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Background and overview of Union Pacific (NYSE:UNP)
For those who dont know anything about Union Pacific, the following information on the company was obtained from their website. See more at UP.com
Union Pacific CorporationUnion Pacific Corporation (NYSE:UNP) is one of America's leading transportation companies. Its principal operating company, Union Pacific Railroad, is North America's premier railroad franchise, covering 23 states across the western two-thirds of the United States.
VISION:
Building America.
Our vision symbolizes the Union Pacific experience for all the people whose lives we touch. It connects the importance of UP’s rail transportation to America's economy, honors the generations that preceded us and is the promise for the generations that will follow us.
MISSION:
The Men and Women of Union Pacific Are Dedicated to Serve.
Union Pacific works for the good of our customers, shareholders, communities and one another. Our commitment defines us and drives the economic strength of our company and our country.
VALUES:
Passion for Performance.
Our passion, concentration and determination will drive our safety, customer satisfaction and quality results.
High Ethical Standards.
Our reputation will always be a source of pride for our employees and a bond with our customers, shareholders and communities.
Work as a Team.
We are all part of the same team, and working together to reach our common goals is one of our strengths. Communication and respect are the foundation of great teamwork.
Union Pacific Railroad Fast Facts: (For Full Year 2016)
Route Miles 32,100
Employees: 42,900
Annual Payroll: $4.1 billion
Capital Spending 2016: $3.5 billion
Capital Spending 2007-2016: $34 billion
Locomotives : 8,500
Customers: 10,000
Union Pacific Railroad is the principal operating company of Union Pacific Corporation (NYSE: UNP). One of America's most recognized companies, Union Pacific Railroad connects 23 states in the western two-thirds of the country by rail, providing a critical link in the global supply chain. From 2007-2016, Union Pacific invested $34 billion in its network and operations to support America's transportation infrastructure. The railroad's diversified business mix is classified into its Agricultural Products, Energy, Industrial and Premium business groups. Union Pacific serves many of the fastest-growing U.S. population centers, operates from all major West Coast and Gulf Coast ports to eastern gateways, connects with Canada's rail systems and is the only railroad serving all six major Mexico gateways. Union Pacific provides value to its roughly 10,000 customers by delivering products in a safe, reliable, fuel-efficient and environmentally responsible manner.
Below the share price history on UNP from beginning of 2007 on our interactive share price graphic.
Please note the share price data was obtained from the following link:
http://www.macrotrends.net/stocks/charts/UNP/prices/union-pac-corp-stock-price-history
Union Pacific CorporationUnion Pacific Corporation (NYSE:UNP) is one of America's leading transportation companies. Its principal operating company, Union Pacific Railroad, is North America's premier railroad franchise, covering 23 states across the western two-thirds of the United States.
VISION:
Building America.
Our vision symbolizes the Union Pacific experience for all the people whose lives we touch. It connects the importance of UP’s rail transportation to America's economy, honors the generations that preceded us and is the promise for the generations that will follow us.
MISSION:
The Men and Women of Union Pacific Are Dedicated to Serve.
Union Pacific works for the good of our customers, shareholders, communities and one another. Our commitment defines us and drives the economic strength of our company and our country.
VALUES:
Passion for Performance.
Our passion, concentration and determination will drive our safety, customer satisfaction and quality results.
High Ethical Standards.
Our reputation will always be a source of pride for our employees and a bond with our customers, shareholders and communities.
Work as a Team.
We are all part of the same team, and working together to reach our common goals is one of our strengths. Communication and respect are the foundation of great teamwork.
Union Pacific Railroad Fast Facts: (For Full Year 2016)
Route Miles 32,100
Employees: 42,900
Annual Payroll: $4.1 billion
Capital Spending 2016: $3.5 billion
Capital Spending 2007-2016: $34 billion
Locomotives : 8,500
Customers: 10,000
Union Pacific Railroad is the principal operating company of Union Pacific Corporation (NYSE: UNP). One of America's most recognized companies, Union Pacific Railroad connects 23 states in the western two-thirds of the country by rail, providing a critical link in the global supply chain. From 2007-2016, Union Pacific invested $34 billion in its network and operations to support America's transportation infrastructure. The railroad's diversified business mix is classified into its Agricultural Products, Energy, Industrial and Premium business groups. Union Pacific serves many of the fastest-growing U.S. population centers, operates from all major West Coast and Gulf Coast ports to eastern gateways, connects with Canada's rail systems and is the only railroad serving all six major Mexico gateways. Union Pacific provides value to its roughly 10,000 customers by delivering products in a safe, reliable, fuel-efficient and environmentally responsible manner.
Below the share price history on UNP from beginning of 2007 on our interactive share price graphic.
Please note the share price data was obtained from the following link:
http://www.macrotrends.net/stocks/charts/UNP/prices/union-pac-corp-stock-price-history
Union Pacific Share Price Graph
The UNP share price graphic shows the astronomical growth experienced by UNP shares from 2007. Long term investors has benefitted greatly from holding UNP shares. So the question is why do we like a railroad company in the USA?
Well below are a few reasons:
1. High barriers to entry. Not easy for competitors to enter this market. If they want to they will in all likelihood need massive amounts of cash to either build their own infrastructure or pay per use for using the infrastructure of someone like Union Pacific
2. Railways are the veins of large country's economies. Its the most effective and cheapest way to move goods in Bulk, be it agriculture, machinery and equipment, chemicals, fuels etc.
3. Consistent dividend payer (have been paying dividends on their common stock for the last 118 years.
4. Strong economic growth in the USA will stimulate demand for goods, which is good for UNP's business.
5. Well we liked playing with trains when we were kids. No only kidding but still trains give us a warm fuzzy feeling.
Well below are a few reasons:
1. High barriers to entry. Not easy for competitors to enter this market. If they want to they will in all likelihood need massive amounts of cash to either build their own infrastructure or pay per use for using the infrastructure of someone like Union Pacific
2. Railways are the veins of large country's economies. Its the most effective and cheapest way to move goods in Bulk, be it agriculture, machinery and equipment, chemicals, fuels etc.
3. Consistent dividend payer (have been paying dividends on their common stock for the last 118 years.
4. Strong economic growth in the USA will stimulate demand for goods, which is good for UNP's business.
5. Well we liked playing with trains when we were kids. No only kidding but still trains give us a warm fuzzy feeling.
Financial review:
So let look at the financial results for the 3rd quarter of 2017 as published by UNP.
Operating Revenue: $5.41billion
Operating Expenses: $3.4billion
Taxes: $789million
Net Income: $1.194billion
Per share statistics:
Earnings per share $1.50
Dividend per share: $0.605
Cash per share (cash on balance sheet): $2.32
Cash generated per share: $6.78 (exceptionally strong cash generated by operations)
Operating Revenue: $5.41billion
Operating Expenses: $3.4billion
Taxes: $789million
Net Income: $1.194billion
Per share statistics:
Earnings per share $1.50
Dividend per share: $0.605
Cash per share (cash on balance sheet): $2.32
Cash generated per share: $6.78 (exceptionally strong cash generated by operations)
The graphic below shows the contribution of some of UNP's commodities hauled to total freight revenue generated for Q3:2017
From the pie chart above it is clear that UNP's revenue is pretty evenly divided amongst the product groups that they haul. Which is a good sign at it shows that they are not overly dependent on a particular product. In total just over $5billion was hauled in Q3:2017, with Industrial products bringing in just over 21% of the revenue, intermodal just under 20% and Agriculture bringing in just over 18% of revenue generated in Q3:2017
While UNP is sitting on a PE ratio of around 20, we feel their significant position in the market they operate in and the industry they are in warrants a relatively high PE compared to the rest of the market, as the risk of their product/service ever falling out of favour being exceptionally low, high barrier to entry into their business environment, long company track record with 118 years of uninterrupted dividend payouts we feel they deserve the premium PE.
Cash generation is strong, with cash generated making up around 8% of their current share price showing the strong cash generative capabilities of the firm. Our only slight worry is the increase in their debt, which is reflected by the debt:capital ratio of 46.% for Q3:2017 (up from 43% in Q4:2016)
Cash generation is strong, with cash generated making up around 8% of their current share price showing the strong cash generative capabilities of the firm. Our only slight worry is the increase in their debt, which is reflected by the debt:capital ratio of 46.% for Q3:2017 (up from 43% in Q4:2016)
Valuation
Based on UNP's financial results for Q3:2017, their dividend yield, earnings mix from their various products that they haul, their current PE ratio and expected future earnings potential (with a stronger and growing US economy), we value UNP shares at between $129.70 and $130 a share.
While some may say the valuation places them on a rather expensive PE ratio of 22 and a dividend yield of 1.8%, as mentioned earlier in the review we feel they deserve to trade at a premium PE ratio compared to some of the other stocks listed.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
While some may say the valuation places them on a rather expensive PE ratio of 22 and a dividend yield of 1.8%, as mentioned earlier in the review we feel they deserve to trade at a premium PE ratio compared to some of the other stocks listed.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.