Intrinsic value of Union Pacific - UNP

Previous Close

$105.85

  Intrinsic Value

$58.92

stock screener

  Rating & Target

sell

-44%

  Value-price divergence*

-66%

Previous close

$105.85

 
Intrinsic value

$58.92

 
Up/down potential

-44%

 
Rating

sell

 
Value-price divergence*

-66%

*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 86.5

 

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
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
Revenue, $m
  19,941
  21,197
  22,505
  23,867
  25,287
  26,767
  28,311
  29,922
  31,604
  33,361
  35,197
  37,117
  39,124
  41,224
  43,421
  45,721
  48,130
  50,652
  53,295
  56,063
  58,965
  62,006
  65,195
  68,538
  72,044
  75,721
  79,578
  83,623
  87,868
  92,321
  96,993
Variable operating expenses, $m
 
  12,358
  13,121
  13,915
  14,742
  15,605
  16,505
  17,444
  18,425
  19,450
  20,520
  21,639
  22,809
  24,033
  25,315
  26,656
  28,060
  29,530
  31,071
  32,685
  34,377
  36,150
  38,009
  39,958
  42,002
  44,145
  46,394
  48,752
  51,227
  53,823
  56,547
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
  13,448
  14,238
  15,060
  15,915
  16,808
  17,738
  18,708
  19,720
  20,778
  21,881
  23,034
  24,239
  25,498
  26,817
  28,196
  29,638
  31,147
  32,729
  34,384
  36,119
  37,935
  39,839
  41,834
  43,925
  46,116
  48,414
  50,823
  53,349
  55,998
  58,777
Operating income, $m
  7,272
  7,750
  8,268
  8,808
  9,371
  9,959
  10,573
  11,214
  11,884
  12,584
  13,317
  14,083
  14,885
  15,725
  16,605
  17,526
  18,492
  19,504
  20,566
  21,679
  22,847
  24,071
  25,356
  26,705
  28,120
  29,605
  31,164
  32,800
  34,519
  36,322
  38,217
EBITDA, $m
  9,310
  9,912
  10,564
  11,243
  11,951
  12,690
  13,461
  14,266
  15,108
  15,987
  16,907
  17,869
  18,876
  19,930
  21,034
  22,190
  23,402
  24,671
  26,002
  27,398
  28,861
  30,396
  32,007
  33,696
  35,469
  37,329
  39,281
  41,331
  43,482
  45,740
  48,111
Interest expense (income), $m
  652
  641
  739
  842
  950
  1,062
  1,179
  1,300
  1,428
  1,561
  1,699
  1,844
  1,996
  2,154
  2,320
  2,494
  2,675
  2,865
  3,065
  3,273
  3,492
  3,721
  3,961
  4,213
  4,477
  4,754
  5,044
  5,349
  5,668
  6,003
  6,355
Earnings before tax, $m
  6,766
  7,108
  7,529
  7,966
  8,422
  8,897
  9,394
  9,913
  10,456
  11,024
  11,617
  12,239
  12,889
  13,571
  14,284
  15,033
  15,817
  16,639
  17,501
  18,406
  19,355
  20,350
  21,395
  22,492
  23,643
  24,851
  26,120
  27,452
  28,850
  30,319
  31,862
Tax expense, $m
  2,533
  1,919
  2,033
  2,151
  2,274
  2,402
  2,536
  2,677
  2,823
  2,976
  3,137
  3,304
  3,480
  3,664
  3,857
  4,059
  4,271
  4,493
  4,725
  4,970
  5,226
  5,495
  5,777
  6,073
  6,384
  6,710
  7,052
  7,412
  7,790
  8,186
  8,603
Net income, $m
  4,233
  5,189
  5,496
  5,815
  6,148
  6,495
  6,858
  7,237
  7,633
  8,047
  8,481
  8,934
  9,409
  9,907
  10,428
  10,974
  11,546
  12,146
  12,776
  13,436
  14,129
  14,856
  15,618
  16,419
  17,259
  18,141
  19,067
  20,040
  21,061
  22,133
  23,259

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
  57,758
  61,322
  65,034
  68,902
  72,935
  77,141
  81,531
  86,115
  90,902
  95,905
  101,135
  106,605
  112,326
  118,314
  124,581
  131,144
  138,017
  145,217
  152,761
  160,667
  168,955
  177,643
  186,752
  196,305
  206,324
  216,833
  227,857
  239,422
  251,556
  264,287
Adjusted assets (=assets-cash), $m
  54,381
  57,758
  61,322
  65,034
  68,902
  72,935
  77,141
  81,531
  86,115
  90,902
  95,905
  101,135
  106,605
  112,326
  118,314
  124,581
  131,144
  138,017
  145,217
  152,761
  160,667
  168,955
  177,643
  186,752
  196,305
  206,324
  216,833
  227,857
  239,422
  251,556
  264,287
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
  52,760
  56,015
  59,406
  62,939
  66,623
  70,466
  74,476
  78,663
  83,036
  87,606
  92,383
  97,379
  102,606
  108,075
  113,800
  119,795
  126,073
  132,650
  139,542
  146,764
  154,334
  162,270
  170,591
  179,318
  188,469
  198,069
  208,138
  218,703
  229,787
  241,417
Working capital, $m
  -44
  -657
  -698
  -740
  -784
  -830
  -878
  -928
  -980
  -1,034
  -1,091
  -1,151
  -1,213
  -1,278
  -1,346
  -1,417
  -1,492
  -1,570
  -1,652
  -1,738
  -1,828
  -1,922
  -2,021
  -2,125
  -2,233
  -2,347
  -2,467
  -2,592
  -2,724
  -2,862
  -3,007
Total debt, $m
  15,007
  16,417
  18,712
  21,103
  23,594
  26,191
  28,900
  31,727
  34,679
  37,762
  40,984
  44,352
  47,874
  51,559
  55,415
  59,451
  63,678
  68,104
  72,741
  77,599
  82,691
  88,028
  93,623
  99,490
  105,642
  112,094
  118,861
  125,961
  133,409
  141,223
  149,422
Total liabilities, $m
  35,786
  37,196
  39,491
  41,882
  44,373
  46,970
  49,679
  52,506
  55,458
  58,541
  61,763
  65,131
  68,653
  72,338
  76,194
  80,230
  84,457
  88,883
  93,520
  98,378
  103,470
  108,807
  114,402
  120,269
  126,421
  132,873
  139,640
  146,740
  154,188
  162,002
  170,201
Total equity, $m
  19,932
  20,562
  21,831
  23,152
  24,529
  25,965
  27,462
  29,025
  30,657
  32,361
  34,142
  36,004
  37,951
  39,988
  42,120
  44,351
  46,687
  49,134
  51,697
  54,383
  57,198
  60,148
  63,241
  66,484
  69,885
  73,451
  77,192
  81,117
  85,234
  89,554
  94,086
Total liabilities and equity, $m
  55,718
  57,758
  61,322
  65,034
  68,902
  72,935
  77,141
  81,531
  86,115
  90,902
  95,905
  101,135
  106,604
  112,326
  118,314
  124,581
  131,144
  138,017
  145,217
  152,761
  160,668
  168,955
  177,643
  186,753
  196,306
  206,324
  216,832
  227,857
  239,422
  251,556
  264,287
Debt-to-equity ratio
  0.753
  0.800
  0.860
  0.910
  0.960
  1.010
  1.050
  1.090
  1.130
  1.170
  1.200
  1.230
  1.260
  1.290
  1.320
  1.340
  1.360
  1.390
  1.410
  1.430
  1.450
  1.460
  1.480
  1.500
  1.510
  1.530
  1.540
  1.550
  1.570
  1.580
  1.590
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
  5,189
  5,496
  5,815
  6,148
  6,495
  6,858
  7,237
  7,633
  8,047
  8,481
  8,934
  9,409
  9,907
  10,428
  10,974
  11,546
  12,146
  12,776
  13,436
  14,129
  14,856
  15,618
  16,419
  17,259
  18,141
  19,067
  20,040
  21,061
  22,133
  23,259
Depreciation, amort., depletion, $m
  2,038
  2,162
  2,296
  2,435
  2,579
  2,730
  2,888
  3,052
  3,224
  3,403
  3,590
  3,786
  3,991
  4,205
  4,429
  4,664
  4,910
  5,167
  5,436
  5,719
  6,015
  6,325
  6,650
  6,991
  7,349
  7,724
  8,118
  8,530
  8,963
  9,417
  9,894
Funds from operations, $m
  8,270
  7,351
  7,792
  8,250
  8,727
  9,226
  9,746
  10,289
  10,857
  11,450
  12,071
  12,720
  13,400
  14,112
  14,857
  15,638
  16,456
  17,313
  18,212
  19,155
  20,144
  21,181
  22,269
  23,410
  24,608
  25,865
  27,185
  28,570
  30,024
  31,550
  33,153
Change in working capital, $m
  745
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -57
  -60
  -62
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -90
  -94
  -99
  -104
  -109
  -114
  -120
  -125
  -132
  -138
  -145
Cash from operations, $m
  7,525
  7,390
  7,832
  8,292
  8,771
  9,271
  9,794
  10,339
  10,909
  11,505
  12,128
  12,780
  13,462
  14,177
  14,925
  15,709
  16,531
  17,392
  18,294
  19,241
  20,234
  21,275
  22,368
  23,514
  24,717
  25,979
  27,304
  28,695
  30,156
  31,688
  33,298
Maintenance CAPEX, $m
  0
  -2,034
  -2,162
  -2,296
  -2,435
  -2,579
  -2,730
  -2,888
  -3,052
  -3,224
  -3,403
  -3,590
  -3,786
  -3,991
  -4,205
  -4,429
  -4,664
  -4,910
  -5,167
  -5,436
  -5,719
  -6,015
  -6,325
  -6,650
  -6,991
  -7,349
  -7,724
  -8,118
  -8,530
  -8,963
  -9,417
New CAPEX, $m
  -3,505
  -3,133
  -3,255
  -3,391
  -3,533
  -3,684
  -3,843
  -4,010
  -4,187
  -4,373
  -4,570
  -4,777
  -4,996
  -5,227
  -5,469
  -5,725
  -5,995
  -6,278
  -6,577
  -6,891
  -7,222
  -7,570
  -7,936
  -8,321
  -8,726
  -9,152
  -9,599
  -10,070
  -10,564
  -11,084
  -11,630
Cash from investing activities, $m
  -3,393
  -5,167
  -5,417
  -5,687
  -5,968
  -6,263
  -6,573
  -6,898
  -7,239
  -7,597
  -7,973
  -8,367
  -8,782
  -9,218
  -9,674
  -10,154
  -10,659
  -11,188
  -11,744
  -12,327
  -12,941
  -13,585
  -14,261
  -14,971
  -15,717
  -16,501
  -17,323
  -18,188
  -19,094
  -20,047
  -21,047
Free cash flow, $m
  4,132
  2,224
  2,415
  2,606
  2,803
  3,008
  3,221
  3,441
  3,670
  3,908
  4,155
  4,412
  4,680
  4,959
  5,251
  5,555
  5,872
  6,204
  6,550
  6,913
  7,293
  7,690
  8,106
  8,542
  8,999
  9,478
  9,981
  10,508
  11,061
  11,641
  12,250
Issuance/(repayment) of debt, $m
  970
  2,168
  2,295
  2,390
  2,491
  2,597
  2,709
  2,827
  2,952
  3,083
  3,222
  3,368
  3,522
  3,685
  3,856
  4,036
  4,226
  4,426
  4,637
  4,858
  5,092
  5,337
  5,595
  5,867
  6,152
  6,452
  6,768
  7,099
  7,448
  7,814
  8,199
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
  2,168
  2,295
  2,390
  2,491
  2,597
  2,709
  2,827
  2,952
  3,083
  3,222
  3,368
  3,522
  3,685
  3,856
  4,036
  4,226
  4,426
  4,637
  4,858
  5,092
  5,337
  5,595
  5,867
  6,152
  6,452
  6,768
  7,099
  7,448
  7,814
  8,199
Total cash flow (excl. dividends), $m
  1,765
  4,392
  4,710
  4,996
  5,294
  5,605
  5,930
  6,268
  6,622
  6,991
  7,377
  7,780
  8,202
  8,644
  9,107
  9,591
  10,098
  10,630
  11,187
  11,772
  12,384
  13,027
  13,701
  14,409
  15,151
  15,931
  16,749
  17,607
  18,509
  19,456
  20,450
Retained Cash Flow (-), $m
  770
  -1,209
  -1,269
  -1,321
  -1,377
  -1,436
  -1,498
  -1,563
  -1,632
  -1,704
  -1,781
  -1,862
  -1,947
  -2,037
  -2,132
  -2,231
  -2,336
  -2,447
  -2,563
  -2,686
  -2,815
  -2,950
  -3,093
  -3,243
  -3,401
  -3,567
  -3,741
  -3,924
  -4,117
  -4,320
  -4,533
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
 
  3,762
  3,441
  3,675
  3,917
  4,170
  4,432
  4,705
  4,990
  5,286
  5,596
  5,918
  6,255
  6,607
  6,975
  7,360
  7,762
  8,183
  8,624
  9,086
  9,570
  10,077
  10,608
  11,166
  11,751
  12,364
  13,007
  13,683
  14,392
  15,136
  15,917
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
 
  3,573
  3,088
  3,099
  3,087
  3,052
  2,993
  2,911
  2,807
  2,682
  2,539
  2,380
  2,208
  2,026
  1,838
  1,647
  1,458
  1,273
  1,095
  928
  775
  636
  513
  406
  315
  239
  178
  129
  92
  63
  43
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 20.4
Price to Sales 4.3
Price to Book 4.3
Price to Tangible Book
Price to Cash Flow 11.5
Price to Free Cash Flow 21.5
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 6.3% 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 $86.5 billion.

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COMPANY NEWS

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Stock chart of UNP Financial statements 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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