Union Pacific Corporation

We view Union Pacific’s moat as primarily efficient scale and cost advantage on long‑haul bulk and intermodal corridors across 23 western states. Reproducing rights‑of‑way and terminals is impractical, and network density lowers per‑unit costs versus trucking for heavy freight.

Component scores (weights in parentheses): Efficient scale 95 (35%), Cost advantage 85 (25%), Switching costs 85 (20%), Intangibles/rights‑of‑way and franchise 70 (10%), Network effects 60 (10%). Weighted average ~85. Durability is high due to physical network and regulatory barriers.

Risks to moat erosion include sustained trucking cost deflation from autonomous/EV trucks, stricter open‑access rules, or mandated reciprocal switching, though the STB’s 2024 switching rule was vacated by the Seventh Circuit in July 2025. The pending NSC merger could strengthen network reach but may be conditioned by regulators (potentially limiting pricing or requiring access concessions).

Core pricing trends remain positive, with management highlighting pricing dollars accretive to the operating ratio and freight revenue excluding fuel surcharge up mid‑single digits. Rails traditionally pass through inflation and maintain real price increases in favorable lanes.

That said, exposure to commodity cycles and competitive truckload pressures cap absolute pricing power, and regulatory scrutiny can constrain rate actions. We see latent pricing opportunity from service improvements and network reliability, but we temper the score given potential STB conditions tied to the NSC deal.

Revenue is diversified across bulk, industrial and premium (intermodal/auto), producing resilient cash flow but with sensitivity to industrial production, energy, and import flows. Recent metrics show improved network fluidity and consistent quarterly execution.

Still, the business is not as predictable as payment networks or software due to carload cyclicality and macro exposure. International intermodal comparisons and coal swings can add variance. Overall, we expect steady mid‑single‑digit revenue growth over a cycle with modest operating leverage.

At September 30, 2025 UNP reported cash of ~0.8 billion dollars, total debt of ~31.8 billion dollars (current and long‑term), and adjusted debt/adjusted EBITDA of ~2.6x.

Year‑to‑date operating cash flow was 7.1 billion dollars; capital investments were 2.8 billion dollars; dividends paid 2.4 billion dollars; repurchases 2.7 billion dollars (repurchases subsequently paused for the NSC merger). The balance sheet is typical for a Class I railroad: leverage is manageable, maturities staggered, and cash conversion high.

We view liquidity as adequate under a recession scenario given capex flexibility and pricing levers, though merger‑related constraints and a potential 2.5 billion dollars termination fee are watch‑items.

Capital priority has been safety and reliability capex (~3.4 billion dollars program), competitive dividend, and opportunistic buybacks. Execution improved under CEO Jim Vena with OR improvement and service gains; however, historical buybacks sometimes leaned aggressive versus cycle‑average intrinsic value.

The NSC transaction pauses repurchases and may require incremental debt issuance; we expect disciplined funding given leverage targets and potential STB conditions. M&A track record in Class I rail is mixed across the industry; we assume limited synergies near term and value the core franchise on a stand‑alone basis pending STB outcome.

CEO Jim Vena is an operator with deep PSR experience and a focus on safety, service, and operational excellence; 2024 and 2025 results show progress in velocity, dwell, and workforce productivity. CFO Jennifer Hamann has maintained balance‑sheet discipline. Governance appears standard for a U.S. large‑cap industrial.

Key execution risks are labor relations during change, integration complexity if NSC closes, and staying ahead of service expectations to avoid regulatory pushback.