UNP – Market expectations are for record high Uniform ROA, but management may have concerns about revenues, their investments, and fuel consumption

February 11, 2021

  • Union Pacific Corporation (UNP:USA) currently trades above recent averages relative to UAFRS-based (Uniform) earnings, with a 22.4x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may have concerns about average revenue per car declines, their capacity and productivity investments, and lowering their fuel consumption

  • Specifically, management may lack confidence in their ability to mitigate average revenue per car declines due to lower industrial volumes, continue lowering their fuel consumption rate, and improve the efficiency of their intermodal ramps. They may also have concerns about the progress of their intermodal ramp consolidation efforts in Chicago, the repercussions of their decision to stop switching operations in Iowa, and the potential of their siding extension program. Furthermore, they may lack confidence in their ability to limit margin deterioration in the future, invest in capacity projects, and drive productivity gains by increasing train length