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Union Pacific Versus Canadian National: Let's Get Ready To Rumble
- Our ongoing effort to find the best Class I Railroad in North America continues. In this article, we're comparing last week's winner, CNI, to challenger UNP.
- Not to give the game away, but UNP wins.
- Based on this week's win, we recommend investors sell out of CNI and move into UNP in 2015.
- UNP trades at a discount when compared to forward EV/EBITDA and P/E multiples of comparable companies, implying undervaluation.
- UNP pays a higher than average dividend than peers and is less leveraged.
- We note that all tier-1 rail operators trade at P/E multiples significantly higher than historical averages – the historically high multiples are being supported by higher forecast growth rates for the industry.
I'm Considering Union Pacific If It Continues To Dip
- The stock has decreased in value recently due to the decline in oil prices.
- The company is a well diversified machine which should be buffered by the other products it hauls in case oil continues to drop.
- The dividend is pretty small right now but it can increase significantly in the future.
ModernGraham Annual Valuation Of Union Pacific Corporation
- UNP is not suitable for Defensive Investors or Enterprising Investors following the ModernGraham approach.
- According to the ModernGraham valuation model, the company is undervalued at the present time.
- The market is implying 8.43% earnings growth over the next 7-10 years, considerably lower than the rate the company has seen in recent years.
Union Pacific Sees No Growth In Its Crude-By-Rail Volumes
- Union Pacific's crude-by-rail business declined -18% through the third quarter 2014.
- UP remains bullish on movement of frac sand, intermodal and grain.
- Canadian Pacific is not altering guidance due to decline in oil prices.
Here's Why Union Pacific Belongs In Your Portfolio
- An improving economy, domestic energy production, and a relentless focus on expenses served as catalysts for Union Pacific’s top and bottom line expansion.
- The margin of safety for interest expense has improved steadily for Union Pacific over the past five years.
- Union Pacific’s free cash flow as a percentage of stockholder’s equity expanded fourfold from 2009 to 2013.
Union Pacific Corporation - Falling Crude Prices Might Present An Opportunity
- Union Pacific Corp. remains one of the best investments in the railroad industry commanding over 31,000 miles of rail network.
- UNP is a Dividend Challenger with a 5-yr DGR of 26.1%; payout ratio remains low with future increases secure.
- The stock appears slightly overvalued currently, but current downtrend due to falling crude prices can provide an opportunity.
Union Pacific's Upside Potential Is Limited, But Dividend Growth Remains Impressive
- Union Pacific's stock price has gained more than 50% during the last 12 months and the firm increased its dividend twice during this time..
- While the stock's current yield is only modest, the firm generates an industry leading return on invested capital and possesses a solid balance sheet.
- A DRAG analysis estimates the shares only have 5% capital appreciation potential over the next year, but investors focused on dividend growth should consider accumulating shares on weakness.
Union Pacific Is A Fortified Business With Long-Term Prospects
- UNP is part of the backbone of the US economy. Its shares delivered a 52% price return in one year, beating the Dow Jones Transportation Average and S&P 500.
- UNP reported strong financial and operational performances during the third quarter of 2014. The company is part of a stable railway industry that enjoys high-entry barriers.
- Railway is expected to remain the most feasible mode of terrestrial transport. The consensus target price reveals upside and the decent dividend yield makes it an attractive investment.
- Union Pacific appears to be fairly valued based on 2015 earnings expectations and earnings growth prospects.
- The dividend small but has a lot of room to grow. The company has increased the dividend twice in the past year alone!
- I'm going to stay long the name in my dividend portfolio but I'm not going to buy it right now for the IRA.
Union Pacific: A Buffet-Quality Stock To Be Purchased After A Pull-Back
- Union Pacific has some of the best fundamentals in the railroad industry, and they are only improving.
- Oligopoly-like nature of the railroad industry mean Union Pacific has a very strong moat.
- Recent market pullback with strong recovery after may signal a good entry point.
Union Pacific: Momentum Accelerates, Pushing Shares To Fresh Highs
- Union Pacific posts strong third quarter results, with momentum actually accelerating.
- This fueled shares which reached fresh all time highs on the back of the earnings report.
- A premium valuation multiple forces me to remain disciplined , as I will only buy at levels below the $100 mark based on the current fundamentals.
- Union Pacific posted earnings for Q3 that showed increases over 10%.
- Earnings are consistent with the initial coverage that projects long term growth in the six divisions.
- M&A talks are important to the industry, but UNP looks to be immune for now.
- The railroad industry largely falls under the radar, despite its exemplary performance and strong fundamentals.
- The industry has been around since the turn of the 20th century, yet it still has kept up with trends.
- A long term investment in railroads will pay off in both price appreciation and dividend growth.
- The best and largest performer in the industry is Union Pacific Corporation because of its high dividend growth, buyback program, and strong prospects.
10% Dividend Increase At Union Pacific Makes This Steady Producer More Attractive
- On July 31, 2014, UNP announced a dividend raise of 10% to $0.50 per share for Q3 2014.
- The transport sector is up 28.1% year to date, while UNP's stock price is up 26.62% year to date.
- Railroads represent a near monopoly that is also a secular growth story for decades to come, as the price of energy is expected to climb.
- The operating ratio for a railroad is the inverse of the operating margin -- the lower the better.
- We think Union Pacific's operating ratio will be the best among peers by the end of this decade, aided in part by renewed pricing strength.
- The firm also boasts a strong Valuentum Dividend Cushion ratio and a decent annual yield. It continues to up its payout.
- The recent boom in oil and gas production in North America has boosted the performance of the US railroad industry.
- Union Pacific’s stock went up by 28% year-to-date led by the record performance reported in the second quarter.
- The new energy sector reforms in Mexico are anticipated to expand Union Pacific’s industrial and chemical shipments.
How Union Pacific Could Benefit From Tesla's Gigafactory
- The gigafactory will be located right next to UP’s mainline in Story County, Nevada.
- Tesla’s decision to locate the gigafactory there demonstrates how railroads like Union Pacific are benefiting and will continue to benefit from America’s manufacturing renaissance.
- Railroads like UP are a value investment because they have a wide moat around them.
- Several railroads, including the Union Pacific, the Kansas City Southern, and the Norfolk Southern have shown significant revenue increases in recent months.
Is Union Pacific Going To Go Off The Rails With The Global Economy Waning?
- The stock appears to be fairly valued based on 2015 earnings estimates and earnings growth projections.
- The stock appears to be experiencing some bearish momentum as it hovers around overbought territory.
- I don't believe the global economy is all its cracked up to be right now, and this may drop the share price in the near future.
Mon, Dec. 8, 3:20 PM
- Another tough day for railroad stocks as oil prices slide again.
- There's been some brave talk that the railroad sector has already seen the developments in the oil industry factored into share prices, but today's action indicates concerns on crude transport is still a concern.
- Decliners: Canadian Pacific (NYSE:CP) -5.5%, Canadian National Railway (NYSE:CNI) -1.7%, Genesee & Wyoming (NYSE:GWR) -2.9%, Kansas City Southern (NYSE:KSU) -2.7%, Union Pacific (NYSE:UNP) -3.1%, CSX Corporation (NYSE:CSX) -2.8%, Norfolk Southern (NYSE:NSC) -3.5%, Pioneer Railcorp (OTCPK:PRRR) -4.3%.
Fri, Nov. 28, 12:05 PM
Thu, Nov. 20, 1:28 PM
Mon, Nov. 10, 7:37 AM
- "You don't get bargains on things like that," said Warren Buffett five years ago after paying what seemed like a steep price of $26.5B in the BNSF buyout. Five years on, the statement seems like false modestly, as - with the onshore oil boom helping it along - BNSF has sent more than $15B in dividends to Berkshire Hathaway (BRK.A, BRK.B), according to Berkshire''s latest quarterly earnings.
- Even better, the railroad is on pace to return all of the cash spent by Buffett before year's end. Annual revenue at BNSF has risen 57% and earnings more than doubled to $3.8B since Berkshire's purchase.
- "He stole it," says Jeff Matthews. "He's got to feel really good that he bought it when he did, because it's a wonderful asset, and it's done nothing but get more valuable in the time that he's owned it."
- Comps? Union Pacific (NYSE:UNP) trades for about 12.6x pretax, pre-interest income. Were BNSF to sell for that kind of multiple today, Buffett's stake would be worth about $66.5B, more than double what he paid.
Thu, Oct. 23, 8:04 AM
Wed, Oct. 22, 5:57 PM
- Railroad stocks were hammered today after some executives threw cold water on the idea that the railroad industry is ripe for consolidation.
- Norfolk Southern (NYSE:NSC) CEO said during today's earnings conference call that he thinks a major merger would be “highly problematic,” since in the past they have led to "significant service problems for some period of time" and potential cost savings such as overlapping routes do not exist as much anymore.
- Yesterday, Canadian Pacific (NYSE:CP) CEO Hunter Harrison confirmed that talks with CSX fell apart after several meetings because they couldn't agree on key issues, and added that a deal with Kansas City Southern (NYSE:KSU) is unlikely because the stock is expensive.
- In today's trade: NSC -3%, CP -1.6%, CSX -0.6%, KSU -2.7%, UNP -1.8%, GWR -2.6%, CNI -0.9%, BRK.B -0.9%.
Wed, Oct. 15, 1:07 PM
- CSX (CSX -2.5%) CEO Michael Ward wasn't taking part in any bubbly speculative talk about railroad mergers during the firm's earnings call this morning.
- The exec says regulators would be very cautious about a large merger due to disruptions in the past after high-profile combinations.
- Earnings call webcast
- Related stocks: UNP, NSC, CNI, ARII, GBX, CP, KSU, CNI.
Tue, Oct. 14, 10:58 AM
- Canadian Pacific (CP +0.5%) might consider another takeover candidate in the sector if CSX (CSX +2.9%) remain an elusive target, sources tell Bloomberg.
- The M&A fallout in the sector could see CSX combine with Union Pacific (UNP +1.2%) and Norfolk Southern (NSC +1.6%) look to link up with Canadian Railway (CNI -0.8%), says Avondale Partners.
- Another small-sized target could be Kansas City Southern (KSU +2.4%), notes Wolfe Research. KSU might be of interest to a rail carrier looking to network into Texas and Mexico.
- Previous on railroad M&A: CP-CSX, merger rally.
Mon, Oct. 13, 10:08 AM
- There's some bets being placed on M&A activity within the railroad sector after a weekend report of interest by Canadian Pacific in CSX (CSX +12.6%) stirs the pot.
- Gainers: Norfolk Southern (NYSE:NSC) +5.1%, Kansas City Southern (NYSE:KSU) +4.2%, Canadian Pacific (NYSE:CP) +3.2%, Union Pacific (NYSE:UNP) +1.0%, Canadian National Railway (NYSE:CNI) +1.3%.
Mon, Sep. 22, 1:03 PM
- The amount of oil riding on railroads has risen to 1.6M barrels a day, according to data from the Energy Information Administration.
- Revenue for hauling crude has skyrocketed 833% to $2.15B in just five years.
- Analysts think the infrastructure investments made within the industry will provide continued benefits for the group.
- Railroad stocks: UNP, NSC, CSX, CNI, ARII, GBX, CP, KSU, CNI.
Tue, Aug. 12, 8:28 AM
- Macquarie upgrades Union Pacific (NYSE:UNP) to an Outperform rating from Neutral on its view the railroad operator has one of the steadiest growth profiles in the sector.
- The investment firm cuts CSX (NYSE:CSX) to Neutral from Outperform after seeing its price target go unfulfilled.
- Kansas City Southern (NYSE:KSU) is lifted to Neutral after being stuck with an Underperform rating.
Thu, Jul. 31, 2:58 PM
Thu, Jul. 24, 11:09 AM
- Union Pacific's (UNP -0.7%) Q2 net profit climbed 17% to $1.29B up from $1.11B Y/Y helped by an 8% increase in freight hauled and shipping rates.
- Revenue rose 10% Y/Y to $6.02B from $5.47B.
- The company's in-line EPS of $1.43 was boosted by the railroad's purchase of 8.3M shares of its own stock for $806M during the quarter.
- Q2 earnings
Thu, Jul. 24, 8:07 AM
Tue, Jul. 15, 5:11 PM
- CSX -0.3% AH after reporting slightly better than expected Q2 earnings on record quarterly revenue, rising 6.5% Y/Y to $3.24B, as total volume rose 7.5% while average revenue per unit slipped 1%.
- CSX affirms its 2014 outlook for modest earnings and expects double-digit earnings growth and margin expansion to resume next year, citing a positive economic environment and growth trends in the intermodal and oil and gas markets.
- Raises its 2014 spending plan by $100M to $2.4B to support sustainable growth.
- Coal volume rose 6.5% on higher shipments of domestic coal attributable to marketplace gains and utilities replenishing stockpiles.
- The results may help ease concerns that the U.S. economy’s Q1 contraction showed weakness beyond winter-weather disruptions; analysts also project Union Pacific (NYSE:UNP) and Norfolk Southern (NYSE:NSC) to announce sales records.
Mon, Jun. 30, 6:53 PM
- Barclays upgrades its view of the transportation sector to positive, as an improving fundamental backdrop is set to drive meaningful earnings expansion across a broad array of transport companies.
- Among signs of improving fundamentals: rail volume up 7%, U.S. trucking demand up 3%-4%, small package markets up 5%, and global trade up 5%-6% - all implying strong industrial demand.
- Sector valuations are the highest since the 2009 recession and has outperformed YTD, but with Q2 results ripe to usher in more bullish sentiment in the space, Barclays expects valuations could have further to run as markets discount a more robust outlook.
- The firm's top recommendations in sector are UNP, UPS, SWFT, CP and JBHT, while also upgrading CNI and NSC to Overweight, adding more exposure to the favorable North American rail vertical.
- ETFs: IYT, XTN.
UNP vs. ETF Alternatives
Union Pacific Corp is a rail transporting company. Its main operating company is Union Pacific Railroad Company, links 23 states in the western two-thirds of the country by rail, providing a critical link in the global supply chain.
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