Opinions
Gordon Reid
Union Pacific Corp
UNP-N
DON'T BUY
May 05, 2015
Stock price when the opinion was issued
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They just reported: revenues beat though flat for the year, costs are under control, and they beat earnings. Total volumes were up, including fertilizer up 15%, and industrial chemicals 7%. Their report was better than CSX, though guidance was guarded and mixed, including a muted first half of 2024. It's good to buy now.
Premium contentUNP is Warren Buffet's 2nd favorite railroad to own (he owns BNSF). It has paid its dividend for 125 consecutive years. It is prudently using some cash reserves to aggressively retire debt and buy back shares. It trades at 9x earnings and supports a ROE of 45%. The dividend is backed by a payout ratio of 50% of cash flow. We recommend setting a stop-loss at $207, looking to achieve $268 -- upside potential over 17%. Yield 2.2%
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CSX (CSX-N) or Union Pacific (UNP-N)? Using CSX as a constructive way of playing the strength of the US economy is proving not to work out. The US economy is not as strong as some had thought. This one is probably a little better run in terms of operating ratios, but a little more expensive. He would probably pass on both of these.