The last time I wrote about Union Pacific Corporation (NYSE:UNP) I stated, "…I will not be adding another big position now." After writing the article it proceeded to move higher to the tune of 8.99% versus the 1.73% gain the S&P 500 (NYSEARCA:SPY) posted. It's quite unfortunate that I didn't plow additional money into the company at the time. Union Pacific Corporation owns transportation companies, of which its principal operating company, Union Pacific Railroad Company, connects 23 states in the western 66% of the United States.
On January 23, 2014, the company reported fourth quarter earnings of $2.55 per share, which beat the consensus of analysts' estimates by $0.06. In the past year the company's stock is up 30.91% excluding dividends (up 32.85% including dividends), and is beating the S&P 500, which has gained 20.82% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the services sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 19.01, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 14.64 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $12.24 per share and I'd consider the stock inexpensive until about $184. The 1-year PEG ratio (1.45), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 13.1%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 13.1%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 13.61%. Below is a comparison table of the fundamental metrics for the company for when I wrote all articles pertaining to the company.
EPS Next YR ($)
My Target Price ($)
EPS next YR (%)
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 2.03% with a payout ratio of 39% of trailing 12-month earnings while sporting return on assets, equity and investment values of 8.9%, 21.2% and 15.5%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 2.03% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 7 years at a 5-year dividend growth rate of 26.1%. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock near overbought territory with a value of 61.27. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($179.12), I'm looking at $184.10 to act as resistance and the 20-day simple moving average (currently at $175.45) to act as support for a risk/reward ratio which plays out to be -2.05% to 2.78%.
- Chairman James Young passed away last week. Mr. Young was battling pancreatic cancer for two years. The board will elect a successor shortly.
- The company increased the dividend 15.2%. The quarterly dividend of $0.91 has an ex-date of 26Feb14 with a pay date of 01Apr14.
- Atlantic Securities upgraded the company from "Neutral" to "Overweight".
The railroads are doing so much better than people expected, I believe it is important to select stocks which are undervalued and Union Pacific is one of those names in this industry. Fundamentally the company is inexpensively priced based on 2015 earnings but fairly valued on future growth potential. Financially the dividend was raised mid-year, has a low payout ratio and other financial metrics have improved (ROE, ROA, ROI). On a technical basis I believe the bullish momentum is getting long in the tooth and we may be due for a price drop. Due to the tiring bullish technicals, fair valuation on future growth, and macroeconomic concerns I'm not going to be buying a position at this price.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!