Opinions
Gordon Reid
Union Pacific Corp
UNP-N
WAIT
Feb 17, 2016
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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Rails are an interesting view into the economy. The only thing showing any kind of strength for the rails is the auto area. That indicates the economy is a slow growth economy and that industrial America is one of the weakest parts. The consumer is probably where the strength lies in the economy. This is trading where it should be in the 11 to 12 times earnings area. There isn’t any hurry to get into this.