DCF Studio

    UNP · NYQ · Industrials

    Union Pacific Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 95.66

    Market price

    USD 279.37

    Implied upside

    -65.8%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 14.8% of revenue against depreciation of 9.6%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 95.66-65.8%
    Exit multiple
    USD 201.12-28.0%
    Market price
    USD 279.37

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn3bn6bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 24.4bnUSD 24.3bnUSD 24.2bnUSD 24.0bnUSD 23.9bn-0.5%
    EBITUSD 9.6bnUSD 9.6bnUSD 9.5bnUSD 9.5bnUSD 9.4bn-0.5%
    NOPATUSD 7.6bnUSD 7.6bnUSD 7.5bnUSD 7.5bnUSD 7.5bn-0.5%
    Add depreciation & amortisationUSD 2.4bnUSD 2.3bnUSD 2.3bnUSD 2.3bnUSD 2.3bn-0.5%
    Less capital expenditureUSD -3.6bnUSD -3.6bnUSD -3.6bnUSD -3.6bnUSD -3.5bn-0.5%
    Less increase in working capitalUSD -48.3mUSD -48.0mUSD -47.8mUSD -47.6mUSD -47.3m-0.5%
    Free cashflow to firmUSD 6.3bnUSD 6.3bnUSD 6.2bnUSD 6.2bnUSD 6.2bn-0.5%
    Discount factor0.95650.87500.80040.73230.6699-
    Present valueUSD 6.0bnUSD 5.5bnUSD 5.0bnUSD 4.5bnUSD 4.1bn-9.0%
    Present Value Of The ForecastUSD 25.2bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.977Reported 0.966, pulled toward 1.0 (Blume)
    Cost of equity10.37%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 166.0bn83.5% of capital
    Total debtUSD 32.8bn16.5% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.31%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 95.66

    72% of EV

    Forecast FCFF, final year
    USD 6.2bn
    Capex at depreciation, working capital in reinvestment
    USD 7.5bn
    Less reinvestment at g/ROIC (15.9% of NOPAT)
    USD -1.2bn
    Capitalised
    USD 6.3bn
    ROIC (reported)
    15.7%
    Terminal value, undiscounted
    USD 94.3bn
    Terminal value, discounted
    USD 63.1bn
    Enterprise value
    USD 88.3bn
    Less net debt
    USD 31.3bn
    Equity value
    USD 57.0bn

    Exit at 16.0x EBITDA

    Value per shareUSD 201.12

    83% of EV

    Terminal value, undiscounted
    USD 188.1bn
    Terminal value, discounted
    USD 126.0bn
    Enterprise value
    USD 151.2bn
    Less net debt
    USD 31.3bn
    Equity value
    USD 119.8bn

    Spread between methods: 71%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    7.31%135.31144.05154.56167.43183.61
    8.31%108.24113.70120.05127.54136.53
    9.31%88.1291.6595.66100.26105.61
    10.31%72.5774.9077.5180.4383.75
    11.31%60.1961.7563.4765.3667.45

    Outlined: this model. Green text: above today's price of 279.37. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year-0.5%17.7%+18.2pp
    EBIT margin39.4%85.6%+46.2pp
    Discount rate9.3%5.5%-3.8pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.