Union Pacific: Laying the Tracks for America's Industrial Renewal

Key Points

• The company's irreplaceable, wide-moat rail network provides a durable competitive advantage and a foundation for long-term stability and shareholder value.
• Through new industrial sites and logistics investments, the company is actively positioning itself to capture increased freight demand from the onshoring trend.
• A potential transcontinental merger could unlock significant new efficiencies and create a more competitive national, coast-to-coast freight service.

After decades of relying on global supply chains, a significant economic shift is underway. Businesses are increasingly focused on bringing manufacturing and industrial production back to North America, a trend commonly known as onshoring.

This strategic realignment requires a robust and reliable physical infrastructure to succeed.

As the steel arteries of the economy, railroads are fundamental to this industrial renewal, and few are as central to this transformation as Union Pacific Corporation NYSE: UNP.

Why UNP's Network Is a Fortress on Rails

In investing, a wide moat refers to a durable competitive advantage that is difficult for competitors to replicate or imitate. Union Pacific’s business is a textbook example of a wide moat organization. Its network, spanning nearly 32,000 miles of track and terminals, presents an almost insurmountable barrier to entry due to its sheer scale and cost.

This vast network is strategically positioned to serve the heart of the American economy. It operates across 23 states, connects every major port on the West and Gulf Coasts, and is the only railroad serving all six major U.S.-Mexico gateways. Its freight business is diversified across three core segments, each tied to economic health.

In the second quarter of 2025 alone, its Industrial segment generated $2.2 billion in revenue moving construction materials and chemicals, while the Bulk segment brought in $1.9 billion transporting the grain, coal, and fertilizer that feed and power the nation.

Union Pacific's dominant and diversified footprint makes it an indispensable partner for nearly every sector, ensuring that as the U.S. industrial base expands, its business grows alongside it.

How UNP Is Winning the Onshoring Game

Union Pacific is actively investing to capture the resulting freight demand. This proactive strategy is visible in its recent operational decisions and is already delivering measurable financial results.

The company is preparing for a new wave of industrial customers through its Focus Sites program, which develops large, shovel-ready industrial parks with direct rail access. This initiative makes it easier and faster for manufacturers to build new facilities tied into Union Pacific’s network.

This is complemented by investments in domestic logistics, like the new Kansas City intermodal terminal, designed to strengthen its ability to handle the rising volume of goods moving within North America.

Union Pacific's forward-looking strategy is delivering concrete results. In its second quarter 2025 earnings report, the company demonstrated both growth and efficiency:

• Operational Excellence: The company achieved an industry-leading adjusted operating ratio of 58.1%. This key metric of profitability shows elite cost control and operational discipline.
• Business Growth: Total revenue carloads, a direct measure of demand, increased by 4% year-over-year.
• Strong Earnings: Adjusted earnings per share (EPS) came in at $3.03, surpassing analyst expectations and highlighting the company’s earnings power.

From a valuation standpoint, Union Pacific trades at a price-to-earnings ratio (P/E) of around 19, which is reasonable for a market leader with its stability.

Analyst consensus reflects cautious optimism, with an average price target of $258, suggesting a potential upside of over 15% from current levels. This performance gives management the confidence to reward investors, evidenced by a 2.48% dividend yield and an 18-year streak of dividend increases.

A Game-Changing Merger & Transcontinental Catalyst

Perhaps the most significant forward-looking catalyst is Union Pacific's proposed merger with Norfolk Southern (NSC). This transformative, $85 billion transaction aims to create the first single-line transcontinental railroad in the United States.

For shippers, a seamless coast-to-coast network would eliminate the delays of interchange, the process of handing off railcars between railroads. This could create a more efficient and reliable service, making rail a stronger competitor to long-haul trucking.

The financial implications are substantial for investors. The company projects that the merger will unlock approximately $2.75 billion in annualized cost savings and new revenue, which would flow directly to the bottom line.

The deal, however, faces a rigorous review by the Surface Transportation Board (STB) under its stricter 2001 merger rules, which prioritize enhancing competition. The outcome of this review is the primary variable investors are monitoring.

A Core Holding for an Era of Industrial Renewal

Union Pacific presents a compelling investment case built on a dual foundation of stability and growth. Its wide-moat business provides a defensive base, while the powerful secular trend of onshoring offers a clear path for long-term expansion.

The company’s strong operational execution and disciplined financial management demonstrate that it capitalizes on this opportunity effectively. With the potential of a transformative merger on the horizon, Union Pacific is not just moving goods but into the center of America's industrial renewal.

Union Pacific warrants a close look for investors seeking a core holding suited for this new economic era.