Last Update 27 Nov 25
Fair value Decreased 0.07%UNP: Merger Approval Will Drive Stronger Performance Despite Carload Softness
Union Pacific's analyst price target has risen by a modest amount, with analysts highlighting mixed carload growth trends and recent quarterly performance as key factors in their updated valuation, which is now near $263 per share.
Analyst Commentary
Recent analyst commentary on Union Pacific has reflected both optimism and caution regarding the company's near-term prospects and long-term execution.
Bullish Takeaways- Bullish analysts have raised their price targets for Union Pacific, citing confidence in the company's capacity to deliver solid performance despite existing industry headwinds.
- Recent quarterly rail volumes were largely in line with projections, indicating a level of operational consistency that is being favorably received.
- Some analysts have shifted to more positive outlooks, noting improving trends and positioning Union Pacific as a preferred name among major North American railroads.
- Growth in certain carload segments, particularly outside of intermodal, has supported bullish expectations for ongoing revenue resilience.
- Bearish analysts point out that, following a period of strong carload growth, momentum has moderated and recent traffic data shows a year-over-year decline in total carload growth.
- Intermodal carload volumes have fallen by mid-teens percentages, raising concerns about demand softness and the pace of recovery in this business segment.
- Despite price target increases, neutral ratings from several major firms indicate lingering uncertainty around valuation and the sustainability of recent improvements.
What's in the News
- The US Department of Justice has begun investigating Union Pacific's proposed acquisition of Norfolk Southern and is expected to formally participate in the Surface Transportation Board's regulatory review (CTFN).
- CSX CEO Joe Hinrichs was dismissed after failing to engage with Union Pacific's informal merger approach. This ultimately led to Union Pacific striking a deal with Norfolk Southern (Semafor).
- President Trump has publicly expressed support for Union Pacific's $72 billion acquisition of Norfolk Southern as the deal seeks regulatory approval (Bloomberg).
Valuation Changes
- The Fair Value Estimate has decreased slightly, moving from $260.58 to $260.40 per share.
- The Discount Rate has risen marginally from 8.28% to 8.41%, reflecting a minor increase in the perceived risk profile.
- The Revenue Growth Projection has edged lower, from 8.86% previously to 8.77% in the latest update.
- The Net Profit Margin is essentially flat, dipping very slightly from 30.12% to 30.00%.
- The Future P/E Ratio has increased modestly, from 19.25x to 19.61x, suggesting a small uptick in forward earnings expectations.
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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