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Union Pacific Stock to Outperform on Earnings?

On April 21, 2023, a Union Pacific freight train is seen traveling through Round Rock, Texas. [+] Round Rock is a city in Texas. The Union Pacific Railroad reported a disappointing quarterly profit, indicating an economic decline. (Image courtesy of Brandon Bell/Getty Images)

On July 26, 2023, Nion Pacific Stock (NYSE: UNP) will release its results for the second quarter. We anticipate the company’s revenues to be slightly above the consensus estimate of $6.1 billion, at $6.2 billion.

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This would represent a 2% decline from the previous year. Earnings per share will likely be approximately $2.80, which is slightly higher than the consensus estimate of $2.76. See our interactive dashboard analysis of Union Pacific’s Earnings Preview for more information on the company’s quarterly revenue and earnings trends. So, what trends are likely to influence Union Pacific’s performance?

results?

Union Pacific should profit from robust demand for cargo freight. However, the decline in fuel prices will likely have a negative impact on aggregate fuel surcharges and average revenue per carload. In addition, the total volume of carloads is anticipated to decrease marginally compared to the same period last year.

The $6.1 billion in revenues for Q1 of 23 represented a 3% increase over the same period last year, driven by a 6% increase in average revenue per unit. However, the total volume of carloads decreased by 1%, and other revenues fell by 5%.

In Q1, the company’s fuel surcharge revenue was $883 million, and in Q2, it is expected to be lower than in Q2 of last year, when it was $976 million. The price per gallon of WTI has decreased from $105 at the end of June of last year to $79 currently. Union Pacific’s Q1’23 net income of $1.6 billion was unchanged from the prior-year period, as 3% growth in sales was offset by a 270 basis point decline in operating margin to 37.9%.

The Union Pacific Operating Income Comparison Dashboard provides additional information. Looking at the bottom line, Union Pacific reported earnings of $2.67 per share in Q1’23, compared to $2.57 per share in Q1’22. This increase was primarily attributable to a 3% decline in outstanding shares as a result of share repurchases.

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Even though we anticipate Union Pacific to have a prosperous Q2’23, we believe its stock is fairly priced. We estimate that Union Pacific is worth $216 per share, which is slightly higher than its current price of $210. Our projection is predicated on a P/E multiple of 19x for UNP and expected earnings of $11.32 per share for the full year of 2023.

The 19x P/E multiple is slightly lower than the stock’s three-year average of slightly more than 20x, as concerns of a potential recession and its impact on the railroad industry could weigh on UNP stock in the near future. However, if the company were to report a better-than-expected Q2 and an upward revision to its guidance, its stock price would likely increase following the announcement of its results.

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While UNP stock appears to be fairly valued, it is useful to examine how Union Pacific’s peers perform on relevant metrics. Peer Comparisons contain additional valuable comparisons of corporations across industries. What if you want a portfolio that focuses on long-term growth? Since 2016, this value portfolio has performed significantly better than the market.

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