We've opened this thread to field questions about our bearish position in Union Pacific, opened in February 2017 and still ongoing as of November 2017. You can find more information about the company and our position through the following links:
Stock looks fairly valued given improved pricing this year. I am assuming 5% sales growth for the next few years and op margins moving up to 40% over time. I don’t see UNP selling off in the near future especially if the economy holds up next year.
I just published a new valuation and posted a model for UNP. Take a look at that and tell me which inputs you disagree with. If you redo the model, you can get a month's worth of Framework subscription free too! Here's the link to the Valuation Waterfall and model.
I'm not as negative on the stock. My fair value estimate is about $125 a share. I have revenues growing 5% for the next years and ~3% thereafter. Operating margins should improve slightly to 40%. Its cost of capital jumped to 8.5% recently offsetting some of the benefit from the lower tax rate. (I noticed you didn't mention the provision allowing companies to expense capital expenditures in your tax note. That might have a significant impact on their bottom line.)
Take a look at the model and let me know what you would change… I suspect that my best-case scenario is much more bullish than yours and that the only difference is the cost of capital.
As for the rule for expensing capital spending, this has been in place for railroads for some time. I wrote about it in the first series of reports I wrote. Also, after UNP refreshed its locos and spent a lot of money on PTC, they are pulling back on capex for awhile. I have that normalizing over the next few years, but this year should be another low capex year.