Union Pacific Corporation (UNP)

Conclusion

Union Pacific operates freight railroads across the United States, carrying grain, chemicals, coal, intermodal containers, automotive products and other goods. At 297.01 USD on 2026-11-09, the shares give a market capitalisation of 176.4 billion USD and an enterprise value of 204.7 billion USD.

The verdict is overvalued. The P/E of 23.2 sits above its ten-year median of 21.6, EV/EBITDA of 14.9 above 14.0, and P/FCF of 26.4 above 25.1. Only P/B, at 8.0 against a median of 8.1, is below its history. The DCF gives 197.56 USD per share at a discount rate of 9.1%. The fair value band runs from 189.95 to 284.93 USD with a midpoint of 237.44 USD, and the margin of safety is -20.1% at the current price. The fair value from historical multiples is 277.31 USD. The reverse DCF implies growth of 9.5% a year, against a revenue CAGR over five years of 4.6% and an FCF per share CAGR over five years of 2.3%.

What holds the case up is the return on capital: ROIC of 17.3% against a WACC of 8.3%, a Piotroski score of 8 out of 9, and an Altman Z-score of 4.38. What would break it is leverage and recent momentum. Net debt to EBITDA is 2.06, the current ratio is 1.16 and the quick ratio is 0.93. Revenue fell at a CAGR of -0.5% over three years, and FCF per share grew at only 0.2% a year over the same period.

Financial health

Financial strength is green, held up by an Altman Z-score of 4.38 and interest coverage of 8.8x, while net debt to EBITDA of 2.06 and a current ratio of 1.16 are neutral. The quick ratio is 0.93 and debt to equity is 1.42. The Altman model was designed for manufacturers, so its zone of safe is only a rough guide for a railroad, though the score sits well above the distress range. Insolvency risk is low, about 0.8% by the estimate of the Ohlson model over one to two years. The balance sheet is leveraged but the earnings cover the interest comfortably, so debt service does not look like a near-term problem.

Earnings quality

Earnings quality is green. Free cash flow conversion is 87.9% on a trailing twelve-month basis and 82.9% over five years, and the accrual ratio of -0.0313 means cash earnings run ahead of reported earnings. The Piotroski score is 8 out of 9 and the Beneish M-score of -2.62 is read as unlikely to signal manipulation. The share count fell at a CAGR of 2.7% over five years, so buybacks have been reducing dilution. Free cash flow after stock-based compensation is 6.69 billion USD, but the stock-based compensation figure is not available, so that cost cannot be checked against revenue. The company beat estimates in 6 of its last 8 quarters, with an average surprise of 2.9%. Estimate revisions are mildly positive, with 16 upward and 6 downward revisions for the current year and 17 upward and 3 downward for next year.

Profitability

Profitability is green. The operating margin of 40.0% is slightly above its ten-year median of 39.6%, the net margin of 28.9% is above 27.6%, and the gross margin of 44.0% is a little below 44.7%. Operating margin stability is 4.5%. ROIC of 17.3% against a WACC of 8.3% gives a ROIC minus WACC of 9.03%, which the model labels as creating value. ROIC has held near its five-year median of 16.7%. Return on equity of 34.6% is flattered by leverage: the DuPont split shows a net margin of 29.1%, an asset turnover of 0.35 and an equity multiplier of 3.77. Most of the high return therefore comes from margins and leverage, not from fast asset turnover.

Growth

Growth is green, though the three-year picture is weak. Revenue shows a CAGR of -0.5% over three years, 4.6% over five years and 1.2% over ten years. Earnings per share grew at 2.4% over three years, 8.8% over five years and 8.2% over ten years. FCF per share grew at 0.2% over three years, 2.3% over five years and 11.6% over ten years. Revenue grew in 6 of the last 10 comparable years. Analysts expect next-year earnings per share to rise by 9.3%, which is above the five-year revenue CAGR and is the main reason the reverse DCF implies such high growth.

Valuation

Valuation is red. The P/E is 23.2 against a ten-year median of 21.6, a premium of 7.1%. EV/EBITDA of 14.9 carries a premium of 6.2% over its median of 14.0, P/FCF of 26.4 a premium of 5.1%, and P/S of 6.7 a premium of 11.0%. P/B of 8.0 sits at a discount of 1.7% to its median. The DCF gives 197.56 USD per share, using a discount rate of 9.1%, a 4.6% near-term growth rate and a 2.5% terminal growth rate. The fair value band runs from 189.95 to 284.93 USD, with a midpoint of 237.44 USD. The reverse DCF implies growth of 9.5%, against revenue CAGR over five years of 4.6%. The fair value is an estimate built on fixed assumptions, not a price target. The dividend yield is 1.9% and the payout on free cash flow is 49.3%.

Risks

The main risk is valuation. If the market keeps demanding the growth the reverse DCF implies, the stock is exposed to a gap down toward the DCF value of 197.56 USD or the bottom of the fair value band. Leverage matters too: net debt to EBITDA of 2.06 and a current ratio of 1.16 leave less room if earnings fall, and a fall in EBITDA would push the ratio up. The three-year revenue CAGR of -0.5% shows that the top line can shrink, which would weaken the cash flows that support the valuation. The stock-based compensation figure is not available, so the true cost of equity pay is not visible. The analysis has no debt maturity schedule and no revenue by segment, so refinancing risk and the mix of freight volumes cannot be assessed.