Union Pacific (UNP): Valuation Insights After Major Labor Agreements Bring Clarity for Investors

Union Pacific (UNP) just took a big step forward in resolving lingering labor issues. The company announced ratified agreements with 11 unions that cover 12 crafts and nearly half of its craft workforce. In addition, two of its largest unions, SMART-TD and BLET, have secured interim deals with pay increases as broader talks continue. For investors who have been watching labor negotiations as a source of uncertainty, these developments remove a substantial cloud and offer a clearer picture of future costs, staffing, and operations.

This labor milestone comes at an interesting time. Union Pacific’s stock has actually declined nearly 10% over the past year and continues to slide from levels seen earlier in the year, even as annual revenue and net income growth remain positive. Despite beating operating income estimates in Q2, investor momentum in the stock has been tepid compared to some of its transportation peers. With clearer labor costs now in sight, the long-term question moves from risk management to potential opportunity.

Following a year of lackluster price action and newly inked labor stability, the question arises whether Union Pacific is being undervalued by the market, or if any upside from these agreements has already been factored into the share price.

Most Popular Narrative: 14% Undervalued

According to the most widely followed narrative, Union Pacific is currently undervalued by 14% compared to its calculated fair value. This outlook is built on a combination of operational improvements, targeted expansion, and consensus-driven forecasts for future growth.

Union Pacific is implementing multiple efficiency enhancements, such as energy management systems for locomotives and optimization tools. These initiatives are expected to improve operational efficiency and net margins. The company is expanding capacity with new infrastructure, including facilities in Houston and Phoenix, which could support future growth and positively impact revenue.

Curious about what really underpins this undervalued call? Behind the headline figure lies a playbook of bold efficiency bets, strategic network expansion, and a future profit formula that could catch even seasoned investors off guard. Want to know which assumptions supercharge these projections and what future metrics the narrative hinges on? The answer just might surprise you.

Result: Fair Value of $256.92 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, shifting trade policies or a downturn in consumer demand could quickly undermine these optimistic forecasts and challenge Union Pacific’s expected growth path.

Find out about the key risks to this Union Pacific narrative.

Another View: What Does the SWS DCF Model Say?

While analysts point to fair value using earnings forecasts and market multiples, our DCF model tells a similar story. This suggests Union Pacific may also be undervalued based on projected future cash flows. Could both methods be overlooking hidden risks, or is the market missing something obvious?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Union Pacific for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Union Pacific Narrative

If you see the story differently or want to dive into the numbers on your own terms, you can shape a personalized thesis in just a few minutes. Do it your way.

A great starting point for your Union Pacific research is our analysis highlighting 5 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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