What To Expect From Union Pacific’s Q3 After Stock Up Only 2% This Year?

Union Pacific Stock (NYSE: UNP) will report its Q3 2023 results on Thursday, October 19. We expect the company’s revenues to come in at $6.0 billion, aligning with the consensus estimate. This would mark a year-over-year decline of about 8%. Earnings will likely come in at about $2.50 per share, slightly above the consensus estimate of $2.47. See our interactive dashboard analysis on  Union Pacific’s Earnings Preview for more details on how the company’s revenues and earnings will likely trend for the quarter. So, what are some trends likely to drive Union Pacific’s results, and how has the company’s stock performed?

UNP stock has seen little change, moving slightly from levels of $210 in early January 2021 to around $210 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. Overall, the performance of UNP stock with respect to the index has been lackluster. Returns for the stock were 21% in 2021, -18% in 2022, and 2% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 14% in 2023 (YTD) – indicating that UNP underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the industrial sector, including CAT, UPS, and HON, and even for the mega-cap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could UNP face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump? Going by our Union Pacific valuation of $237 per share, there seems to be little room for growth from its current level of $211. Our forecast is based on a 22x P/E multiple for UNP and expected earnings of $10.58 per share for the full year 2023. This 22x P/E ratio aligns with the stock’s last four-year average.

With fuel prices cooling off compared to the prior year’s quarter, Union Pacific’s fuel surcharges and average revenue per carload will likely trend lower. The total volume of carloads is also expected to decline compared to the prior-year quarter. Looking at Q2’23, Union Pacific’s revenues of $5.6 billion reflected a 5% y-o-y decline, led by a 3% fall in average revenue per unit, while its total volume of carloads was down 2%. Union Pacific’s operating ratio increased by 280 bps to 63% in Q2’23 due to higher inflation and increased network costs. Looking at the bottom line, Union Pacific reported earnings of $2.57 per share in Q2’23, compared to $2.93 per share in the prior-year quarter, primarily due to lower revenues and higher operating ratio, partly offset by a 3% fall in total shares outstanding, amid share repurchases.

[1] Month-to-date and year-to-date as of 10/18/2023
[2] Cumulative total returns since the end of 2016

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