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In this updated coverage research report, we reexamine Union Pacific Corporation — UNP 0.00%↑ — an industrials sector enterprise, to see if it continues to meet QualityValue Investing’s (QVI) Real-Time Stock Picks criteria based on our proprietary checklist analysis of the business’s current wealth and the share price’s present value.
Union Pacific | Current Wealth
Value Proposition
Union Pacific is a dividend-paying large-cap stock in the industrials sector’s rail transportation industry. The stock was added to the QVI Stocks Picks on August 9, 2010, at a cost basis of $28.60, adjusted for dividends paid to cash.
Union Pacific Corporation operates in the freight railroad industry in the United States through its subsidiary, Union Pacific Railroad Company. Founded in 1862, the company is headquartered in Omaha, Nebraska, USA.
Economic Moat
Morningstar assigns Union Pacific a wide moat rating due to its cost advantages and efficient scale. Analysts observe the company’s pricing and margin resilience during previous recessions and, despite substantial coal volume losses over the past decade, still illustrate its strong competitive positioning.
QVI’s Value Proposition Elevator Pitch for Union Pacific
Union Pacific arguably possesses the highest-quality business model within the North American freight rail oligopoly.
QVI’s value proposition rating for Union Pacific: Bullish.
Returns on Management
Revenue Growth and Net Profit Margin
As the table below shows, Union Pacific’s trailing three-year annualized revenue growth was low-single-digit positive and lagged behind the S&P 500’s topline growth of +17.20%. In addition, the company’s flat revenue growth of +0.50% underperformed the broader market’s +16.70% increase for the most recently reported twelve months.
In contrast, Union Pacific had a high-double-digit net profit margin from a 79.41% gross margin, besting the S&P 500’s net profit margin of 21.00% from a lower gross margin of 54.00%.
Returns on Equity and Invested Capital
Union Pacific’s senior management produced a return on equity (ROE) that tripled QVI’s targeted threshold. The ROE aligned with the S&P 500’s ROE of 56.60%.
Stock buyback programs can elevate ROE. For example, Union Pacific repurchased 6.3 million shares in 2024 at an aggregate cost of $1.5 billion. In September, the board of directors authorized another $4 to $5 billion in buybacks, but they may need to borrow funds to meet this target.
Union Pacific’s return on invested capital (ROIC) fell short of QVI’s threshold and lagged behind the broader market’s 56.60% return. However, the company’s ROIC doubled its weighted average cost of capital (WACC), indicating that its senior executives are skilled allocators in a capital-intensive industry. (Source of WACC: GuruFocus)
Owners’ Earnings
In an additional evaluation of fundamentals related to shareholder value, Union Pacific’s five-year trailing performance in owners’ earnings—comprising annualized EPS growth and dividend rate growth—was in the low double digits. This result reflects a moderate return rate for shareholders of a large-cap freight rail company. Notably, the one-year EPS growth was 6.10%.
QVI’s business fundamentals rating for Union Pacific: Bullish.
Click or Pinchout to Expand
Next, we’ll examine the company’s enterprise downside risks, the stock price’s present value, including share price downside risks, and the investment thesis, all exclusive to Quality Value Investing’s premium (paying) subscribers.
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Unless noted, all data presented is sourced from Charles Schwab & Co., Yahoo Finance, and Union Pacific Corporation as of the intraday and market close on January 28, 2025, and is intended for illustrative purposes only.
Disclosure: As of the writing of this research report, I/we hold a long, beneficial position in UNP common shares in our family portfolio. I wrote this report myself, expressing my own opinions. I am not receiving compensation for it other than from subscriptions paid to Substack. I have no business relationship with any company whose stock is mentioned in this post.
Additional Disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, meaning they are not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in independent research or due diligence and consider consulting a fee-only certified financial planner, a licensed discount broker/dealer, a flat-fee registered investment adviser, a certified public accountant, or a specialized attorney before making any investment, income tax, or estate planning decisions.
