Earnings Beat In Cards For Union Pacific Stock?

Union Pacific Stock (NYSE: UNP) will report its Q2 2024 results on Thursday, July 25. We expect the company’s revenues to come in at $6.10 billion and earnings of $2.73, slightly higher than the consensus estimates of $6.06 billion and $2.71, respectively. Although the company should see a slight rise in sales y-o-y, higher costs will likely weigh on its operating ratio. Also, we think its stock has some room for growth, as discussed below. See our interactive dashboard analysis on Union Pacific’s Earnings Preview for more details on the company’s revenues and earnings 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 around a 15% rise, moving from levels of $210 in early January 2021 to around $240 now, vs. an increase of about 45% for the S&P 500 over this 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 $254 per share, there seems to be little room for growth from its current level of $240. Our forecast is based on a 22x P/E multiple for UNP and expected earnings of $11.31 per share for the full year 2024. This 22x figure aligns with the stock’s average P/E ratio over the last four-years.

Looking at the previous quarter, Union Pacific’s revenues of $6.0 billion reflected a 0.4% y-o-y decline, due to lower volumes, while the average revenue per carload remained flat. Looking at the bottom line, the company posted a 1% rise in its EPS, which stood at $2.69 per share due to a 140 bps improvement in the operating ratio. Coal freight was the worst hit, with its revenue falling 23%, amid an 18% decline in volume and around 6% fall in average revenue per carload. Lower natural gas prices and a mild winter weighed on the overall coal demand in Q1.

Coming to the latest quarter, Union Pacific likely saw an improvement in overall volumes. Coal demand may continue to remain weak amid lower natural gas prices. The company has been focused on improving its operating ratio with its productivity initiatives, a trend expected to continue, bolstering the bottom-line growth.

Overall, we think Union Pacific will navigate well in Q2. However, its stock has little room for growth in our view. This may change if the company posts an upbeat Q2 and raises its full-year outlook.

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