Research

UNP – Market expectations are for record high Uniform ROA, but management has concerns about margins, their intermodal business, and expenses

  • Union Pacific Corporation (UNP:USA) currently trades near recent averages relative to UAFRS-based (Uniform) Earnings, with a 19.9x Uniform P/E, implying bullish expectations for the firm. However, management has concerns about their ability to improve margins, headwinds in their intermodal business, and expenses
  • Specifically, management is confident non-rent expenses will grow 5% in 2019, and they may lack confidence in their ability to execute on the Unified Plan 2020. Furthermore, they may be concerned about the sustainability of recent margin improvements, and they may lack confidence in their ability to continue buying back shares. Additionally, they appear concerned about continued headwinds in their intermodal shipping business, and they may lack confidence in their ability to maintain current debt levels. Finally, they may lack confidence in their ability to meet guidance, and they may be concerned about the sustainability of recent improvements to asset utilization.