haveblue
Union Pacific (NYSE:UNP) is back on my buy list as the company is down 19% from 52-week highs and sits at a reasonable 17.4x TTM P/E. Since I last wrote about Union Pacific back in
Union Pacific: Rolling Through The Economic Cycles
Summary
- Union Pacific is down 19% from 52-week highs and sits at a reasonable 17.4x TTM P/E considering the long-term growth from this well-moated company.
- In Union Pacific's latest Q1 2023 report, the company grew operating income 3% year-over-year and EPS growth of 3.9% to $2.67 per share for the quarter (Q1 2022 - $2.57).
- Carloads were down 1% YoY which does not signal great things for the pace of the economy and margins continue to be pressured from the highs achieved in recent years.
- Since 2007, Union Pacific has achieved average return on equity and return on invested capital of 21.9% and 15.7%, respectively which leads to great long-term returns when purchased at the right price.
Through always enjoying the concepts of value creation and business management it has allowed me to explore potential investments at an academic and strategic level. My investment ideas are presented through two sides; with the most important being financial performance and the second most important being valuation. In my opinion, if a company does not meet certain financial criteria, a valuation of that company can only mean something if you are investing in the senior debt at best or if you are purely speculating at worst. Focusing on return on invested capital (ROIC), I classify potential investments as either long-term/indefinite investments, medium-term investments, or value traps. 1) Long-term/Indefinite: ROIC of greater than 9% and able to grow intrinsic value 2) Medium-term: ROIC of 6 – 9% and able to maintain intrinsic value. 3) Value Traps: ROIC of less than 6% and not able to meet their cost of capital My investing philosophy stems from Warren Buffett’s focus on long-term moats and value creation while expanding to include potential growth opportunities from the approach of Peter Lynch. At heart, I am a long-term investor that looks to buy value opportunities at a 30 per cent discount to intrinsic value with the potential to earn over 9 per cent return on equity (ROE) adjusted for the equity value per share that is paid at purchase. I believe growth is always a subjective variable but can be estimated through a product of retained earnings and the companies return on equity given the variability of both in the past decade.Disclaimer: While the information and data presented in my articles are obtained from company documents and/or sources believed to be reliable, they have not been independently verified. The material is intended only as general information for your convenience, and should not in any way be construed as investment advice. I advise readers to conduct their own independent research to build their own independent opinions and/or consult a qualified investment advisor before making any investment decisions. I explicitly disclaim any liability that may arise from investment decisions you make based on my articles.
Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in UNP over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
While the information and data presented in my articles are obtained from company documents and/or sources believed to be reliable, they have not been independently verified. The material is intended only as general information for your convenience, and should not in any way be construed as investment advice. I advise readers to conduct their own independent research to build their own independent opinions and/or consult a qualified investment advisor before making any investment decisions. I explicitly disclaim any liability that may arise from investment decisions you make based on my articles.
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