Can Union Pacific Survive Coronavirus? — Market Mad House
By: Daniel G. Jennings
Tags: Stocks, Economy, Railways, Stock Market, Value Investing

Coronavirus could kill the Union Pacific Corporation (NYSE: UNP) as the historic railroad celebrates 150 years on the New York Stock Exchange.

The Union Pacific or UP joined the NYSE on 15 September 1870, a press release indicates. However, Stockrow estimates Union Pacific’s revenue growth fell by 24.16% in the quarter ending on 30 June 2020.

Meanwhile, I estimate the Union Pacific (UNP) eliminated 11,711 jobs in the past two years. To explain, The Omaha World-Herald estimates the UP’s workforce shrank from 44,531 employees in September 2018 to 32,820 in July 2020.

Rail Traffic Collapses

The Union Pacific is cutting employees because its shipping volume fell by 20% between 2nd Quarter 2019 and 2020, CEO Lance Fritz admits. Moreover, US rail traffic fell by 14.9% or 156,797 carloads between August 2019 and August 2020, the America Association of Railroads (AAR) estimates.

The number of coal shipments railroads moved fell by 25.8%; or 85,216 carloads, between August 2019 and August 2020, the AAR estimates. In addition, sand and gravel shipments fell by 24,961 carloads or 25%. Plus, petroleum products shipments by rail fell by 14.3%; or 7,128 carloads, in the same period.

Additionally, rail traffic growth was too low to cover losses elsewhere. For instance, the AAR estimates the number of rail grain shipments grew by 5.6% or 4,683 carloads. Additionally, rail shipments of farm products grew by 168 carloads or 5%.

The Union Pacific Shrinks

Thus, the Union Pacific(NYSE: UNP) has a shrinking business. However, Mr. Market cannot see that shrinkage.

In 2020, Union Pacific’s stock price rose from $182.27 on 2 January 2020 to $197.32 on 22 September. Incredibly, Union Pacific’s shares hit a high of $202.37 on 15 September 2020 to celebrate the stock’s 150th anniversary.

In contrast, the Union Pacific’s quarterly revenues fell from $5.212 billion on 31 December 2019 to $4.244 billion on 30 June 2020. Comparatively, the Union Pacific reported quarterly revenues of $5.596 billion on 30 June 2019.

Is the Union Pacific Making Less money?

Plus the Union Pacific’s quarterly operating income fell from $3.12 billion on 12 December 2020 to $2.651 billion on 30 June 2020.

However, the Union Pacific’s quarterly gross profit fell from $3.12 billion on 31 December 2019 to $2.651 billion on 30 June 2020. The UP’s quarterly common net income fell from $1.403 billion to $1.132 billion in the same period.

The Union Pacific’s quarterly operating cash flow fell from $2.345 billion on 31 December 2019 to $2.37 billion on 30 June 2020. Yet the Union Pacific’s quarterly operating cash flow was $1.941 billion on 30 June 2019.

Is the Union Pacific Generating Less Cash?

Oddly, the Union Pacific’s quarterly ending cash flow rose from -$447 million on 31 December 2019 to $1.517 billion on 30 June 2020. Thus, the Union Pacific makes less money but generates more cash.

Importantly, I do not think the Union Pacific has borrowed money in recent months because it reports a negative financing cash flow. The financing can show how much debt a company has paid.

Notably, the Union Pacific’s quarterly negative financing cash flow fell from -$1.864 billion on 31 December 2019 to -$110 million on 30 June 2020. Thus, the Union Pacific is paying less debt.

I think the Union Pacific could soon report a positive financing cash flow if present trends continue. To explain, a positive financing cash flow shows a company is borrowing money to pay for operations.

The Union Pacific is no longer a Value Investment

On the other hand, the Union Pacific (NYSE: UNP) had $2.766 billion in cash and short-term investments on 30 June 2020. That number grew from $891 million on 31 December 2019 and $1.109 billion on 30 June 2019.

Additionally, the Union Pacific’s total assets grew from $61.673 billion on 31 December 2019 to $63.555 billion on 30 June 2020. Hence, the Union Pacific has more value, but I do not consider the Union Pacific a value investment.

I think the Union Pacific (UNP) is not a value investment because Mr. Market overprices its stock and the railroad has no revenue growth. In fact, I do not even consider the Union Pacific a value trap. To explain, a value trap has some positive value characteristics such as enormous amounts of cash. Additionally, a classic value trap has a cheap price.

However, the Union Pacific (NYSE: UNP) offers a good dividend at present. The UNP will pay a 97₵ quarterly dividend on 30 September 2020. The Union Pacific offered an annualized dividend of $3.88 and a 1.94% dividend yield on 22 September 2020.

Yet I think the Union Pacific dividend could end or small because of the falling revenue.

Why the Union Pacific’s stock price scares me

The Union Pacific’s stock price scares me because it is far too high. I think Mr. Market could buy this stock only because of its grand name and rich history.

It appears many people are buying stocks without examining the financial numbers. Thus, the Union Pacific shows how America’s modern stock bubble works. Mr. Market pays prices for stocks because they have an excellent reputation and little else. That frightens me because I think it appears to be a pre-crash bubble.

Union Pacific’s present state also shows what is wrong with America’s economy. The company is doing less business, making less money, and killing jobs, yet its stock price is soaring.

Another problem is that the Union Pacific is jobs. Over the past two years, the Union Pacific has eliminated 11,711 high-paying union jobs with wonderful benefits. Thus, America’s new economy kills good jobs and offers no replacements for them. That makes an excellent case for Andrew Yang’s arguments.

Is a Stock Market Crash Imminent?

Union Pacific (UNP) shows why investors need to fear America’s post-COVID-19 economy.

I think America’s underlying economy cannot support the soaring stock market. If there are more stocks with Union Pacific’s characteristics out there, I think a market crash could be imminent.

I think all it will take for the present-stock market to crash is for one big blue-chip company such as Union Pacific (UNP) or Netflix (NASDAQ: NFLX) to declare bankruptcy or collapse. Such a collapse will panic investors and spark the crash.

However, I do not think investors need to leave the markets. Instead, investors need to read the financial reports and watch for shaky-looking companies such as Union Pacific (NYSE: UNP). I think the stock market will survive and many investors will prosper, but many weaker companies, including Union Pacific, could be far closer to collapse than most people realize.