Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is Union Pacific (UNP) making money and will Buffett buy it?

As a railroad and Berkshire Hathaway (NYSE: BRK.B) watcher I must ask is Union Pacific (UNP) making money? Moreover, I ask will Warren Buffett buy America’s oldest transcontinental railroad.

Buffett could buy the Union Pacific; or UP, because he loves railroads. In fact, Berkshire Hathway (NYSE: BRK.A) owns America’s largest railway the Burlington Northern Santa Fe, or BNSF.

In addition, the Union Pacific’s headquarters is in Buffett’s hometown of Omaha. Historically, Buffett likes Omaha based companies. Significantly, Berkshire Hathaway owns his hometown newspaper, The Omaha-World Herald through Berkshire Hathaway Media.

Could Warren Buffett buy the Union Pacific (UNP)?

Buffett could buy the Union Pacific Corp (NYSE: UNP) with Berkshire Hathaway’s $112 billion pile of cash.

Moreover, Uncle Warren writes “We continue, nevertheless, to hope for an elephant-sized acquisition, in his annual letter investors. However, Buffett also laments “sky-high stock prices” in the same letter, Bloomberg reports.

Notably, the Union Pacific had a market capitalization of $122.93 billion on 22 February 2019. Thus, Buffett could easily buy the UP if he wants.

Why Buffett will not Buy the Union Pacific

I think Buffett will not buy the UP right now because it is one of the “sky-high stocks.” In fact, UNP shares were trading at $167.98 on February 28, 2019.

For instance, the CSX Corp (NASDAQ: CSX) shares were trading at $72.67 on the same day. Meanwhile, the Norfolk Southern Corp (NYSE: NSC) shares traded at $179.30 and the Kansas City Southern (NYSE: KSU) shares at $108.64.

Therefore, Buffett is far more likely to buy CSX Corp than the UP, the Kansas City Southern, or the Norfolk Southern. However, the Kansas City Southern’s market cap is so low, it might attract Uncle Warren’s interest.

Is Union Pacific Making Money?

Even if Warren Buffett does not want it, value investors should investigate the Union Pacific.

In fact, the Union Pacific is making money. For instance, the UP reports a gross profit of $4.266 billion, an operating income of $2.21 billion and a net income of $1.554 billion for 4th Quarter 2018.

Moreover, the Union Pacific reports revenues of $5.757 billion for 4th Quarter 2018. Importantly, those revenues grew at a rate of 5.63%.

Additionally, the Union Pacific records an operating cash flow of $2.312 billion and a free cash flow of $1.303 billion for 4th Quarter 2018. Thus the Union Pacific is generating a lot of cash.

Finally, the Union Pacific (UNP) had $1.273 billion in cash and equivalents and short-term investments of $60 million on December 31, 2018. Hence, the Union Pacific had $1.333 billion in cash available at the end of 2018.

Is the Union Pacific a Good Dividend Stock?

I think the Union Pacific (NYSE: UNP) is a good dividend stock because it pays a large dividend for its price.

In fact, Union Pacific is scheduling an 88¢ dividend for March 29, 2019. Moreover, that dividend is up 8¢ from the 80¢ paid on 28 December 2018.

Plus, Union Pacific shareholders enjoyed a dividend yield of 2.10%, an annualized payout of $3.52, and a payout ratio of 45.3% on 28 February 2019. To add icing to the cake, reports Union Pacific’s dividend has been growing for nine years.

I think the Union Pacific is a good dividend and income stock under these circumstances. It is overpriced, however I think you will not lose money on Union Pacific Stock? Hence, I think Union Pacific (UNP) could be a good addition to a long-term growth portfolio.

You should investigate railway stocks because of Hyperloop

Railway stocks like the Union Pacific (UNP) have long-term growth potential because of the Hyperloop.

To explain the Hyperloop is a next generation transportation system that combines the attributes of jet airliners and rail. In detail, Hyperloop could run on scheduled routes over the ground like a train.

However, Hyperloop pods will travel through a tube from they remove most of the air. Removing the air reduces resistance which allows vehicles called pod to move along the ground at high speeds.

Theoretically Hyperloop pods could move at speeds of 600 miles per hour (MPH) to 1,000 MPH. However, they not tested a Hyperloop vehicle at speeds of over 400 MPH.

On the other hand, Hyperloop Transportation Technologies; or HyperloopTT, is building the first full-sized Hyperloop Pod. In addition, both HyperloopTT and Virgin Hyperloop One have built full-scale Hyperloop test tracks.

Why Hyperloop could increase Union Pacific’s value

Railroads like Union Pacific could profit from Hyperloop because Hyperloop companies will need routes to operate on.

Existing railroad right of ways could make ideal routes for Hyperloops. Notably, the Union Pacific’s lines already contain part of the infrastructure Hyperloop will need. For example, tunnels, bridges, and rail yards.

In fact, Union Pacific lines run right into the heart of many cities including Denver, Las Vegas, Salt Lake City, El Paso, San Antonio, Dallas, Portland, Chicago, and Los Angeles. Plus UP lines run straight to major ports in Los Angeles, Oakland, Seattle, Houston, and San Pedro. In addition, the Union Pacific operates through long tunnels like Colorado’s Moffatt tunnel.

How the Union Pacific could profit from the Hyperloop

Moreover, the Union Pacific’s existing right of way will be perfect for Hyperloop. For example, the UP line connecting Los Angeles and Salt Lake City. In fact, that line passes right through one of America’s top tourist destinations: Las Vegas.

In addition, the Union Pacific operates two transcontinental lines. These include the original transcontinental railroad between Oakland and Omaha, and the old Southern Pacific Line between Barstow, California, and Houston, Texas. Plus, the UP operates lines to Portland, Oregon, and Seattle.

Hence, the Union Pacific owns the infrastructure and routes Hyperloop operators will need. Thus the UP could have value as an acquisition target for Hyperloop developers or a Hyperloop operator.

Theoretically, the Hyperloop’s speed could allow the UP to compete with airlines for freight and passenger traffic. In fact, airlines could be incapable of competing with Hyperloop because Hyperloop will operate on cheaper electricity. Meanwhile airliners burn jet fuel.

In addition, Hyperloop can offer more frequent service and operate in congested cities. In contrast, planes have to land at airports far out of town.

Thus, Hyperloop could increase the value of railroad stocks. Therefore, the Union Pacific could be a far better-growth stock than many people realize.