Union Pacific Corporation

Methodology

Union Pacific's fair value calculation is complicated by the railroad industry's cyclicality, where freight volumes fluctuate with industrial production, trade flows, and economic conditions unrelated to the company's operational execution. The method works best when normalized for mid-cycle volumes and pricing, as peak and trough periods create misleading valuation signals. Investors should also consider that railroad franchise value—network density, barriers to entry—matters more than current EPS, making qualitative factors critical alongside quantitative metrics.

Methodology

PEG ratios for Union Pacific can be misleading because growth rates swing with economic cycles, with volume declines during recessions followed by recoveries that create lumpy earnings progression. Low PEG ratios during earnings surges may signal late-cycle peaks rather than value, while high ratios during volume weakness may represent opportunity if the franchise remains strong. Investors should compare Union Pacific's PEG to other Class I railroads and emphasize operating ratio improvement and pricing power over the ratio itself.

Methodology

Union Pacific pays a substantial dividend supported by the capital-intensive but cash-generative nature of railroad operations, making PEGY particularly relevant for evaluating total return potential during cyclical downturns. The dividend provides tangible return when freight volumes are pressured by economic weakness or industrial slowdowns. For income-focused investors, PEGY captures the combination of modest growth and attractive yield that characterizes mature railroad franchises.