The Comeback Train 🚂

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Union Pacific (UNP) is gearing up for a major rebound — think of it as the Rocky Balboa of railroads. After taking some hits from freight slowdowns, macro chaos, and an economy that’s been running on three wheels, the company’s cutting fat, getting lean, and eyeing a monster merger that could reshape U.S. logistics.

Let’s hit the rails.

Union Pacific is the OG of U.S. railroads. Founded when Abe Lincoln still had pen pals, it now controls the western two-thirds of the country’s rail network — basically half of America’s arteries for moving stuff that makes the economy go brrr.

They’re also waiting on approval for a merger with Norfolk Southern, which would create the first-ever transcontinental railroad in U.S. history. Coast to coast, baby. If approved, this would link every major economic hub in the country — and Uncle Sam himself seems to like the idea.

But lately? UNP’s stock’s been acting like a tired old caboose. Down about 2% since July and underperforming the S&P 500 by more than 700 basis points. Including dividends, UNP has been dead money since early 2022. Ten-year total return? 190%. The S&P? 285%. Ouch.

Still — that’s not because UNP sucks. It’s because the company’s tied to cyclical growth, and the economy’s been doing the cha-cha with recession fears. Historically, when manufacturing rebounds, so does UNP. Think 2016 and 2021 style rebounds — triple-digit long-term gains.

Union Pacific’s been in beast mode under Jim Vena, who took over as CEO in 2023. This guy’s basically Marie Kondo’d the entire railroad.

Here’s the glow-up:

Even with a freight recession since 2022 — thanks to weak consumer spending, sticky inflation, rising rates, and tariffs — UNP somehow made money look easy.

By the numbers:

Translation: efficiency went brrrr. Operating income jumped 6%, and the operating ratio (railroad’s version of profit margin) dipped below 60% — a number that would make Buffett smile.

They even cut compensation costs by 1% despite wage inflation. That’s not layoffs-for-profit greed — that’s operational optimization 101.

Productivity’s off the charts:

So yeah, they’re shipping more with less — all while improving safety. It’s like they found cheat codes for railroading.

✅ Winners:

❌ Losers:

Still, UNP’s kept things humming. Even with cyclical headwinds, the company’s essentially breaking records for efficiency per train mile.

This merger with Norfolk Southern isn’t just big — it’s transformational.
Over 1,200 stakeholders and 400+ customers already sent in letters of support. Even the unions are onboard, with job guarantees locked in.

If approved, the merger could cut redundancies, boost speed, and open up new cross-country routes. Think Amazon Prime, but for bulk freight.

Meanwhile, UNP’s getting its balance sheet ready for takeoff:

They’re also paying a 2.5% dividend yield, with an 18-year streak of increases and a 40% payout ratio — meaning that dividend’s safe. Last hike was 3%, smaller than usual, but that’s just merger prep mode.

Not everything’s gravy:

In CEO-speak: “Productivity’s challenged when volumes are down.” In human-speak: “We’re moving fewer boxes, but still doing it like pros.”

Even so, management’s still calling for high-single to low-double-digit EPS growth over the next three years.

Now for the juicy part:

Translation: you’re getting UNP at a discount. Analysts see 8–9% annual EPS growth through 2027. Add the dividend, and you’re looking at a 10%+ total return even without multiple expansion.

If cyclical growth bounces back (which it usually does), EPS could spike 15–20% per year, and shares could return 15% annually just from reverting to their historical P/E.

That’s why the author — and their whole family — owns UNP shares and plans to buy more on dips.

Every train has its derailment risk:

Still, the upside outweighs the risks if the economy keeps chugging forward.

A $260 price target gives us over 20% upside in the next 12 months.