natural gas prices creates uncertainty for coal demand, which can lead to fluctuating freight revenues from that segment.
- The potential for tariffs or shifts in trade policy, including those concerning China, could impact international intermodal volumes, leading to decreased revenue if volumes shift to alternate ports or routes.
- While pricing remains strong, the competitive environment with the trucking industry and potential softness in certain market areas, like International Intermodal, may pressure future revenue growth and earnings.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $256.92 for Union Pacific based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $294.0, and the most bearish reporting a price target of just $213.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $29.5 billion, earnings will come to $8.3 billion, and it would be trading on a PE ratio of 21.9x, assuming you use a discount rate of 8.5%.
- Given the current share price of $216.05, the analyst price target of $256.92 is 15.9% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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