Friday, 21 December 2012

A Look at UNP


Over the past several weeks, I’ve posted my analysis of several railroad stocks (CNI, NSC and CSX). I’m completing the series with UNP.

Average Dividend Yield Analysis*

UNP
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2002
$32.58
$26.50
$0.20
$0.20
$0.20
$0.20
$0.80
3.02%
2.46%
2003
$34.75
$25.45
$0.23
$0.23
$0.23
$0.23
$0.92
3.61%
2.65%
2004
$34.78
$27.40
$0.15
$0.15
$0.15
$0.15
$0.60
2.19%
1.73%
2005
$40.63
$29.09
$0.15
$0.15
$0.15
$0.15
$0.60
2.06%
1.48%
2006
$48.75
$38.81
$0.15
$0.15
$0.15
$0.15
$0.60
1.55%
1.23%
2007
$68.78
$44.79
$0.15
$0.175
$0.175
$0.175
$0.675
1.51%
0.98%
2008
$85.80
$41.84
$0.22
$0.22
$0.22
$0.27
$0.93
2.22%
1.08%
2009
$66.73
$33.28
$0.27
$0.27
$0.27
$0.27
$1.08
3.25%
1.62%
2010
$95.78
$60.41
$0.27
$0.27
$0.33
$0.33
$1.20
1.99%
1.25%
2011
$107.89
$77.73
$0.38
$0.38
$0.475
$0.475
$1.71
2.20%
1.58%
2012


$0.60
$0.60
$0.60
$0.60
$2.40


2013


$0.69
$0.69
$0.69
$0.69
$2.76


Stock prices and dividends are per calendar year.
11y ave
2.36%
1.61%
Dividends are recorded in the quarter they were paid.
5y ave
2.23%
1.30%







3y ave
2.48%
1.49%







5y
$123.64
$211.60







3y
$111.42
$185.81






Super Cheap
$85.05


The table shows the 3 year average dividend yield to be 2.48% ((3.25% + 1.99% + 2.20%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $2.76, one would have to pay $111.42 for a 2.48% yield.

Buying the stock at its low in 2009 would have earned you an initial yield of 3.25%. Using the current annual dividend, that corresponds to a stock price of $85.05 today (see “super cheap” price in the table above).

Graham Price

UNP’s 2009, 2010 and 2011 EPS were $3.75, $5.53 and $6.72. 3Y Ave EPS = $5.33.
UNP’s BV is $41.49.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $70.56

Cyclically Adjusted Price to Earnings Ratio

UNP’s 10Y Ave EPS = $3.46
CAPE = Stock Price / 10Y Ave EPS = $125.00 / $3.46 = 36
A CAPE below 20 is good.

Conclusion

UNP increased EPS from $2.53 in 2002 to $6.72 in 2011. That’s an increase of 2.7 times over 10 years. Not stellar, but not bad either. For the same period, CSX’s EPS increased 4.5 times, NSC’s EPS increased 4.6 times and CNI’s EPS increased 2.8 times.

Based on my three metrics, the stock price of UNP is too expensive. Moreover, UNP failed to increase EPS at the same rate as CSX and NSC. For the time being, I’ll concentrate on CSX and NSC.


*My method is not perfect as the stocks low price may have occurred before the annual dividend increase.


2 comments:

  1. UNP is overpriced for me right now, but I wouldn't mind becoming part owner if it takes a big hit. I'll have to look at it more closely but just going off your analysis I think it'd have to drop to around $100 before I'd feel comfortable since the earnings growth has been slower than their competitors.

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    1. Happy you stopped by. I started looking very closely at railroads when NSC and CSX dropped a wee while ago. Railroads are wonderful businesses that will certainly be around for a long time to come. Eventually, I will add CNI, UNP and CSX to my portfolio, at the right price of course.

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