How Will Q4 Earnings Impact Union Pacific Stock?

Union Pacific stock (NYSE: UNP) is scheduled to report its Q4 2020 results on Thursday, January 21. We expect Union Pacific to likely post revenue and earnings below the street expectations, due to continued headwinds for coal shipments. That said, the overall rebound in the economy likely aided the freight revenues for its other segments, including Industrial and Premium.

Our forecast indicates that Union Pacific’s valuation is around $211 per share, which is 3% below the current market price of around $217. Our interactive dashboard analysis on Union Pacific’s Pre-Earnings has additional details.

(1) Revenues expected to be slightly below the consensus estimates

Trefis estimates Union Pacific’s Q4 2020 revenues to be around $2.1 Bil, slightly below the $2.2 Bil consensus estimate. While lockdowns imposed earlier in 2020 amid the spread of Covid-19 impacted the overall freight volume, the gradual opening up of economies and vaccine development has resulted in a pickup in demand. Looking back at Q3 2020, revenues declined 11% to $4.6 Bil, with coal freight revenue down 31%, a trend expected to continue in the near term given lower demand for power, and coal, in turn, as a source of energy. Our dashboard on Union Pacific’s Revenues offers more details on the company’s segments.

2) EPS also likely to be below the consensus estimates

Union Pacific’s Q4 2020 earnings per share (EPS) is expected to be $2.14 per Trefis analysis, 4% below the consensus estimate of $2.23. Union Pacific’s net income of $1.4 billion in Q3 2020 reflected a 12% drop from its $1.6 billion figure in the prior-year quarter. This can be attributed to lower revenues and higher operating costs owing to the pandemic. That said, the margins will likely improve going forward, driven by the company’s focus to reduce its operating ratio. Despite the increased costs due to the pandemic, Union Pacific’s operating ratio fares favorably at 59% compared to levels of 62% seen in 2017. For the full-year 2020, we expect the EPS to be $7.98 compared to $8.41 in 2019.

(3) Stock price estimate slightly lower than the current market price

Going by our Union Pacific’s Valuation, with an EPS estimate of around $7.98 and a P/E multiple of around 26x in 2020, this translates into a price of $211, which is 3% below the current market price of around $217.

Although the continued challenges in the coal and other energy freight business will have a notable impact on Union Pacific’s overall revenue growth rate in 2020, we believe the demand for the Industrial and Premium freight will see sequential growth, driven by the resumption of economic activities and increased demand for transportation.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year

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