UNP Union Pacific Corporation
Irreplaceable western rail franchise, but the price already assumes 11% growth that a flat-volume railroad cannot deliver.
The business
Union Pacific owns and operates about 32,000 route miles of track across the western two-thirds of the US. It earns money hauling bulk commodities (coal, grain, chemicals), industrial products, and intermodal containers and automobiles for shippers. Revenue comes from pricing above rail cost inflation on a largely fixed network, with productivity gains widening margins.
Quality gate · 81/100
Moat & management
| Moat | wide moat |
| Source | cost advantage |
| Trajectory | stable |
| Management | adequate |
No one can build a competing western rail network: rights-of-way are irreplaceable, and the West is a duopoly with BNSF. Rail moves heavy freight at a fraction of trucking's cost per ton-mile, which gives UNP steady above-inflation pricing. Trucking still caps pricing on shorter hauls, and coal volume keeps declining.
PSR-driven operating discipline and steady buybacks and dividends are shareholder-friendly. However, the roughly $85B Norfolk Southern acquisition adds leverage, execution risk, and regulatory risk at a full price, so this is empire-building until it proves otherwise.
Owner-earnings inputs
| Owner earnings (TTM) | 6.50B |
| Owner-earnings yield | 4.0% |
| Free-cash-flow yield | 4.0% |
| Growth used (normalized) | 6.0% |
| Market-implied growth (reverse DCF) | 11.1% |
| Terminal growth | 3.0% |
| Discount rate (hurdle) | 9.5% |
Projected owner earnings
| Yr | Owner earnings | Growth | PV |
|---|---|---|---|
| 1 | 6.89B | 6.0% | 6.29B |
| 2 | 7.29B | 5.8% | 6.08B |
| 3 | 7.70B | 5.6% | 5.86B |
| 4 | 8.11B | 5.4% | 5.64B |
| 5 | 8.53B | 5.1% | 5.41B |
| 6 | 8.95B | 4.9% | 5.18B |
| 7 | 9.37B | 4.7% | 4.96B |
| 8 | 9.79B | 4.5% | 4.73B |
| 9 | 10.21B | 4.3% | 4.50B |
| 10 | 10.63B | 4.1% | 4.28B |
| 11 | 11.04B | 3.9% | 4.06B |
| 12 | 11.44B | 3.6% | 3.84B |
| 13 | 11.83B | 3.4% | 3.62B |
| 14 | 12.21B | 3.2% | 3.41B |
| 15 | 12.58B | 3.0% | 3.21B |
Key risks
- Norfolk Southern merger: STB conditions, integration service meltdowns, higher debt and possible dilution
- Secular coal decline and flat volumes; revenue CAGR has been negative for about 5 years
- Autonomous and electric trucking eroding intermodal pricing power, plus regulatory risk (reciprocal switching, rate oversight)
Catalysts
- Transcontinental merger synergies and new single-line service winning share from trucks
- Continued operating-ratio improvement, buybacks, and nearshoring-driven Mexico cross-border volume
Recent news
score · 8 articles
- 3 Railroad Stocks With Pricing Power and Growing Dividends for Income Investors
- Union Pacific (UNP) Stock Looks Fairly Priced Following Its 52% Five Year Return
- China agrees to buy 10 million tons of U.S. coal in 2027 and 2028
- 3 Dividend-Paying Stocks From the Railroad Industry You May Count On
- 4 Dividend Stocks Built Around America’s Irreplaceable Freight Network
- Union Pacific begins battery-electric locomotive testing in Southern California
- Canadian National Railway Backs Full-Year Outlook as Grain and Productivity Drive Growth
- Union Pacific Rolls Out First Two Battery-Electric Locomotives in California
⚠ maintenance capex ≈ min(capex, D&A), capped at FCF · Price pays for ~11%/yr owner-earnings growth over 15y (reverse DCF); model credits 6%. · Rich vs our conservative value, but a quality business is not a short — stance is WAIT for a better price, not sell.