Union Pacific (UNP)

Industriales / Ferrocarriles

The largest Class I railroad in the U.S. (the western franchise, a duopoly with BNSF): an irreplaceable ~32,900-mile network, the sector's best operating ratio (~59.8%) and ROIC (~16.3%), and pricing power. It trades at ~19× EV/EBIT — the market already pays for the quality plus the optionality of the pending Norfolk Southern merger. Base 5-year ~$318 (+5%/year): Fairly valued — a superb franchise at a full price, with a thin margin of safety.

Moat Compounder estimates the intrinsic value of Union Pacific (UNP) at $318 per share on a five-year horizon. With the stock at $281.57 at 2026-10-12 close, the expected total return is 4.6% per year: fairly valued. The analysis draws on 10-K FY2025 and 10-Q Q1 2026. Analysis dated 2026-07-23.

Price: $281.57
Intrinsic value (5y, base): $318
Total annual return (5y): 4.6%
Status (nominal): Fairly valued
Margin of safety: +1%

The essentials

The largest U.S. railroad by revenue ($24.5bn): a ~32,900-mile network across 23 western states, the only one serving all six Mexico gateways, and a duopoly with BNSF. It is a franchise of exceptional quality — the sector's best operating ratio (59.8%, measures costs ÷ revenue: lower is better), adjusted ROIC of 16.3% (rising), and pricing power over a network that cannot be replicated. Freight splits into three groups: Bulk 33% (grain, coal, fertilizers), Industrial 37% (chemicals, metals, energy), and Premium 30% (automotive, intermodal).
⚠️ At ~$282 it trades at ~19× EV/EBIT — above the quality-railroad band [13,18]. The quality is not in question, but the price already reflects it: with mid-single-digit revenue growth and a multiple that compresses toward the band, the five-year base case yields ~$318/share → a total return of +5%/year: Fairly valued.
The decisive factor is the pending merger with Norfolk Southern (Jul-2025 agreement: 1 UNP share + $88.82 in cash per NS share, ~$85bn, to create the first transcontinental railroad in the U.S.). Shareholders already approved it (Nov-2025), but the regulator (the STB) has it under review with broad opposition (shippers, BNSF, seven state attorneys general petitioning the DOJ); closing is not expected before ~2027. It is valued stand-alone: the merger is upside optionality (synergies) and downside risk (regulatory rejection + re-rating), not included in the base case.

Source 10-K FY2025 Dec-31-2025 ·10-Q Q1 2026 Mar-31-2026 ·DEF 14A 2026 (proxy) Mar-24-2026 ·10-Q Q2 2026 Jun-30-2026

Health: Under watch

Price $282 at 2026-10-12 closeMarket Cap $167.1 bnEnterprise Value $195.9 bnNet debt $28.7 bnEV/EBIT (today) 19.3x

Intrinsic value — two valuation methods

Fairly valued

Price market

$282

DCF value today

$314

+11.5% vs price

Multiples value today

$284

+0.7% vs price

Total return at 5 years: 4.7%/year = 2.5% appreciation + 2.2% dividend. The target price ($318) is ex-dividend; the $32 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $314 · Multiples $284) exceeds the market price ($282).

Pillars of the analysis

The verdict — today vs 5 years

Today — fairly valued: at $282 trades close to its value discounted to today (~$284); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($318) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$180.

Thesis

The business

Union Pacific is the largest Class I railroad in the U.S. — an irreplaceable ~32,900-mile network in the west, a duopoly with BNSF, and the only connection to all six Mexico gateways. It is a franchise of exceptional quality: the sector's best operating ratio (59.8%), adjusted ROIC of 16.3% sustained for decades, and pricing power over a network nobody can replicate. Freight splits into Bulk, Industrial, and Premium; the engine is price (above inflation) + precision scheduled railroading productivity. The second-order risk is volume cyclicality; the first-order risk today is the pending merger with Norfolk Southern.

The valuation

A railroad is a capital-heavy business, so it is valued on EV/EBIT (the multiple charges for the track and equipment capex that EBITDA ignores, §4). It is EV-level: net debt of ~$28.7bn is subtracted from enterprise value. At ~$282, TTM operating income ($10.2bn) implies ~19× EV/EBIT — above the quality-railroad band [13,18].

The base case projects revenue growing at a mid-single-digit rate (~4%/year: pricing + volume recovery), the operating ratio improving modestly (toward ~58%), and operating income compounding ~5%/year to ~$13.0bn in five years. The exit multiple is 16× EV/EBIT — the high end of the quality-railroad band [13,18], disciplined (compressing from ~19× today). That yields ~$318/share; adding the dividend (~1.9%), total return is +5%/year. The buyback, paused today for the merger, adds something once it resumes.

The margin of safety

It trades close to intrinsic value, far from the required margin of safety. At ~$282 and at ~19× EV/EBIT, Union Pacific is a superb franchise at a full price. The verdict is Fairly valued: the business quality is beyond doubt — it is among the best in the market — but the price already reflects it, and with mid-single-digit growth and a multiple that should compress toward the band, the expected total return (+5%/year) falls short of the hurdle. There is no discount: no absent buyers or motivated sellers are identifiable — on the contrary, the market pays for the quality plus the optionality of the merger. The adverse scenario (freight recession + merger rejection + de-rating to ~13×) has material downside; the favorable one (the merger approves with synergies + a strong volume recovery + re-rating) is a clear upside. The asymmetry is not attractive at this price: this is a business to own with a margin of safety, and there isn't one today — worth following and waiting for a better entry point.

What to watch

Three things, with the merger up front. The merger with Norfolk Southern (the binary decisive factor) — the STB's decision (expected late-2026/2027) defines it: a clean approval with the transcontinental synergies is the biggest upside; a rejection, or conditions that erode the synergies, removes the catalyst and could de-rate the stock (and triggers the $2.5bn break fee). Freight volume and the operating ratio — volume follows the economic cycle (2026 guidance is for flat industrial production), and the operating-ratio improvement via precision scheduled railroading is the margin lever; a freight recession or stalled operating-ratio progress would slow the compounding. And the resumption of buybacks — currently paused to fund the cash portion of the merger; whether they return (or not) changes the pace of per-share value. At this price, the better entry point will likely come with a freight recession or a regulatory scare on the merger.

Educational / informational. Does not constitute investment advice.

The valuations

Valuation by multiples

Union Pacific (EBIT × EV/EBIT) Capital-heavy Class I railroad (irreplaceable western network); valued on EV/EBIT — the multiple charges for the track and equipment capex that EBITDA ignores

5-year EBIT $13 bn

× EV/EBIT 16.0x

= EV (enterprise value) $208 bn

+ Excess cash $1.6 bn

− Corporate debt -$30.3 bn

= Equity $179.2 bn

÷ 565 M shares (projected at 5 years, after buybacks)

= Target price / share (5 years) $318

The forward value is divided by the projected shares (fewer, after the buyback financed with cash flow), not today's — dividing the same value among fewer shares raises the value per share. This is the buyback modeled directly — the share-count path from the year-by-year model — not a piece added separately.

Value today (cash flow discounted at the risk-free rate)

Target price at 5 years $318 · discounted to today at Rf 4.5% $255

+ PV of dividends (5y, year by year) $28

= Value today $283

vs current price $282 +0.6% (value above the price)

Discounted cash flow to present value (DCF)

Unlevered NOPAT / owner earnings (NOPAT + D&A − maintenance capex ≈ NOPAT, because maintenance capex ≈ depreciation). Net debt of ~$28.7bn is subtracted in the EV→equity bridge. as the base. Move the assumptions: the value recalculates live. The verdict remains anchored by multiples; the DCF contrasts it at present value.

Discount rate — risk-free (4.5% floor) effective = 4.5%

Risk-free rate 4.5%

Risk does not inflate the rate: protection is required separately, as a margin of safety over the value. The floor avoids discounting at the pace of a depressed market rate.

Base owner earnings $7.9 bn

Growth 4.5%

Terminal g 0.0%

Years 5 years

Year	Projected FCF	Discount factor	Present value
1	$8.3 bn	0.957	$7.9 bn
2	$8.6 bn	0.916	$7.9 bn
3	$9 bn	0.876	$7.9 bn
4	$9.4 bn	0.839	$7.9 bn
5	$9.8 bn	0.802	$7.9 bn

PV of explicit flows (Σ) $39.5 bn

Terminal value = FCF₅₊₁ / (Rf − g) $218.8 bn

PV of terminal value $175.6 bn

= Enterprise value $215.1 bn

− Net debt -$28.7 bn

= Equity $186.4 bn

÷ 594 M shares

Implied value / share $314

vs current price $282 +11.5% (value above the price)

82% of the DCF value is in the terminal value. Method convention: the terminal is taken with no growth (g = 0) — growth beyond the explicit horizon is not paid for today; what the business achieves afterward is part of the margin, not the price. The perpetuity still dominates and makes the DCF sensitive to the assumptions; that is why the multiples valuation —with an explicit exit multiple— drives the verdict.

Reverse DCF — what growth the price discounts

The inverse approach: instead of projecting growth to obtain the value, the market price ($282) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts +2.4%/year

Our base case projects +4.5%/year

The market discounts less growth (2.4%/year) than we project (4.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$8.9 bn of owner earnings in year 5 (vs ~$9.8 bn of our base case). It recalculates if the DCF assumptions are edited.

The model and the scenarios

Year-by-year model

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/EBIT (ferrocarril). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

exit multiple: 3 years 17.0x · 5 years 16.0x onEV/EBIT (ferrocarril)

US$ bn	TTM	+1a	+2a	+3a	+4a	+5a
Operation (editable: revenue, margins, capex, D&A)
Revenue	25.41	26.552	27.694	28.795	29.896	30.945
growth	—	+4%	+4%	+4%	+4%	+4%
OCF	10.3	10.2	10.7	11.2	11.7	12.1
OCF margin	40.4%	38.6%	38.8%	39.0%	39.0%	39.0%
Total capex	3.759	3.5	3.65	3.8	3.95	4.1
Maintenance capex	2.4	2.3	2.4	2.5	2.6	2.7
Growth capex	1.3	1.2	1.3	1.3	1.4	1.4
EBIT	10.2	10.8	11.4	11.9	12.4	13.0
EBIT margin	40.0%	40.5%	41.0%	41.3%	41.6%	42.0%
NOPAT	7.8	8.3	8.7	9.2	9.6	10.0
D&A	2.513	2.55	2.65	2.75	2.85	2.95
Cash flow (the two versions)
FCF growth (OCF − total capex)	6.5	6.7	7.1	7.4	7.7	8.0
FCF maintenance (OCF − maintenance capex)	7.8	8.0	8.4	8.8	9.1	9.4
Owner earnings (NOPAT + D&A − maintenance capex)	7.9	8.6	9.0	9.4	9.9	10.3
EV and multiples (compressed by the growth of the metric)
Cash	1.6	1.6	1.6	1.6	1.6	1.6
EV (MktCap − Cash + Debt)	196	196	196	196	196	196
EV / FCF growth	30.1x	29.0x	27.6x	26.4x	25.4x	24.6x
EV / FCF maintenance	25.0x	24.6x	23.4x	22.4x	21.5x	20.8x
EV / Owner earnings	24.8x	22.9x	21.7x	20.8x	19.9x	19.0x
EV / NOPAT	25.0x	23.7x	22.4x	21.4x	20.5x	19.6x
EV / EBIT	19.3x	18.2x	17.2x	16.5x	15.7x	15.1x
EV / Sales	7.7x	7.4x	7.1x	6.8x	6.6x	6.3x
Shares and shareholder return
Dividend / share	$5.68	$5.94	$6.20	$6.48	$6.77	$7.08
Shares (M · buyback/dilution)	593.6	587.7	581.8	576	570.2	564.5
net change (− buyback / + dilution)	—	-1.0%	-1.0%	-1.0%	-1.0%	-1.0%
Value curve (value/share at exit multiple by year)
Value / share (target price)	—	$262	$282	$301	$310	$318
Total return vs price	—	(-9%)	(+0%)	(+3%)	(+3%)	(+4%)

Valuation · Base · 3 years at 17.0x · 5 years at 16.0x on EV/EBIT (ferrocarril)

3 years

$301 +2.8%/year

Target EV (mult × metric) $202.2 bn

+ Cash − Debt = Equity $173.5 bn

total return (with dividend) +2.8%/year

price appreciation only +2.3%/year

vs current price $294 value above

5 years

$318 +3.7%/year

Target EV (mult × metric) $208 bn

+ Cash − Debt = Equity $179.2 bn

total return (with dividend) +3.7%/year

price appreciation only +2.4%/year

vs current price $294 value above

Valued on EV/EBIT: charges capex (unlike EBITDA) and expenses SBC — the clean measure for a capital-light operator. The buyback is modeled explicitly (shares decline; the cash used for the buyback does not accumulate) → captures the per-share accretion.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

Scenarios (bear / base / bull) — at 5 years

Bear Freight recession (flat volume, price only covers inflation), the operating ratio stalls ~60%, and the NSC merger is rejected (losing the catalyst + the break fee); the multiple de-rates to ~13× EV/EBIT (the bottom of the railroad band) $209

Base Revenue ~4%/year (pricing + volume recovery), operating ratio improving toward ~58%, operating income compounding ~5%/year to ~$13.0bn; exit multiple 16× (upper part of the band, compressing from ~{{multHoy}}) $318

Bull The NSC merger approves with the transcontinental synergies + a strong volume recovery + the operating ratio falls to ~56% + buybacks resume; multiple 18× (the top of the railroad band) $410

Value sensitivity

Value per share by growth scenario (rows) and the compression or expansion of the exit multiple (columns). The color shows whether it beats the required return.

Growth ↓ / Multiple →	Compression−15%	Base multiple	Expansion+15%
BearFreight recession (flat volume · base ~13× EV/EBIT (freight recession + merger rejected)	$178 -6.0%	$209 -3.2%	$240 -0.7%
BaseRevenue ~4%/year (pricing + volume recovery) · base ~16× EV/EBIT (upper part of the band, disciplined)	$270 1.5%	$318 4.7% · base case	$366 7.4%
BullThe NSC merger approves with the transcontinental synergies + a strong volume recovery + the operating ratio falls to ~56% + buybacks resume; multiple 18× (the top of the railroad band) · base ~18× EV/EBIT (merger + synergies + re-rating)	$349 6.5%	$410 9.8%	$471 12.7%

● exceeds 15% ● exceeds 10% ● falls short of 10%

Multiples — today

P/E 22.8x

EV / owner-FCF 30.1x

EV / EBIT 19.3x

EV / Sales 7.7x

FCF yield 3.9%

High today = growth is being paid for; they cheapen toward 3 and 5 years (see Projections).

Forward multiples

With today's price fixed and the metric growing, what multiple is being paid at 3 and 5 years. Today's high multiple is the price of growth: if the business grows, the entry multiple cheapens on its own.

Optionalities and margin of safety

Optionalities

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The Norfolk Southern merger approves with synergies

The agreement (1 UNP share + $88.82 per NS share, ~$85bn) would create the first transcontinental railroad in the U.S. — single-line coast-to-coast service, with revenue synergies (converting truck freight) and cost synergies. If the STB approves it, this is the largest contingent upside; it is valued separately from the base case because the regulatory outcome is binary and uncertain.

Upside

The Mexico franchise and nearshoring

UNP is the only railroad connecting all six Mexico gateways ($2.9bn of freight). If nearshoring accelerates U.S.-Mexico trade, that corridor is a structural growth vector that the base case captures only partially.

Upside

Buybacks resuming at a better price

Buybacks are paused to fund the cash portion of the merger (only 6.1M of the 100M authorized were executed before pausing). If the merger is resolved, buybacks resume; executed after a correction, they would be accretive.

Lottery ticket

Base value (multiples, at 5 years) $318

+ Optionalities (total) $0

= Value with optionalities $318

CAGR with optionalities 4.7%

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Maximum price to pay today — by required return

Each card fixes a required annual return and answers: if the business is worth $318 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $282, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

Return 4%

$290

maximum to pay today

Margin 3.0%

Return 10%

$222

maximum to pay today

No margin -26.9%

Return 15%

$180

maximum to pay today

No margin -56.8%

Return and margin of safety calculator

The maximum price to pay today to earn the required return, with the dividend collected as a separate flow. Both controls are editable.

Target price (in 5 years, ex-dividend) $318

method's base case: $318 · + dividends collected over 5 years $32 → total value to the shareholder $350

Required return 4.5%

risk-free rate (the method's floor): 4.5%

Maximum price

$284

Margin of safety

0.7%

CAGR at market

4.7%

With a target price of $318 in 5 years plus $32 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $284. Against the current market price ($282), the margin of safety is 0.7% (trades below the maximum → there is margin) and the total return at that price would be 4.7% annually.

Synthesis

Valuation quality

Multiple vs the band. ~19× EV/EBIT — above the railroad band [13,18]. The exit multiple (16×) is disciplined to the upper part of the band; today's is rich.
Full price. There is no discount; the market is paying for quality plus the merger optionality.
Margin of safety. Base 5-year ~$305 vs. price ~$295 → total return +5%/year, below the hurdle. The margin is thin/negative; a superb franchise at a full price. Worth waiting for a better entry point.

ROIC vs the 10% bar — the compounding engine

15.9%

15.0%

15.8%

ROIC

on invested capital

Incremental ROIC

each new dollar

CFROIC

backed by cash

value created (above the bar) up to the bar 10% bar (opportunity cost)

The quality bar — return bands

The return on capital is judged against absolute bands; the value-creation floor is the market's opportunity cost (~10%). A stock's volatility does not measure business risk.

Exceptional ≥20%

Excellent 15-20%

Good 10-15%

Below the bar <10%

ROIC 16% → excellent (15-20%). The bar is a measure of business quality, not the method's discount rate: value is discounted to today at the risk-free rate, and protection is required separately, as a margin of safety.

Owner earnings — the waterfall

EBIT

$10.2 bn

− Taxes

-$2.3 bn

+ D&A

+$2.5 bn

− Maint. capex

-$2.4 bn

− Δ WC

-$0.1 bn

Owner earnings

$7.8 bn

It charges maintenance capex (which EBITDA does not deduct). The growth capex ($1.3 bn) is voluntary and is not charged to the base — it depresses FCF today, creates value tomorrow.

Cash & reinvestment

FCF yield (owner-FCF / market value) 3.9%

Cash conversion (FCF / earnings) 89%

Reinvestment rate (growth capex / NOPAT) 17%

Intrinsic growth (g = reinv × ROIC) 3%

Capex / D&A 1.5x

Economic profit (CFROIC − WACC) +5.8 pp

Margins — trajectory

Each margin over sales, year by year: historical (solid line) → projection (dotted).

Operating40%

Net29%

FCF / sales26%

Owner earnings — the detail

EBIT $10.2 bn

NOPAT (rate 23%) $7.8 bn

+ D&A $2.5 bn

− Maintenance capex $2.4 bn

− Δ working capital $0.1 bn

= Owner earnings $7.8 bn

Business quality

✓ ROIC exceeds the cost of capital (~10%)
✓ High incremental ROIC (compounding)
✓ CFROIC backs up the ROIC (100%, cash vs. accruals)
✓ Healthy balance sheet (low corporate debt)
✓ Durable competitive moat (multiple advantages)

Quality — cash · ROIC · reinvestment

ROIC vs the 10% hurdle. Adjusted ROIC 16.3% — in the 'excellent' band (15-20%), well above the 10% hurdle. Sustained for decades. The hallmark of a quality franchise.
Quality of cash. Strong, predictable cash generation; free cash flow (~$6.5bn) funds the dividend plus the buyback. SBC is insignificant (~0.4% of revenue) — no trap. Earnings-to-cash conversion is high.
Leveraged balance sheet. Net debt ~$28.7bn — leveraged but investment grade, with ample coverage. The merger would raise leverage (~$20bn of new debt), to watch.

Revenue trajectory

· $24.1

+1% $24.3

+1% $24.5

+4% $25.4

+4% $26.6

+4% $27.7

+4% $28.8

+4% $29.9

+4% $30.9

FY23

FY24

FY25

TTM

+1A

+2A

+3A

+4A

+5A

Historical CAGR +2% Projected 5y +4% Owner-FCF 5y +4%

Values in US$ bn. The % over each bar is the year-over-year (YoY) growth — each year, historical and projected, vs the prior one (the TTM vs the TTM from a year ago). The path comes from the same source as the table; years without their own series in the model are interpolated between the anchors. Historical solid, projection in a lighter shade.

Where the growth comes from · by segment

Weight in revenue and year-over-year (YoY) growth, in reported USD.

Segment · weight in the mix YoY growth

Bulk (grain, coal, fertilizers, food) +5%

33% of the mix

Industrial (chemicals, metals, energy, forest products) +2%

37% of the mix

Premium (automotive, intermodal) -2%

30% of the mix

Freight splits into three commodity groups (FY2025, $23.2bn): Industrial is the largest (37%, +2% — chemicals, plastics, metals, energy), Bulk was the fastest-growing in 2025 (33%, +5% — grain to Mexico, coal on higher gas prices, soybeans), and Premium lagged (30%, −2% — dragged down by the normalization of international intermodal and automotive weakness from tariff uncertainty). The cross-cutting engine is base price growth above inflation; volume follows the economic cycle.

Growth engine — operating drivers

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Operating ratio (%)

· 62,3%

-4% 59,9%

-0% 59,8%

FY23

FY24

FY25

Adjusted ROIC (%)

· 15,5%

+2% 15,8%

+3% 16,3%

FY23

FY24

FY25

Dividend per share ($)

· $5,2

+2% $5,3

+3% $5,4

+1% $5,5

FY22

FY23

FY24

FY25

Union Pacific's engine is volume (carloads — 8.45M in 2025) × price (revenue per carload — $2,749), where the base price rises above inflation every year on captive freight, and volume follows the economic cycle. The margin lever is the operating ratio (59.8%, the sector's best), which improves via precision scheduled railroading (network velocity +8%, terminal dwell time at its best level). Adjusted ROIC (16.3%) measures the franchise's quality. Capital is returned via the dividend (126 years paying) + buybacks (currently paused to fund the Norfolk Southern merger).

Projections

Metric	FY23	FY24	FY25	TTM	+1A	+2A	+3a	+4A	+5a
Revenue	$24.1 bn	$24.3 bn (+1%)	$24.5 bn (+1%)	$25.4 bn (+4%)	$26.6 bn (+4%)	$27.7 bn (+4%)	$28.8 bn (+4%)	$29.9 bn (+4%)	$30.9 bn (+4%)
Operating income (EBIT)	$9.1 bn	$9.7 bn (+7%)	$9.8 bn (+1%)	$10.2 bn	$10.8 bn (+6%)	$11.4 bn (+6%)	$11.9 bn (+5%)	$12.4 bn (+5%)	$13 bn (+5%)
Net income	$6.4 bn	$6.7 bn (+6%)	$7.1 bn (+6%)	$7.3 bn	$7.6 bn (+4%)	$7.9 bn (+4%)	$8.2 bn (+4%)	$8.6 bn (+5%)	$9 bn (+5%)
FCF (OCF − capex)	$4.8 bn	$5.9 bn (+23%)	$5.5 bn (-7%)	$6.5 bn	$6.7 bn (+4%)	$7.1 bn (+5%)	$7.4 bn (+5%)	$7.7 bn (+4%)	$8 bn (+3%)

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

Growth quality

Real, not nominal. The growth is real: base price above inflation + volume recovering from the freight recession. There is no monetary inflation distorting it (reports in USD).
Growth engine. Price (above inflation, captive) + volume recovery + operating leverage (operating-ratio improvement). Modest (~4-5%/year); buybacks compound the per-share figure.
Cyclicality. Volume follows the economic cycle (2026: flat industrial production, per guidance). Growth is modest and cyclical, not secular — a mature quality business, not a high-growth compounder.

Moat strength

Width

None

Narrow

Wide

Trend

→ Stable

Sources of the moat

Network effect

absent — There is no user network effect (it is not a platform); the moat is physical infrastructure (the network) + scale + cost, not a user network.

Cost advantage

strong — Low-cost producer: rail moves a ton-mile far more cheaply than trucking over long distances; with precision scheduled railroading, UNP has the sector's best operating ratio (59.8%).

Intangibles / brand

partial — Pricing power over captive freight (where trucking does not compete) — it raises prices above inflation every year. Plus the regulatory barrier (the STB protects the oligopoly).

Switching costs

partial — Shippers connected to UNP's network (plants, terminals with rail sidings) face a high switching cost; but in intermodal/automotive, trucking is an alternative.

Efficient scale

strong — Efficient scale: an irreplaceable ~32,900-mile network — building a second transcontinental is practically impossible; there are only two Class I railroads in the west (UNP and BNSF). The barrier to entry is nearly absolute.

The business and its moat

The business: what it does and how it makes money

Union Pacific moves freight by rail: it charges shippers to transport their goods across its western U.S. network. Revenue is the product of two levers — volume (carloads: 8.45M in 2025) × price (average revenue per carload, or ARC: $2,749). Freight ($23.2bn, 95% of revenue) is grouped into three blocks: Bulk (33% — grain and grain products, fertilizers, food and refrigerated, coal; +5% in 2025), Industrial (37% — chemicals and plastics, metals and minerals, forest products, energy; +2%), and Premium (30% — finished vehicles, auto parts, and intermodal containers; −2%, dragged down by the normalization of international intermodal). The rest is a fuel surcharge ($2.3bn, which recovers diesel costs with a ~2-month lag) plus logistics and accessorial revenue.

The economics are those of a mostly fixed-cost, capital-intensive business: once the track is laid and the fleet is purchased, the cost of moving one additional carload is low → operating leverage is high. The sector's key metric is the operating ratio (operating expenses ÷ revenue: lower is better); UNP runs at 59.8%, the best of the Class I railroads, the result of precision scheduled railroading (PSR) — longer trains, better network velocity, and fewer idle assets. Retained capital is reinvested in track and equipment (capex ~$3.8bn/year, mostly maintenance).

Scale and competitive position

Union Pacific is the largest of North America's five Class I railroads by revenue. Its ~32,900-mile network covers the western U.S. — from the Pacific and the Gulf to the Midwest — and it is the only one connecting all six Mexico gateways (an increasingly valuable asset amid nearshoring). It competes head-on with BNSF, which operates parallel routes across many of its core corridors: the two form a western duopoly. In the east, the parallel is Norfolk Southern and CSX. It also competes against trucking (faster door-to-door, but far more expensive per ton-mile over long distances) and barges (in grain and bulk near the Gulf and the rivers).

This is among the strongest competitive positions in any industry: the physical network is an irreplaceable asset — nobody is going to lay a second parallel transcontinental railroad — and the regulatory framework (the STB must approve mergers) protects the oligopoly structure. That gives UNP genuine pricing power (it raises prices above cost inflation year after year) on the freight where trucking is not an economical alternative. The flip side: part of its freight (intermodal, automotive, some bulk) does compete with trucking and is sensitive to the economic cycle, which limits pricing power in those segments.

The moat: why it is hard to compete

Union Pacific's moat is the efficient scale of an irreplaceable network. Building a transcontinental railroad today would be practically impossible — cost, rights-of-way, and regulation make it an almost absolute barrier to entry; that's why there are only two Class I railroads in the west (UNP and BNSF) and two in the east. On top of that network, UNP is the low-cost producer of long-haul overland bulk freight transport: a train moves a ton far more cheaply than a truck, and with precision scheduled railroading (PSR), UNP has the sector's best operating ratio (59.8%). The result is an adjusted ROIC of 16.3% — well above the 10% bar — sustained for decades.

The moat's direction is stable. Pricing power remains intact (UNP raises prices above cost inflation every year on captive freight), the PSR productivity gains continue (network velocity +8%, terminal dwell time at its best level), and the Mexico network is a structural vector with nearshoring. The threats are second-order: the cyclicality of freight volume (which hits revenue in a recession, though the operating ratio held at ~60% even in 2020 and 2023), coal's secular decline, trucking competition in non-captive segments, and labor risk (the workforce is unionized). None of these erode the network's structure.

Moat direction and threats

Structurally, the moat is as solid as they come, and its direction is stable-to-favorable: pricing power holds, PSR productivity improves the operating ratio year after year, and the Mexico franchise gains relevance with nearshoring. The operating bull case is the combination of price (above inflation) + freight-volume recovery (out of the 2023 recession) + continued improvement in the operating ratio toward the high 50s + share buybacks once resumed.

The concrete threats are three, and the biggest one is not about the business but about the capital transaction. First, the pending merger with Norfolk Southern: it would create the first transcontinental railroad, but it is under STB review with broad opposition, was already rejected once as incomplete (Jan-2026), and could be approved with conditions that erode the synergies, or be rejected outright — a binary risk that dominates the year. Second, volume cyclicality: freight follows the economic cycle (industrial production, automotive, housing), and 2026 guidance calls for flat industrial production. Third, coal's secular decline and trucking competition in non-captive segments. On top of all that, the valuation: the stock trades at a multiple above the band — a superb franchise, but at a price that already pays for the quality.

Business / sector quality

Relevant in 10 years (recurrence). Rail freight transport is critical economic infrastructure — the lowest-cost mode for long-haul bulk. It will still be in use in 10 and in 50 years. Extremely high recurrence.
Pricing power. Strong over captive freight (where trucking does not compete): it raises prices above inflation every year. Limited in segments that compete with trucking (intermodal, automotive).
Moat and its direction. Wide moat (irreplaceable network + low cost + pricing power + regulatory barrier), stable-to-favorable direction (Mexico nearshoring). Among the best moats that exist.
Volume cyclicality. Freight follows the economic cycle — volume falls in a recession. But the operating ratio held at ~60% even in 2020 and 2023: the business hits a floor but does not collapse.

Solvency margin

Each pillar between danger and solid — the further right, the more room.

Leverage (net debt / EBITDA) 2.3x

danger > 3× no debt

Interest coverage (EBIT / int.) 7.9x

danger < 2× solid > 8×

The cushion against the contraction phase of the cycle: the further right each pillar sits, the more room before solvency is compromised.

Net cash position

-$28.7 bn net debt

Gross debt $30.3 bn

vs EBITDA debt 2.3x

Cash + liquid investments − debt. The backstop that supports the balance sheet during the contraction phase of the cycle.

Debt composition

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

$30.3 bn (100%)

Financial debt · structural — to be refinanced

Structural $30.3 bn (100% of total)

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

Company health / solvency

!Leverage (net debt / EBITDA)Net debt / EBITDA 2.3x
!Interest coverage (EBIT / interest)7.9x
–Liquidity (current ratio)no data
✓Cash quality (CFROIC vs ROIC)CFROIC backs 100% of ROIC
✓Value creation (ROIC − 10% bar)+6pp
!Malinvestment test (capex vs incremental ROIC)Strong investment mode 1.5x
!Float / working capitalConsumes cash $0.1 bn (positive WC)
✓Dilution (SBC % of revenue + shares)SBC 0.5% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

Health — balance sheet risks

Leverage. Net debt ~$28.7bn — investment grade, ample coverage. The merger would add ~$20bn of debt; the combined entity's leverage is the point to watch.
Cash generation. Operating cash flow ~$10.3bn, free cash flow ~$6.5bn — strong and predictable. Comfortably covers the dividend (~$3.3bn) plus debt service. High quality (recurring).
Capital return. Dividend 126 years (payout ~45%) + buybacks (paused for the merger). Returns almost all free cash flow in normal years. Buybacks resume once the merger is resolved.

Who runs it

V. James (Jim) Vena CEO since 2023; a 40-year career at Canadian National (rose to EVP & COO), then COO of Union Pacific (2019-2020) before returning as CEO. A precision-scheduled-railroading pedigree.

Independent Chairman = Michael R. McCarthy (director since 2008; chairman of the McCarthy Group). The board is 91% independent. Chairman and CEO roles are separated.

Skin in the game

Jim Vena brings the operating pedigree of precision scheduled railroading (40 years at Canadian National). Insiders (directors + executives) hold less than 1% combined — there is no founder or family control; this is a widely-held company. What aligns incentives is the compensation structure: 92% of Vena's pay is variable/performance-based, with holding requirements (the CEO must hold 7× salary in shares) and a hedging/pledging prohibition. The performance-share criteria are 3-year ROIC (2/3 weight) and operating-income growth versus peers (1/3) — sensible value-creation metrics.

Compensation is tied to the right metrics: performance shares vest on 3-year ROIC (2/3) + operating-income growth versus peers (1/3); the annual incentive weighs 70% on operating income + operating ratio, with 10% on safety (injuries + derailments).
Buybacks are paused to fund the cash portion of the Norfolk Southern merger (only 6.1M of the 100M authorized were executed before pausing); resumption depends on the merger closing.
UNP has paid a dividend for 126 consecutive years (as of Jan-30-2026); recent increases moderated to ~3-4% (payout ~45%), preserving cash for the merger.

Capital allocation — indicators

Owner-FCF (shareholder's own cash) $7.8 bn

Reinvested / Dividends / Buybacks 30% / 35% / 25%

Dividend yield (today) 2.0%

Reinvestment ROIC vs the 10% bar 15.0% vs 10%

Cash conversion (FCF / earnings) 89%

The quality test: it reinvests at 15% vs the 10% bar (market opportunity cost) → each $1 retained creates value.

Shares — ownership and dilution

Who owns the shares — the alignment and whether there is a controlling shareholder.

10.0%

7.1%

82.4%

Vanguard 10.0%

BlackRock 7.1%

Other institutions + retail (float) 82.4%

Insiders (directors + executives) 0.5%

Dilution

Net share dilution (YoY) -0.2%

SBC / market value (dilution rate) 0.1%

Minimal dilution: SBC represents less than 2% of value per year and the share count is ~flat — it does not erode value per share.

Management / capital allocation

Skin in the game. Insiders <1% (widely held, no founder). But compensation is well tied: 92% variable, a 7× salary holding requirement for the CEO, ROIC + operating growth criteria.
Capital allocation. Disciplined: maintenance capex, dividend (126 years, payout ~45%), buybacks (currently paused for the merger). The 16.3% ROIC shows that reinvested capital earns above its cost. The big bet is the NSC merger.
Execution / integrity. Jim Vena executed the operating-ratio improvement (62.3% → 59.8%) + record safety via precision scheduled railroading. Compensation is tied to sensible metrics. The NSC merger is the big bet to evaluate.

Why it trades at this price

Not cheap: trading at ~19× EV/EBIT, above the quality-railroad band.
The market already pays for the quality (the sector's best operating ratio and ROIC, an irreplaceable network) plus the optionality of the Norfolk Southern merger (which would create the first transcontinental railroad).
No absent buyers or motivated sellers are identifiable — the discount characteristic of an opportunity does not exist here; the expected return (+5%/year) is modest because the price is full.

Union Pacific is not a cheap-stock story — it is the opposite: an exceptionally high-quality franchise at a full price. The why-cheap taxonomy does not apply: there are no missing buyers (full analyst coverage, not a spin-off or an obscure holding company) and no motivated sellers (no one-off hitting GAAP, no unwarranted panic). On the contrary, the elevated multiple (~19× EV/EBIT) reflects the market paying for the business's undisputed quality plus the optionality of the Norfolk Southern merger. With no identifiable source of discount, the edge is missing: the expected return is modest (+5%/year, below the hurdle), and value discipline says to follow it and wait for a better entry point (a freight recession or a regulatory scare on the merger), not to buy near highs.

Return asymmetry — risk/reward

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

-3%/year

-15% total

Bear

bad scenario

+5%/year

+26% total

Base

realistic

+10%/year

+60% total

Bull

upside

Even in the bear scenario, the return holds at -3%/year (-15% total): the margin of safety protects the downside. The bull (+10%/year, +60% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

Bear case — disconfirmation

The merger with Norfolk Southern is rejected by the STB (or approved with conditions that erode the synergies): the catalyst is lost, the $2.5bn break fee is paid, and the stock de-rates from its elevated multiple.
A freight recession hits volume (2026 guidance already calls for flat industrial production); the operating ratio stalls and operating income grows little or declines.
The multiple compresses toward the band (16× in the base case) or below (~13× in the bear case) with no growth to offset it — from ~19× today, the compression alone is a material headwind to returns.
Coal's secular decline + trucking competition in non-captive segments (intermodal, automotive) pressure volume and price; labor risk (a strike) or a serious derailment adds tail risk.

Bull case — the thesis for

The Norfolk Southern merger approves: the first transcontinental railroad in the U.S. unlocks revenue synergies (converting truck freight with single-line coast-to-coast service) and cost synergies — a jump in value that the stand-alone base case does not include.
Freight volume recovers strongly from the 2023 recession, base price stays above inflation, and precision scheduled railroading drives the operating ratio toward the high 50s — operating income compounds faster.
The Mexico franchise accelerates with nearshoring (the only railroad with all six gateways) — a structural growth vector for the U.S.-Mexico corridor.
Buybacks resume after the merger and, executed at a better price, compound the per-share value; the multiple re-rates to the top of the band (~18×) on the quality leadership.

Risks — what breaks the base case

Norfolk Southern merger. The binary decisive factor: under STB review with broad opposition, already rejected once as incomplete. Clean approval = biggest upside; rejection/conditions = loss of the catalyst + de-rating + $2.5bn break fee. Dominates the year.
Cyclicality + valuation. Volume tracks the economic cycle (2026: flat industrial production per guidance), and the stock trades at ~19× EV/EBIT. A freight recession plus multiple reversion is the biggest risk to returns.
Coal + trucking. Coal (part of Bulk) is in secular decline; in intermodal/automotive, trucking limits pricing. Structural pressure on the mix, second-order relative to the network moat.
Labor + safety. Unionized workforce (strike risk); it carries hazardous materials under a common-carrier obligation (a serious derailment could exceed insurance coverage), though 2025 safety was a record.

The business

The valuation

The margin of safety

What to watch

The business: what it does and how it makes money

Scale and competitive position

The moat: why it is hard to compete

Moat direction and threats

Other companies of the same type