Author Topic: UNP- Union Pacific  (Read 9284 times)

Schwab711

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Re: UNP- Union Pacific
« Reply #10 on: July 15, 2015, 04:17:46 PM »
The long-term growth driver is intermodal and UP is investing heavily in the segment after trailing BNSF for some time.  The obvious structural driver is that it costs ~4x more to move a ton of cargo/mile by truck vs. rail.  Perhaps less obvious is the emerging truck driver shortage driven by heightened regulation and focus on highway safest - hours worked, drug testing, GPS monitoring, etc.

What do you think the comparison would look like if made driver costs $0? I definitely agree there's a moat here, but that moat may be protecting a cottage home instead of a castle. I'm not sure as much volume will be physically moved in the future so part of the bet is that the competitive advantage in shipping you mention is true and that the rails having pricing power as a result if their volume ever disappeared permanently (coal shipping not being replaced).

I definitely agree that CN Rail has the sweetest rails out of all the publics. Canada seems to be signaling so big issues so there may be better opportunities later.


fjm222

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Re: UNP- Union Pacific
« Reply #11 on: July 15, 2015, 05:41:23 PM »
UP is conservatively run and is a great franchise.  There is a recent Fortune article that describes the current issues pretty well.  As merkhet said, the moat is about as wide as they get.  Railway costs $2-3M per mile to construct, not including land.

UP had a blockbuster year in 2014 and simultaneously witnessed the ill effects of BNSF's well-publicized service issues in early '14 (some caused by lack of capacity), so YTD, UP was likely slow to cut capacity and put locos back in storage (they had taken >400 out of storage for '14, which is incredible to fathom).  The flip side of this is UP is more concerned with running the business for the long-term: maintaining a consistent level of quality service and treating employees well rather (minimizing layoffs via furlough, etc) than running the business on a string and constantly scrambling.

Crude-by-rail business is misunderstood by the market.  CBR was only 1% of UP volume in 2014 and likely less this year.  Frac sand, pipe, etc are slightly bigger pieces of the pie and will certainly hurt this year, but at least those cars can be switched to other cargoes.

The long-term growth driver is intermodal and UP is investing heavily in the segment after trailing BNSF for some time.  The obvious structural driver is that it costs ~4x more to move a ton of cargo/mile by truck vs. rail.  Perhaps less obvious is the emerging truck driver shortage driven by heightened regulation and focus on highway safest - hours worked, drug testing, GPS monitoring, etc.

Fisch- How are you thinking about volume growth over the long term. I agree with pricing due to rail gaining share over trucks but I dont see how the stock works if you only get 2-3% revenue growth. Even with margin expansion and using all excess capital to  buy back shares I can't come up with a return in the double digits per annum. Revenue needs to grow or margins need to be above 40% for the investment to provide a satisfactory return and I am looking for solid rationale for either. I realize that they have always beat guidance in the past on the margin front but I would rather have a thesis as to why volume should grow an additional 2-3% on top of the pricing gains. ANy thoughts?

HJ

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Re: UNP- Union Pacific
« Reply #12 on: July 15, 2015, 05:46:51 PM »
Wait, I have a seeking alpha presentation on UNP, why don't we turn it into a REIT!     I see tremendous undervalued assets!   ;)

Schwab711

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Re: UNP- Union Pacific
« Reply #13 on: July 15, 2015, 07:54:52 PM »
Wait, I have a seeking alpha presentation on UNP, why don't we turn it into a REIT!     I see tremendous undervalued assets!   ;)

That's actually an awesome idea.

I forgot to add to my post, the 4x factor may be coming down as well because driverless trucks are sure to beat cars to the road. What will that ratio look like when driver costs go to $0? I also don't like capital intensive businesses or ones that have numerous substitutes. The density of the future shipping volume matters quite a bit as high density reduces options significantly (and increases demand for rail transport).

wisborough

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Re: UNP- Union Pacific
« Reply #14 on: October 18, 2015, 12:33:05 AM »

Does anybody understand how the new Panama canal will impact UNP ?

Palantir

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Re: UNP- Union Pacific
« Reply #15 on: October 18, 2015, 07:16:43 AM »
Coal (yucky) is 18% of volumes, and industrials is 20%....a big portion of revenue is cyclical, and cyclicals are getting killed. Do bulls have an opinion on why this situation would turn?
My Portfolio: AMZN, PAGP, FSLR, OKE, PYPL, RHT, MSFT

LongTermView

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Re: UNP- Union Pacific
« Reply #16 on: November 22, 2015, 02:35:48 PM »

Does anybody understand how the new Panama canal will impact UNP ?

The Morningstar article that KCLarkin attached says UNP thinks as little as 3% of their international intermodal volume will be impacted.