Beta is a measure of a stock's volatility, compared to the market as a whole. In this calculation we've used 8.5%, which is based on a levered beta of 1.082. Given that we are looking at Union Pacific as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars: We do this to reflect that growth tends to slow more in the early years than it does in later years. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. In the first stage we need to estimate the cash flows to the business over the next ten years. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. See our latest analysis for Union Pacific The Model If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.Ĭompanies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. We will use the Discounted Cash Flow (DCF) model on this occasion. With US$186 share price, Union Pacific appears to be trading close to its estimated fair valueĪnalyst price target for UNP is US$221, which is 39% above our fair value estimateĭoes the March share price for Union Pacific Corporation ( NYSE:UNP) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to their present value. cash used in financing activities decreased from 2020 to 2021 but then increased from 2021 to 2022 not reaching 2020 level.Union Pacific's estimated fair value is US$159 based on 2 Stage Free Cash Flow to Equity Financing activity cash flows include obtaining resources from owners and providing them with a return on, and a return of, their investment borrowing money and repaying amounts borrowed, or settling the obligation and obtaining and paying for other resources obtained from creditors on long-term credit. cash used in investing activities decreased from 2020 to 2021 and from 2021 to 2022.Īmount of cash inflow (outflow) of financing activities, excluding discontinued operations. Investing activity cash flows include making and collecting loans and acquiring and disposing of debt or equity instruments and property, plant, and equipment and other productive assets. cash provided by operating activities increased from 2020 to 2021 and from 2021 to 2022.Īmount of cash inflow (outflow) of investing activities, excluding discontinued operations. Operating activity cash flows include transactions, adjustments, and changes in value not defined as investing or financing activities. Net change in cash, cash equivalents, and restricted cashĬash, cash equivalents, and restricted cash at beginning of yearĬash, cash equivalents, and restricted cash at end of yearĪmount of cash inflow (outflow) from operating activities, excluding discontinued operations. Accounts payable and other current liabilitiesĬhanges in current assets and liabilitiesĪdjustments to reconcile net income to cash provided by operating activities
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