Source from Seeking Alpha: In my opinion, Union Pacific Corporation (NYSE:UNP) offers a complicated investment outlook, riddled with both financial and operational hurdles. The company's EPS growth, while seemingly impressive, is largely fueled by share buybacks funded through debt, a strategy that has been recently halted. This approach not only artificially boosts EPS but also heightens the company's financial vulnerabilities, particularly in light of its substantial debt and interest obligations. Complicating matters further are looming inflationary pressures and expected increases in labor costs for the latter half of 2023, which UNP may only be able to partially mitigate through pricing strategies. Additionally, the company is facing a softening demand environment across various sectors, exacerbated by a bleak industrial growth outlook for 2023. If one were to invest in UNP at its current share price of $221.03, we project a 5-year CAGR is a mere 1%, based on our price target of $224.22.
Given these factors, we rate Union Pacific Corporation stock a Sell.
In my opinion, Union Pacific Corporation's balance sheet raises some concerns, particularly when it comes to its debt load. As of the most recent quarter, the company reported cash and cash equivalents of $830 million, while its total debt stands at a staggering $31.378 billion. This debt load is approximately 6x the company's current earnings, which is a high level of leverage that could pose risks, especially in a rising interest rate environment. Furthermore, the interest expense over the last twelve months was $1.323 billion, which is about 20% of the company's current earnings.