Is Union Pacific (UNP) Still Attractive After Recent Share Price Strength?
- If you are looking at Union Pacific and wondering whether the current share price still offers value, you are not alone. This article is built to help you think through that question clearly.
- The stock last closed at US$265.00, with returns of 0.8% over 7 days, 15.5% over 30 days, 14.3% year to date, 9.8% over 1 year, 48.6% over 3 years, and 40.4% over 5 years. This naturally raises questions about what is already priced in and what might still be on the table.
- Recent news around Union Pacific has largely focused on its role as a major U.S. railroad operator, including ongoing commentary about freight volumes, cost efficiency and capital spending priorities. These themes help frame how investors think about future cash generation and risk, which is essential context for any valuation work.
- Our framework scores Union Pacific at 3 out of 6 on valuation checks. We will look at what different methods say about the stock, and then finish with a broader way to think about what those valuation numbers really mean for you.
Approach 1: Union Pacific Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow model takes estimates of the cash the business could generate in the future and discounts those cash flows back to today to arrive at an estimate of what the entire company might be worth right now.
For Union Pacific, the model uses a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections. The latest twelve month free cash flow is about $5.6b. Analysts provide explicit forecasts for the next few years, and Simply Wall St then extends those estimates further out, with projected free cash flow of about $10.2b by 2030. All cash flows are assessed in dollars and then discounted to today.
Putting those discounted cash flows together gives an estimated intrinsic value of about $315.65 per share. Compared with the recent share price of $265.00, the DCF output suggests the stock trades at about a 16.0% discount. On this model alone, Union Pacific appears to be undervalued.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Union Pacific is undervalued by 16.0%. Track this in your watchlist or portfolio, or discover 53 more high quality undervalued stocks.
Approach 2: Union Pacific Price vs Earnings
For a profitable company like Union Pacific, the P/E ratio is a useful way to link what you pay per share to the earnings the business is currently generating. It gives you a quick sense of how many dollars investors are willing to pay for each dollar of earnings.
What counts as a “normal” P/E really depends on growth expectations and risk. Higher expected earnings growth or lower perceived risk can support a higher P/E, while slower growth or higher risk usually points to a lower figure. So context matters when you look at any single multiple.
Union Pacific currently trades on a P/E of 22.03x, compared with a peer average of 21.00x and a Transportation industry average of 36.82x. Simply Wall St also calculates a proprietary “Fair Ratio” of 25.42x for Union Pacific, which is the P/E you might expect given its earnings profile, industry, profit margins, market cap and risk factors. This Fair Ratio can be more informative than a simple peer or industry comparison because it attempts to adjust for those differences.
On this basis, Union Pacific’s actual P/E of 22.03x sits below the Fair Ratio of 25.42x. This suggests the shares may be trading at a lower valuation on this metric than the Fair Ratio implies.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Union Pacific Narrative
Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, which are simple stories you build around a company that connect your view of its future revenue, earnings and margins to a financial forecast, a fair value, and a clear comparison with today’s price. All of this is available within an easy tool on Simply Wall St’s Community page that millions of investors use. Narratives update as new news or earnings arrive. For Union Pacific, one investor might see a fair value close to the higher US$294 target based on strong efficiency gains and freight demand, while another might anchor closer to the US$213 low target because they are more cautious about merger scrutiny and trade risks. Each Narrative gives you a structured way to decide whether the current price or your fair value carries more weight in your own decision making.
Do you think there's more to the story for Union Pacific? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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