Union Pacific Review: expensive North American railroad

Union Pacific Review: expensive North American railroad

Union Pacific (NYSE: UNP) - the most valuable company in the North American rail sector with a century and a half history of development. The holding's current market capitalization exceeds $ 140 billion.

About company

Union Pacific — одна из ведущих мировых транспортных компаний, which is engaged in railway transportation. The business of a railway operator can be divided into three groups..

Union Pacific Revenue Structure

Wholesale transportation33%
Transportation of industrial products36%
Transportation of premium products31%

33%

Wholesale transportation. Сегмент поставляет зерно и зерновые продукты, fertilizers, food and chilled goods, and coal and renewable energy products, mainly export of biomass and components of wind turbines.

Revenue structure of the segment "Wholesale transportation"

Coal and products for RES41%
Grain and cereals39%
Food & Chilled Foods10%
Fertilizers10%

41%

Transportation of industrial products. This business transports industrial chemicals, plastic, metals, minerals, forest products, energy carriers: oil, gas.

Revenue structure of the segment "Transportation of industrial products"

Металлы и минералы32%
Chemicals & Plastics30%
Energy carriers27%
Forest products11%

32%

Transportation of premium products. The segment transports finished cars and automotive parts, а также товары в интермодальных контейнерах, as internal, так и международных.

Revenue structure of the segment "Transportation of premium products"

Intermodal containers82%
Automotive products18%

82%

Union Pacific Rail Assets

As of December 31, 2020, Union Pacific's rail network is more than 32,000 miles and connects pacific coast and Gulf Coast ports with the U.S. Midwest and East., and also ensures the movement of goods on key routes of Mexico.

После железнодорожной сети второй по значимости актив компании — ее парк локомотивов и вагонов, one of the largest in the United States. The median age of Union Pacific is 27 years versus 26 years for Norfolk Southern and 21 years for CSX..

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Union Pacific Review: expensive North American railroad

Union Pacific Review: expensive North American railroad

Union Pacific Review: expensive North American railroad

Union Pacific Review: expensive North American railroad

Union Pacific Review: expensive North American railroad

Стратегия развития и цели

Стратегия Union Pacific состоит в том, to ensure safety, reliability, efficiency and the best service for its customers. All this, in the opinion of management, will help the company remain the best rail operator in North America and lay the foundation for future growth in financial results.

Union Pacific's short-term forecast for 2021:

  1. Сохранение капитальных затрат ниже 15% of annual revenue.
  2. The target dividend payout ratio is approximately 45% from profit.
  3. Annual traffic volume will increase by 7%.
  4. Strong free cash flow generation, which will contribute to greater share buybacks.
  5. Компания планирует выкупить собственные акции на сумму в 7 млрд долларов.

Main medium-term goals of the plan for 2022-2024:

  1. Growth of ROIC indicator from current values in 15 to 17%.
  2. Сохранение капитальных затрат на уровне ниже 15% of annual revenue.
  3. For three years, the company plans to buy back its own shares in the amount of 18-19 billion dollars..
  4. Коэффициент распределения прибыли на дивиденды составит 45%.

Profit distribution

Like the rest of the railway sector, Union Pacific pursues a rather aggressive policy in terms of profit distribution, paying dividends and by making buybacks. The company's annual dividend has been growing for more than 10 years, in 2015, the actual payment also increased, because on June 6, 2014, the railway operator held split shares in the ratio 2 to 1.

Union Pacific Review: expensive North American railroad

Union Pacific Review: expensive North American railroad

Union Pacific Review: expensive North American railroad

Union Pacific Review: expensive North American railroad

Financial results

Union Pacific's sustainable business model allows the company to demonstrate stable financial performance. The only exception is 2017, when the railroad operator recorded a one-time profit of $5.9 billion in Q4 due to Trump's tax reform.

Financial results for the last 5 years, billion dollars

RevenueEBITDANet profitnet debt
201619,9419,5024,23313,730
201721,24010,45610,71215,669
201822,83210,8025,96621,118
201921,70811,0135,91924,369
202019,53310,3315,34924,930
6м202110,5055,5653,13927,697

Comparison with competitors

EV / EBITDAP / ENet Debt / EBITDA
Union Pacific15,5923,682,59
CSX12,9421,12,04
Kansas City Southern20,637,582,4
Norfolk Southern14,2722,622,33
  Russian and foreign companies with a capitalization of a trillion

Arguments for

Sector Leader. Union Pacific — крупнейший железнодорожный оператор США.

High level of profit sharing. За 1 полугодие 2021 года компания вернула акционерам 5,435 млрд долларов через дивиденды и байбэк. Taking into account the fact that the current capitalization of Union Pacific is equal to $ 140 billion, profitability for the 1st half of the year was 3,9% - against 3,3% Norfolk Southern and 2,2% at CSX.

Moderate debt burden. The company's net debt is $27.697 billion., and the multiplier "net debt" / EBITDA »equal 2,59.

Top 100. Union Pacific is among the first hundred companies in the world by capitalization.

Arguments against

Older fleet of locomotives and wagons, the average age of Union Pacific is 27 years, - vs. 26 years for Norfolk Southern and 21 years for CSX.

Evaluation. Union Pacific has higher multiples compared to its competitors.

What's the bottom line?

Union Pacific is the largest player in the U.S. rail sector.. У компании стабильное финансовое состояние, which allows it to return through dividends and buyback almost all earned net profit to shareholders.

To the end 2024 The railway operator plans to return $ 25-26 billion through a buyback in addition to dividends, which now bring annually 2% profitability.

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