Last update on 2024-06-05

Union Pacific (UNP) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Detailed 2023 Piotroski F-Score analysis for Union Pacific (UNP), achieving a score of 6/9. Evaluates profitability, liquidity, and operational efficiency.

Short Analysis - Piotroski Score: 6

We're running Union Pacific (UNP) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Union Pacific (UNP) scored 6 out of 9 on the Piotroski F-Score, indicating a relatively strong financial position. Key highlights include a consistent positive net income and cash flow from operations, a decreasing leverage ratio, and share buybacks reducing the number of outstanding shares. However, the company saw declines in its Return on Assets (ROA), gross margin, and asset turnover, which suggests some challenges in operational efficiency and profitability. Overall, Union Pacific has a solid foundation but faces some areas for improvement.

Insights for Value Investors Seeking Stable Income

Given its positive financial health indicators such as stable profitability and cash flow, along with strategic efforts like share buybacks and debt reduction, Union Pacific (UNP) represents a potentially good investment opportunity. However, be cautious about the declines in ROA, gross margin, and asset turnover. It's advisable to further investigate these areas to understand the underlying reasons before making an investment decision.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Union Pacific (UNP)

Company has a positive net income?

Net income examines a company's profitability, showing the residual earnings after all expenses are deducted from revenues. It is a critical indicator of a company's financial health.

From the 2023 data, it is evident that Union Pacific (UNP) achieved a positive net income of $6,379,000,000. This reflects a slight decrease from the prior year when the net income was $6,998,000,000. Remarkably, UNP has maintained positive net income figures for the last 20 years. Setting aside 2016, which saw a temporary spike due to unique factors, the trend demonstrates consistent profitability, emphasizing robust financial stability. Consequently, Union Pacific earns 1 point in this criterion.

Company has a positive cash flow?

Cash Flow from Operations (CFO) represents the cash generated from the company's core business operations. It is critical for evaluating a company’s ability to generate sufficient cash to maintain and grow operations without relying on external funding.

Union Pacific (UNP) has recorded a positive CFO of $8,379,000,000 in 2023, earning it 1 point for this criterion. This metric is crucial as it indicates that the company is generating sufficient cash from its ongoing business activities. Over the last 20 years, Union Pacific has consistently maintained positive operating cash flow, with a noticeable upward trajectory from $2.4 billion in 2003 to a peak of $9.36 billion in 2022. Though there is a slight decline from the previous year, the figure remains robust, reflecting the company's strong operational efficiency and financial health.

Return on Assets (ROA) are growing?

Change in ROA measures how efficiently a company is using its assets to generate profits over time. An increase indicates improved operational efficiency.

Union Pacific's ROA declined from 0.1085 in 2022 to 0.0962 in 2023, reflecting a decrease in asset profitability. Historical data show fluctuations, affirming volatility. The decrease indicates reduced operational efficiency. The industry's median ROA over the years shows higher volatility, suggesting the decline for UNP might be sector-wide.

Operating Cashflow are higher than Netincome?

This criterion evaluates whether a company's operating cash flow (OCF) is higher than its net income. It is crucial because OCF provides a clearer picture of a company's financial health. While net income is susceptible to various non-cash items and accounting policies, OCF represents the cash generated from core business operations.

In 2023, Union Pacific (UNP) reported an operating cash flow of $8,379 million and a net income of $6,379 million. Since the operating cash flow exceeds the net income, this can be interpreted as a positive indicator of financial health. A higher OCF compared to net income suggests quality earnings and efficient cash generation from core operations. This trend is generally positive as it indicates that Union Pacific's reported profits are supported by actual cash inflows. Considering the historical data, where operating cash flows have generally been on an upward trend and often exceeded net income, this positive indicator gains additional significance. Therefore, for the Piotroski criterion, this merits adding 1 point.

Liquidity of Union Pacific (UNP)

Leverage is declining?

Change in Leverage refers to the variation in debt levels on a company's balance sheet over time. It is crucial for assessing financial risk and stability.

When analyzing Union Pacific's (UNP) leverage ratios from 2022 to 2023, it becomes apparent that leverage decreased from 0.5034 to 0.4826. This indicates that the company has reduced its reliance on debt financing. The 2023 ratio of 0.4826 reflects lower financial risk and improved financial stability, a positive sign for investors and stakeholders. Analyzing the last 20 years of leverage data reveals trends and nuances; for instance, the leverage was the lowest in 2006 at 0.1643 and gradually increased to 0.5034 in 2022. The slight decrease in leverage in 2023 bucks this general uptrend, signaling potential shifts in financial strategy toward more conservative debt usage.

Current Ratio is growing?

Change in Current Ratio is the measure of liquidity comparing a company's current assets to its current liabilities. An increase suggests improving liquidity.

For Union Pacific (UNP), the Current Ratio has risen from 0.7159 in 2022 to 0.8124 in 2023, resulting in a point being added (1 point). This is an encouraging sign for the company's liquidity, demonstrating a positive shift in its capability to cover short-term liabilities with short-term assets. Analyzing the broader trend over the last 20 years, UNP's Current Ratio has commonly fluctuated but has mostly stayed below the industry median. Specifically, 2023's Current Ratio of 0.8124 is still lower than the 1.197 industry median for the same year, indicating room for improvement compared to peers.

Number of shares not diluted?

The criterion examines whether the number of outstanding shares has decreased from one year to the next, indicating share buybacks, which can be seen as a positive signal for investors due to potential value concentration.

In 2023, Union Pacific (UNP) reported 609.2 million outstanding shares, down from 622.7 million in 2022. This decline adds 1 point to the Piotroski score. The 20-year trend also shows a significant reduction in outstanding shares, from 1,072 million in 2003 to 609.2 million in 2023. The consistent share buybacks suggest that the company has been systematically repurchasing shares, likely to enhance shareholder value through increased EPS and potential price appreciation. This trend can be seen as a favorable factor for investors.

Operating of Union Pacific (UNP)

Cross Margin is growing?

Gross Margin indicates the percentage of revenue that exceeds the cost of goods sold, showing the efficiency of production processes and pricing strategy.

Union Pacific's Gross Margin for 2023 is 0.4365 compared to 0.4505 in 2022. This indicates a decrease in gross margin by 0.014, which is a negative trend for the company since it suggests reduced efficiency in cost management. Historically, Union Pacific had a gross margin as high as 0.6779 back in 2010. Compared to the industry median, Union Pacific's gross margin is still significantly higher (0.4365 vs 0.3176 in 2023), suggesting it performs more efficiently than its peers despite the decline.

Asset Turnover Ratio is growing?

Change in Asset Turnover refers to the efficiency of a company in using its assets to generate sales. Measuring this change is important as it provides insights into the company's operational efficiency.

The Asset Turnover for Union Pacific has decreased from 0.3857 in 2022 to 0.3638 in 2023, resulting in a score of 0 on this criterion. Over the past 20 years, Union Pacific's Asset Turnover has shown variability, peaking at 0.4683 in 2014 and reaching a low of 0.3149 in 2020. The recent decline suggests a downturn in operational efficiency, possibly due to various market or operational challenges that need to be addressed.