Union Pacific CorporationUNPNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $358.92 per share(market-calibrated)

+35.0%

Upside to Fair Value

Current

$265.84

Pure Model

$367.91

Fair Value

$358.92

Bull Case

$482.94

Bear Case

$273.67

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

0.55%

Calibrated Growth

1.82%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $367.91.

What's Driving This Ratingfor UNP

↓

CapEx normalizing toward maintenance

Historical CapEx is 14.20% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$4.9B in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 41.94% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 3.36% revenue growth, fading to 2.25% by Year 10. Revenue reaches $45.6B (vs $24.5B today).

🎯

Market pricing in lower growth than model

The market implies only 0.55% perpetual growth — 170bps below the model's 2.25%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 74.73% indicates efficient cash generation. FCF reaches $17.5B by Year 10 (38.43% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.99

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.94%

Cost of Debt

Pre-tax Cost of Debt3.99%

Tax Rate22.13%

After-tax Cost of Debt3.11%

Equity Weight (E/V)83.20%

Debt Weight (D/V)16.80%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (83.20% × 8.94%) + (16.80% × 3.11%)

= 7.96%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$25.3B	$30.0B	$37.5B	$41.6B	$45.6B
EBIT	$10.6B	$12.6B	$15.7B	$17.4B	$19.1B
Tax	$2.4B	$2.8B	$3.5B	$3.9B	$4.2B
NOPAT	$8.3B	$9.8B	$12.3B	$13.6B	$14.9B
+ Depreciation	$2.4B	$2.8B	$3.6B	$3.9B	$4.3B
- Capex	$3.6B	$3.5B	$3.5B	$2.9B	$1.6B
- Δ NWC	$82M	$341M	$229M	$191M	$100M
Free Cash Flow	$7.0B	$8.8B	$12.1B	$14.4B	$17.5B
Discount Factor	0.926	0.795	0.682	0.585	0.465
Present Value	$6.5B	$7.0B	$8.2B	$8.4B	$8.1B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$17.5B

Terminal Growth Rate2.25%

WACC7.96%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$313.5B

PV of Terminal Value$145.7B

Exit Multiple Method

Year 10 EBITDA$23.4B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$421.8B

PV of Terminal Value$196.1B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$77.6B

PV of Terminal Value$145.7B

Enterprise Value$223.4B

(-) Net Debt$30.5B

Equity Value$192.8B

Shares Outstanding593M

Price per Share$325.44

Exit Multiple Method

PV of Projected FCFs$77.6B

PV of Terminal Value$196.1B

Enterprise Value$273.7B

(-) Net Debt$30.5B

Equity Value$243.2B

Shares Outstanding593M

Price per Share$410.39

Pure Model Fair Value

$367.91

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
5.96%	$471.97	$494.08	$522.16	$558.98	$609.38
6.96%	$401.95	$415.50	$431.92	$452.25	$478.05
7.96%	$348.56	$357.46	$367.91	$380.37	$395.48
8.96%	$305.90	$312.04	$319.09	$327.28	$336.90
9.96%	$270.70	$275.10	$280.06	$285.71	$292.21

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$273.67

2.9% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.23

Base Case

$367.91

38.4% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 0.99

Bull Case

$482.94

81.7% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.84

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth3.36%

Year 3 Revenue Growth12.83%

Year 5 Revenue Growth6.51%

Year 7 Revenue Growth4.80%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin41.94%

Tax Rate22.13%

Historical Capex / Rev14.20%

Terminal Capex / Rev3.50%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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