UNP - Union Pacific: Investing In The Dip Doesn't Seem Worth It

2024-07-04 09:50:22 ET

Summary

• Union Pacific Corporation's stock has shed about 8% of its value in the past year, naturally raising the possibility that it might be a "buy the dip" opportunity.
• On a positive note, I observed that Union Pacific has a large market share, pricing power, and margin expansion possibilities.
• However, Union Pacific might succumb to lower volumes as macro variables add challenges for industrial goods. Moreover, the northern summer might influence the demand for coal transport demand.
• My Dividend Discount Model and relative valuation analysis deem the stock overvalued.
• Although Union Pacific's dividend metrics are commendable, the stock's VaR shows that the asset's tail risk can deter such benefits.

Union Pacific Corporation ( UNP ) is a household name that rarely needs an introduction. Although the company has a rich history, its stock has often illustrated abrupt swings, likely due to its cyclical nature.

The company's stock has shed approximately 8% of its market value since the turn of the year. This caught our attention because it raises the possibility of a "buy the dip opportunity." However, the opposite could be true, whereby Union Pacific's latest drawdown is the inception of a broader downturn....

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