Our Thoughts / Company Profile: Union Pacific Corporation (UNP) – June 30, 2023

Risk: Reference all statements regarding risk.

 

Sector: Transportation / Railroad – Domestic

 

Periodicity Consideration: 3 Years to Indefinite (Some Trade Thoughts, though Primary Consideration – LT)

 

Fundamentals: Business Operations: Industrial Freight makes up nearly a third of the business of Union Pacific, Premium Freight makes up another third, while Bulk Freight almost makes a third. Other revenues of about 7% of it’s business.

 

Financial Ratios: Growing EPS (3 Yrs): Yes / $7.88 to $11.21
Operating Profit Margins: 38.87%
Dividend Payout Ratio: 45.98%
Long Term Debt to Capital: 28.38%
Insolvency Ratio (Debt to Equity): 39.90%

 

FASTgraphs Context: Taking a look at COST FASTgraphs …

 

 

We’ve had a nice pullback given the events of the last several years. And it seems the market is continually willing to pay a nice premium for the Company. But we still seem … even over the course of several years, to remain somewhat elevated, even after the inflationary events of the last year.

 

ESG Score: 25 or the 45st percentile. Will specify in the future how we use this data.

 

Strategy Thesis: ST Trades, Valuation, Equity Income (Dividend)

 

Our Thoughts: The above is simply a ‘quicksheet’ The Duke uses for various companies with which he invests, or is considering; to give you a ‘look over our shoulder’ of our thoughts at a snapshot in time. It’s typical of the factors considered looking over any Equity instrument or Option trade. Reference all statements regarding risk.

 

For any short-term (ST) trades and accounts, I was initially thinking of selling some call premium. But actually looking over a few metrics? I think it has a bit more room to run to the upside, so that idea is sort of out. I’m not too keen on selling cash covered puts here either. At the moment, for a short-term trade, I’ll just pass on this particular asset.

 

For any valuation mandates? Again, one could sell cash-covered puts. Personal valuation mandates has exposure extremely light for macro-economic considerations, so leverage could be reduced to 0.8:1, so 1 put sold per $63,000.00 in free cash. And actually? I might go a little less than this for Union Pacific (UNP). Perhaps 1 put sold per $75,000.00 in free cash. This would reduce the size of the exposure in case of assignment; as the periodicity of UNP being held would naturally be longer in a valuation mandate. For smaller accounts that do not have that sort of free cash? 25% of a normal ‘full size’ position could be added ( i.e. if a normal sized position is $15,000.00 in a valuation account, a $3,750.00 position could be initiated with the possibility of adding to the position at a moment later in time ) IF we trade close above $207.58

 

For Equity Income (Dividend) accounts? For smaller accounts, a position could be initiated at these levels, as long as there is future capital to average the position at a lower cost basis in the future. For larger accounts? Given valuations, the above ST and Valuation option strategies could be used to raise premium until assigned, and an actual position is both initiated for an Equity Dividend Income account as well.

 

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