Is UNP a good candidate.

Hi all, I am new to this board but I went over the 28 page (post 9939) and read and I think I understand it.
You must agree that UNP is a great company with a huge moat.
I went over the earnings for the last 2.5 years this is what I have (with adjusting to the stock split that happened 2Q 2014):
1Q 2013 1.015
2Q 2013 1.175
3Q 2013 1.24
4Q 2013 1.275
1Q 2014 1.19
2Q 2014 1.43
3Q 2014 1.53
4Q 2014 1.61
1Q 2015 1.30
2Q 2015 1.38

TTM
4Q 2013 4.705
1Q 2014 4.88
2Q 2014 5.13
3Q 2014 5.42
4Q 2014 5.76
1Q 2015 5.87
2Q 2015 5.82

2Q 2015/ 2Q 2014 = 1.13 13% growth
1Q 2015 /1Q 2013 = 1.20 20% growth
4Q 2014 /4Q 2013 = 1.22 22% growth

As you can see the growth in EPS is declining. This is due the death of coal and slowdown in oil transports and agricultures.
Coal is probably not coming back but oil and agricultures sure!
The last read on EPS growth is 13%.
UNP yields 2.45% if you add this to the EPS growth one gets:
13+2.45 = 15.45%
The PE of UNP is 15…
I have no doubt that UNP is one of the best companies out there.
It has a huge moat and great management and also a great long term prospects.
The question is it a buy now according to Saul method?
Should I wait for the EPS growth rate to stabilize and grow again?
Thanks for your response.
Shuki

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Hey, shukisasson, welcome to the board!

Neil

Hi Shuki, welcome to the board. Let me play devil’s advocate so you can defend you position :wink:

As you can see the growth in EPS is declining. This is due the death of coal and slowdown in oil transports and agricultures.
Coal is probably not coming back but oil and agricultures sure!

Ok, so maybe 1/3 of their business is dying the the rest might not be? Not a strong selling point. If the XL pipeline opens, will they lose any business? (I don’t know if that is their territory).

The EPS “growth” is not declining, the EPS is declining.

Yield is generally uninteresting, we want growth stocks to grow!

EPS growth of 13% is pretty low, I like growth stocks to have at least 25% growth.

It has a huge moat and great management and also a great long term prospects.

It is hard to start a new rail company, but there is lots of competition, not sure how that creates a huge moat.
The great long term prospects seem to be a belief without supporting data.

Did you calculate the 1PEG, that is a critical data point for this board.

Ask yourself why you chose UNP to analyze. Do you already own? Are you in love with the stock? Does the (ugly) chart make you feel like there is lots of upside? If it was growing fast, don’t you think chart might be going in the other direction? Look at some Saul stock charts…
http://stockcharts.com/freecharts/candleglance.html?SWKS,BOF…
His big three are the first three and their charts tell a different story.

OK, that said, I am not trying to be hard on you. That was a great start to researching stocks for this board and you may be right. But to be right, calculate the 1YPEG and show me wrong my concerns are!

PS, that is more data research than I have contributed to this board, so keep it up! Thanks

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1YPEG is computed as follows:
See my previous post for the TTM calculations.
2Q 2015/ 2Q 2014 = 1.13 13% growth
1Q 2015 /1Q 2013 = 1.20 20% growth
4Q 2014 /4Q 2013 = 1.22 22% growth

Currently we have 13% TTM EPS growth Year over Year as Saul showed in his latest 9939 post.
PE =15 so 15/13 is the PEG which is a little bit greater than 1…
However if PE drops below 13 than we have a PEG<1.

UPS exposure to coal is much less than 1/3 of the business. EPS is indeed declining but so is the stock price.
If you look at the history of this company you will see that the historic EPS growth for the company is 20%. That is awesome!
About the moat, it takes only 1 Gallon of diesel to move 1 Ton of freight on the rails for 550 miles!
Trucks don’t come even close… So trains is the cheapest way to move freight on land.
There are only 4 major railways in US two on the east CSX and NSC and two on the west UNP and BNSF. Buffett (I am sure you know him) bought BNSF back in 2010 citing “It’s an investment for the next 150 years”.
The reason rails are basically monopoly!

See:
http://www.investopedia.com/articles/stocks/11/primer-on-rai…

"
The Bottom Line
No widget, computer, grain for food or automobile is worth a thing if it cannot move from the factory floor to the customer’s hand. As the preeminent provider of freight transport in North America, railroads are an essential part of the economic infrastructure, and very much an investable industry. Though there are quirks and drawbacks to these companies and stocks, well-timed purchases can be very worthwhile investments.

Read more: A Primer On The Railroad Sector http://www.investopedia.com/articles/stocks/11/primer-on-rai…

I don’t know if I am right or wrong for the short term. For the long term this is a winner.
I guess I am waiting for the right technical signals to buy.
I hope this at least responds to all your concerns.
Thanks,
Shuki

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Nice job. As you said 1YPEG was > 1 and the most likely way to get it lower is to watch the price continue to decline. With the decline in coal, all railroads have excess capacity and that usualy casuses a drop in rates and subsequent earnings.

I feel the prospects for fast growth are fairly low and there are lots of better places for your money. What would it take to get a 1YPEG of 0.5? Miracle earnings or a much worse price. You don’t want to get to a good PEG becuase the price keeps dropping.

If you look at the history of this company you will see that the historic EPS growth for the company is 20%

The past is the past.

So, I guess this is the biggest question: what is the catalyst that will boost growth back to 20%? (and why not wait for it instead of buying now and hoping for it.)

Good work, keep it up.

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