Union Pacific: Diversification Helping Company Post Record Results But Valuation Rich

| About: Union Pacific (UNP)

The results for Union Pacific's (NYSE:UNP) first quarter were great as it beat EPS estimates by 15 cents and revenue estimates by $130 million. First quarter business volumes, as measured by total revenue carloads, grew 1% versus 2011. Four of Union Pacific's six business groups - automotive, industrial products, chemicals and intermodal - reported volume growth. According to the company, it was a "record" first quarter. For the rest of the year the company admitted that softer coal demand remains a "challenge." However, its diverse franchise should support continued opportunities in other markets, driving "record" financial results for the year.

Although the company is running on all cylinders, the valuations are pretty fair and maybe even a bit aggressive. All of the valuation metrics agree that the stock is fairly valued to slightly overvalued. Below is an in depth look at the valuation metrics and stock chart.

Valuation: Union Pacific's trailing 5 year valuation metrics suggest that the stock is fairly valued to slightly overvalued as two of its metrics are above their respective 5 year averages and one is just below. 0Union Pacific's current P/B ratio is 2.9 and it has averaged 2.2 over the past 5 years with a high of 2.8 and low of 1.3. Union Pacific's current P/S ratio is 2.7 and it has averaged 2.2 over the past 5 years with a high of 2.8 and low of 1.2. Union Pacific's current P/E ratio is 15.7 and it has averaged 16.1 over the past 5 years with a high of 24.4 and low of 9.3.

Price Target: The consensus price target for the analysts who follow Union Pacific is $128. That is upside of 13% from today's stock price of $113.37 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.

Forward Valuation: Union Pacific is currently trading at about $113 a share with analysts expecting EPS of $9.29 next year, an earnings increase of 14% y/y, for a forward P/E ratio of 12.2. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Norfolk Southern (NYSE:NSC) is currently trading at about $73 a share with analysts expecting EPS of $6.55 next year, an earnings increase of 12% y/y, for a forward P/E ratio of 11.2. CSX (NYSE:CSX) is currently trading at about $22 a share with analysts expecting EPS of $2.07 next year, an earnings increase of 14% y/y, for a forward P/E ratio of 10.8. Canadian National Railway (NYSE:CNI) is currently trading at about $85 a share with analysts expecting EPS of $6.03 next year, an earnings increase of 11% y/y, for a forward P/E ratio of 14.1. The mean forward P/E of Union Pacific's competitors is 12 which suggests that Union Pacific is fairly valued relative to its publicly traded competitors.

Earnings Estimates: Union Pacific has beat EPS estimates every time in the past 4 quarters. The company's EPS figures have come in between 1 cents and 17 cents from consensus estimates or about 0.6% to 9.8% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a small margin which suggests that the stock should experience limited upside from earnings surprises.

Price Action: Union Pacific is up 13.5% over the past year, outperforming the S&P 500, which is up 5.5%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $109.60 and above its 200 day moving average, which sits at $100.72.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.