Will Union Pacific Stock Recover To Its Pre-Inflation Shock Level?

Union Pacific stock (NYSE: UNP) currently trades at $192 per share, around 30% below its level of $277 on March 30, 2022 (pre-inflation shock high), and seems like a good investment opportunity. Union Pacific
UNP
saw its stock trading at around $213 at the end of June 2022, just before the Fed started increasing rates, and is still 10% below that level. In comparison, the S&P 500 gained about 10% during this period. The stock price has suffered over recent months due to a decline in the volume of carloads, and with economic growth deteriorating, volumes may remain tepid in the near term. Furthermore, the company’s operating ratio of 62.1% in Q1 2023 reflected a 270 bps rise from the prior-year quarter due to higher costs and inflation.

Returning to the pre-inflation shock level means that Union Pacific stock will have to gain more than 40% from here. However, we do not believe that will materialize any time soon, and we estimate Union Pacific’s valuation to be around $216 per share, about 13% above the market price. This is because the recent uncertainty in the financial sector has made investors concerned about a potential recession. Union Pacific’s business will see an adverse impact on its volume if the U.S. economy were to go into recession.