Excerpt today from A Wall Street Analyst today
Compensation and benefits expense was $1.0 billion, down 18% Y/Y. At 34% of total operating costs, compensation and benefits was Union Pacific's largest expense item. The company has been reducing headcountto combat the decline in its top line:
Starting with compensation and benefits expense, this category decreased 18% to $1 billion driven by a 17% workforce reduction or about 7100 FTEs versus 2018.
Our productivity initiatives, coupled with lower volumes resulted in a 20% decrease in our train and engine workforce, while management, engineering and mechanical workforces together decreased 16%.
More headcount reductions likely lie ahead. Of note is that fuel costs fell 20% and purchased services declined 9%. The fallout was that EBITDA of $2.7 billion fell 4% Y/Y, less than the decline in revenue. EBITDA margin has ticked up 300 basis points versus the year-earlier period. Can management continue to cut costs faster than declines in revenue? It appears Union Pacific may be trying to fight gravity.
The Stock Is Overvalued
Financial markets have melted up from tax cuts and easy money policies from the Federal Reserve. The rise in broader markets has inured to the benefit of UNP. The company has an enterprise value of $150 billion and trades at 13.9x run-rate EBITDA (nine months EBITDA annualized). In my opinion, the valuation is too robust for a company subjected to the vagaries of a global economy that has likely peaked.
UNP is up over 25% Y/Y, yet the stock remains overvalued. Sell UNP.