June 5, 2018

UNP – Market expectations are for record high Uniform ROA, but management has concerns about competition, productivity, and growth


 

  • Union Pacific Corporation (UNP:USA)currently trades near recent averages relative to UAFRS-based (Uniform) Earnings, with a 21.4x Uniform P/E. However, management has concerns about competition, productivity, and growth
  • Specifically, management may have concerns about their ability to imitate the success of their competition, and may lack confidence in the sustainability of operating ratio improvements. Additionally, they may lack confidence in their ability to cut costs through their productivity initiatives, driven by concerns about their workforce level, and may have concerns about their recently ratified labor contracts. Furthermore, they may lack confidence in their ability to bring their stored locomotives into the active fleet, and may also lack confidence in their expectation for year-over-year growth in the intermodal market through the remainder of the year
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