Intrinsic value of Union Pacific - UNP

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$108.10

  Intrinsic Value

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  Value-price divergence*

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$108.10

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of UNP stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 88.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -8.58
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  19,941
  20,340
  20,808
  21,342
  21,943
  22,608
  23,338
  24,133
  24,993
  25,920
  26,915
  27,979
  29,114
  30,323
  31,608
  32,972
  34,417
  35,946
  37,564
  39,273
  41,077
  42,981
  44,989
  47,106
  49,336
  51,685
  54,158
  56,761
  59,500
  62,381
  65,412
Variable operating expenses, $m
 
  11,858
  12,131
  12,443
  12,793
  13,180
  13,606
  14,069
  14,571
  15,111
  15,691
  16,312
  16,974
  17,679
  18,428
  19,223
  20,065
  20,957
  21,900
  22,896
  23,948
  25,058
  26,229
  27,463
  28,763
  30,132
  31,574
  33,091
  34,688
  36,368
  38,135
Fixed operating expenses, $m
 
  1,090
  1,117
  1,145
  1,173
  1,203
  1,233
  1,264
  1,295
  1,328
  1,361
  1,395
  1,430
  1,465
  1,502
  1,540
  1,578
  1,617
  1,658
  1,699
  1,742
  1,785
  1,830
  1,876
  1,923
  1,971
  2,020
  2,071
  2,122
  2,175
  2,230
Total operating expenses, $m
  12,669
  12,948
  13,248
  13,588
  13,966
  14,383
  14,839
  15,333
  15,866
  16,439
  17,052
  17,707
  18,404
  19,144
  19,930
  20,763
  21,643
  22,574
  23,558
  24,595
  25,690
  26,843
  28,059
  29,339
  30,686
  32,103
  33,594
  35,162
  36,810
  38,543
  40,365
Operating income, $m
  7,272
  7,392
  7,560
  7,755
  7,977
  8,225
  8,499
  8,800
  9,127
  9,481
  9,863
  10,272
  10,711
  11,180
  11,679
  12,210
  12,774
  13,372
  14,006
  14,677
  15,387
  16,138
  16,931
  17,767
  18,650
  19,582
  20,564
  21,599
  22,689
  23,838
  25,047
EBITDA, $m
  9,310
  9,467
  9,683
  9,932
  10,215
  10,531
  10,880
  11,262
  11,676
  12,125
  12,608
  13,127
  13,681
  14,273
  14,903
  15,573
  16,285
  17,039
  17,838
  18,684
  19,578
  20,522
  21,520
  22,573
  23,683
  24,854
  26,088
  27,389
  28,759
  30,201
  31,720
Interest expense (income), $m
  652
  641
  671
  708
  750
  798
  850
  908
  971
  1,039
  1,112
  1,190
  1,274
  1,364
  1,459
  1,561
  1,669
  1,783
  1,903
  2,031
  2,166
  2,309
  2,459
  2,618
  2,785
  2,961
  3,146
  3,341
  3,547
  3,763
  3,991
Earnings before tax, $m
  6,766
  6,751
  6,889
  7,047
  7,227
  7,427
  7,649
  7,892
  8,156
  8,443
  8,751
  9,082
  9,437
  9,816
  10,219
  10,649
  11,105
  11,589
  12,103
  12,646
  13,221
  13,829
  14,472
  15,150
  15,866
  16,621
  17,418
  18,257
  19,142
  20,074
  21,056
Tax expense, $m
  2,533
  1,823
  1,860
  1,903
  1,951
  2,005
  2,065
  2,131
  2,202
  2,279
  2,363
  2,452
  2,548
  2,650
  2,759
  2,875
  2,998
  3,129
  3,268
  3,414
  3,570
  3,734
  3,907
  4,090
  4,284
  4,488
  4,703
  4,929
  5,168
  5,420
  5,685
Net income, $m
  4,233
  4,928
  5,029
  5,144
  5,275
  5,422
  5,584
  5,761
  5,954
  6,163
  6,388
  6,630
  6,889
  7,165
  7,460
  7,774
  8,107
  8,460
  8,835
  9,232
  9,652
  10,095
  10,564
  11,059
  11,582
  12,133
  12,715
  13,328
  13,974
  14,654
  15,371

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,337
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  55,718
  55,422
  56,697
  58,154
  59,790
  61,602
  63,591
  65,757
  68,101
  70,627
  73,337
  76,237
  79,331
  82,625
  86,126
  89,842
  93,779
  97,947
  102,354
  107,011
  111,927
  117,116
  122,587
  128,354
  134,431
  140,830
  147,569
  154,661
  162,124
  169,976
  178,235
Adjusted assets (=assets-cash), $m
  54,381
  55,422
  56,697
  58,154
  59,790
  61,602
  63,591
  65,757
  68,101
  70,627
  73,337
  76,237
  79,331
  82,625
  86,126
  89,842
  93,779
  97,947
  102,354
  107,011
  111,927
  117,116
  122,587
  128,354
  134,431
  140,830
  147,569
  154,661
  162,124
  169,976
  178,235
Revenue / Adjusted assets
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
Average production assets, $m
  49,628
  50,626
  51,790
  53,121
  54,616
  56,271
  58,088
  60,066
  62,208
  64,515
  66,991
  69,639
  72,466
  75,475
  78,673
  82,067
  85,664
  89,471
  93,496
  97,750
  102,242
  106,981
  111,979
  117,247
  122,797
  128,643
  134,798
  141,277
  148,094
  155,267
  162,811
Working capital, $m
  -44
  -631
  -645
  -662
  -680
  -701
  -723
  -748
  -775
  -804
  -834
  -867
  -903
  -940
  -980
  -1,022
  -1,067
  -1,114
  -1,164
  -1,217
  -1,273
  -1,332
  -1,395
  -1,460
  -1,529
  -1,602
  -1,679
  -1,760
  -1,844
  -1,934
  -2,028
Total debt, $m
  15,007
  14,913
  15,734
  16,672
  17,725
  18,893
  20,174
  21,568
  23,078
  24,705
  26,450
  28,317
  30,310
  32,432
  34,686
  37,079
  39,615
  42,299
  45,137
  48,136
  51,302
  54,643
  58,167
  61,881
  65,794
  69,916
  74,255
  78,823
  83,629
  88,685
  94,004
Total liabilities, $m
  35,786
  35,692
  36,513
  37,451
  38,504
  39,672
  40,953
  42,347
  43,857
  45,484
  47,229
  49,096
  51,089
  53,211
  55,465
  57,858
  60,394
  63,078
  65,916
  68,915
  72,081
  75,422
  78,946
  82,660
  86,573
  90,695
  95,034
  99,602
  104,408
  109,464
  114,783
Total equity, $m
  19,932
  19,730
  20,184
  20,703
  21,285
  21,930
  22,638
  23,409
  24,244
  25,143
  26,108
  27,140
  28,242
  29,415
  30,661
  31,984
  33,385
  34,869
  36,438
  38,096
  39,846
  41,693
  43,641
  45,694
  47,857
  50,136
  52,534
  55,059
  57,716
  60,511
  63,451
Total liabilities and equity, $m
  55,718
  55,422
  56,697
  58,154
  59,789
  61,602
  63,591
  65,756
  68,101
  70,627
  73,337
  76,236
  79,331
  82,626
  86,126
  89,842
  93,779
  97,947
  102,354
  107,011
  111,927
  117,115
  122,587
  128,354
  134,430
  140,831
  147,568
  154,661
  162,124
  169,975
  178,234
Debt-to-equity ratio
  0.753
  0.760
  0.780
  0.810
  0.830
  0.860
  0.890
  0.920
  0.950
  0.980
  1.010
  1.040
  1.070
  1.100
  1.130
  1.160
  1.190
  1.210
  1.240
  1.260
  1.290
  1.310
  1.330
  1.350
  1.370
  1.390
  1.410
  1.430
  1.450
  1.470
  1.480
Adjusted equity ratio
  0.342
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4,233
  4,928
  5,029
  5,144
  5,275
  5,422
  5,584
  5,761
  5,954
  6,163
  6,388
  6,630
  6,889
  7,165
  7,460
  7,774
  8,107
  8,460
  8,835
  9,232
  9,652
  10,095
  10,564
  11,059
  11,582
  12,133
  12,715
  13,328
  13,974
  14,654
  15,371
Depreciation, amort., depletion, $m
  2,038
  2,075
  2,123
  2,177
  2,238
  2,306
  2,381
  2,462
  2,549
  2,644
  2,746
  2,854
  2,970
  3,093
  3,224
  3,363
  3,511
  3,667
  3,832
  4,006
  4,190
  4,384
  4,589
  4,805
  5,033
  5,272
  5,525
  5,790
  6,069
  6,363
  6,673
Funds from operations, $m
  8,270
  7,003
  7,151
  7,321
  7,514
  7,728
  7,964
  8,223
  8,504
  8,807
  9,134
  9,484
  9,859
  10,259
  10,684
  11,137
  11,618
  12,127
  12,667
  13,238
  13,842
  14,480
  15,154
  15,865
  16,615
  17,406
  18,239
  19,118
  20,043
  21,018
  22,044
Change in working capital, $m
  745
  -12
  -15
  -17
  -19
  -21
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -40
  -42
  -45
  -47
  -50
  -53
  -56
  -59
  -62
  -66
  -69
  -73
  -77
  -81
  -85
  -89
  -94
Cash from operations, $m
  7,525
  7,777
  7,166
  7,338
  7,532
  7,749
  7,987
  8,248
  8,530
  8,836
  9,165
  9,517
  9,894
  10,296
  10,724
  11,179
  11,662
  12,175
  12,717
  13,291
  13,898
  14,539
  15,216
  15,930
  16,684
  17,478
  18,316
  19,198
  20,128
  21,107
  22,138
Maintenance CAPEX, $m
  0
  -2,034
  -2,075
  -2,123
  -2,177
  -2,238
  -2,306
  -2,381
  -2,462
  -2,549
  -2,644
  -2,746
  -2,854
  -2,970
  -3,093
  -3,224
  -3,363
  -3,511
  -3,667
  -3,832
  -4,006
  -4,190
  -4,384
  -4,589
  -4,805
  -5,033
  -5,272
  -5,525
  -5,790
  -6,069
  -6,363
New CAPEX, $m
  -3,505
  -998
  -1,164
  -1,331
  -1,494
  -1,656
  -1,817
  -1,978
  -2,141
  -2,307
  -2,476
  -2,649
  -2,826
  -3,009
  -3,198
  -3,394
  -3,596
  -3,807
  -4,026
  -4,254
  -4,491
  -4,739
  -4,998
  -5,268
  -5,551
  -5,846
  -6,155
  -6,479
  -6,817
  -7,172
  -7,544
Cash from investing activities, $m
  -3,393
  -3,032
  -3,239
  -3,454
  -3,671
  -3,894
  -4,123
  -4,359
  -4,603
  -4,856
  -5,120
  -5,395
  -5,680
  -5,979
  -6,291
  -6,618
  -6,959
  -7,318
  -7,693
  -8,086
  -8,497
  -8,929
  -9,382
  -9,857
  -10,356
  -10,879
  -11,427
  -12,004
  -12,607
  -13,241
  -13,907
Free cash flow, $m
  4,132
  4,745
  3,927
  3,884
  3,861
  3,855
  3,864
  3,889
  3,927
  3,979
  4,045
  4,123
  4,214
  4,317
  4,433
  4,561
  4,703
  4,857
  5,024
  5,205
  5,400
  5,609
  5,833
  6,073
  6,328
  6,600
  6,889
  7,195
  7,521
  7,865
  8,230
Issuance/(repayment) of debt, $m
  970
  664
  821
  938
  1,053
  1,167
  1,281
  1,395
  1,510
  1,626
  1,746
  1,867
  1,993
  2,122
  2,255
  2,393
  2,536
  2,684
  2,838
  2,999
  3,166
  3,341
  3,524
  3,714
  3,913
  4,121
  4,339
  4,568
  4,806
  5,056
  5,319
Issuance/(repurchase) of shares, $m
  -3,105
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -2,367
  664
  821
  938
  1,053
  1,167
  1,281
  1,395
  1,510
  1,626
  1,746
  1,867
  1,993
  2,122
  2,255
  2,393
  2,536
  2,684
  2,838
  2,999
  3,166
  3,341
  3,524
  3,714
  3,913
  4,121
  4,339
  4,568
  4,806
  5,056
  5,319
Total cash flow (excl. dividends), $m
  1,765
  5,408
  4,748
  4,823
  4,914
  5,022
  5,145
  5,283
  5,437
  5,606
  5,790
  5,990
  6,206
  6,438
  6,688
  6,954
  7,238
  7,541
  7,863
  8,204
  8,567
  8,951
  9,357
  9,787
  10,241
  10,721
  11,228
  11,763
  12,327
  12,922
  13,549
Retained Cash Flow (-), $m
  770
  -377
  -454
  -519
  -582
  -645
  -708
  -771
  -835
  -899
  -965
  -1,032
  -1,102
  -1,173
  -1,246
  -1,323
  -1,402
  -1,484
  -1,569
  -1,658
  -1,750
  -1,847
  -1,948
  -2,053
  -2,163
  -2,278
  -2,399
  -2,525
  -2,657
  -2,795
  -2,940
Prev. year cash balance distribution, $m
 
  579
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  5,610
  4,294
  4,304
  4,332
  4,377
  4,437
  4,512
  4,602
  4,707
  4,825
  4,958
  5,105
  5,266
  5,441
  5,631
  5,836
  6,057
  6,294
  6,546
  6,816
  7,104
  7,409
  7,734
  8,078
  8,443
  8,829
  9,238
  9,670
  10,127
  10,609
Discount rate, %
 
  5.30
  5.57
  5.84
  6.14
  6.44
  6.76
  7.10
  7.46
  7.83
  8.22
  8.63
  9.06
  9.52
  9.99
  10.49
  11.02
  11.57
  12.15
  12.76
  13.39
  14.06
  14.77
  15.50
  16.28
  17.09
  17.95
  18.85
  19.79
  20.78
  21.82
PV of cash for distribution, $m
 
  5,328
  3,853
  3,630
  3,414
  3,203
  2,996
  2,791
  2,589
  2,388
  2,190
  1,994
  1,802
  1,615
  1,434
  1,261
  1,096
  942
  799
  669
  552
  448
  358
  281
  216
  163
  121
  87
  62
  42
  28
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Union Pacific Corporation, through its subsidiary, Union Pacific Railroad Company, operates railroads in the United States. It offers transportation services for agricultural products, including grains, commodities produced from grains, and food and beverage products; automotive products, such as finished vehicles and automotive parts; and chemicals comprising industrial chemicals, plastics, fertilizers, petroleum and liquid petroleum gases, crude oil, and soda ash. The company also provides transportation services for coal, petroleum coke, and biomass; industrial products consisting of construction products, minerals, consumer goods, metals, lumber, paper, and other miscellaneous products; and intermodal import and export container traffic. Its rail network includes 32,070 route miles linking the Pacific Coast and Gulf Coast ports with the Midwest and Eastern United States gateways. Union Pacific Corporation was founded in 1862 and is headquartered in Omaha, Nebraska.

FINANCIAL RATIOS  of  Union Pacific (UNP)

Valuation Ratios
P/E Ratio 20.8
Price to Sales 4.4
Price to Book 4.4
Price to Tangible Book
Price to Cash Flow 11.7
Price to Free Cash Flow 21.9
Growth Rates
Sales Growth Rate -8.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -24.6%
Cap. Spend. - 3 Yr. Gr. Rate 0.1%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 71.5%
Total Debt to Equity 75.3%
Interest Coverage 11
Management Effectiveness
Return On Assets 8.4%
Ret/ On Assets - 3 Yr. Avg. 9.6%
Return On Total Capital 12.1%
Ret/ On T. Cap. - 3 Yr. Avg. 14.2%
Return On Equity 20.8%
Return On Equity - 3 Yr. Avg. 22.7%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 81.2%
Gross Margin - 3 Yr. Avg. 78.5%
EBITDA Margin 47.4%
EBITDA Margin - 3 Yr. Avg. 46.5%
Operating Margin 36.5%
Oper. Margin - 3 Yr. Avg. 36.6%
Pre-Tax Margin 33.9%
Pre-Tax Margin - 3 Yr. Avg. 34.6%
Net Profit Margin 21.2%
Net Profit Margin - 3 Yr. Avg. 21.6%
Effective Tax Rate 37.4%
Eff/ Tax Rate - 3 Yr. Avg. 37.7%
Payout Ratio 44.4%

UNP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the UNP stock intrinsic value calculation we used $19941 million for the last fiscal year's total revenue generated by Union Pacific. The default revenue input number comes from 2016 income statement of Union Pacific. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our UNP stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.3%, whose default value for UNP is calculated based on our internal credit rating of Union Pacific, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Union Pacific.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of UNP stock the variable cost ratio is equal to 58.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1063 million in the base year in the intrinsic value calculation for UNP stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.5% for Union Pacific.

Corporate tax rate of 27% is the nominal tax rate for Union Pacific. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the UNP stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for UNP are equal to 248.9%.

Life of production assets of 24.4 years is the average useful life of capital assets used in Union Pacific operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for UNP is equal to -3.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $19932 million for Union Pacific - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 817.092 million for Union Pacific is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Union Pacific at the current share price and the inputted number of shares is $88.3 billion.


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Stock chart of UNP Financial statements of UNP Annual reports of UNP
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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