We have written a great many articles about Union Pacific, created a full Guided Tear Sheet mini-course on it, and have recently posted Synthetic Short and Bearish Call Spread Tear Sheets on the name. The firm posted its annual report not long ago, so we updated our revenue assumptions and valuation model and pulled together the below Valuation Waterfall using the new information.
Unfortunately, the company will change the way it reports its freight types starting this year. This is a headache from an analytical perspective, but I think it is positive from a bearish investment perspective. Let’s just say that I am not the only analyst who becomes suspicious that a firm is trying to obfuscate poor revenue and profitability trends by reorganizing and renaming business units.
We have looked at the operations of the firm very closely and think the only way its stock is trading for the price at which it is now is because buy-the-dip investors have deceived themselves into thinking that equity markets are no longer bi-directional. Lowering risk premia (i.e., assuming markets will continue to move upward forever) makes high-priced stocks attractive. Full stop.
Take a look at the Waterfall and Model below and let us know what you think on the Union Pacific thread on the Framework Forum.
Framework Investing Valuation Model for Union Pacific
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