Union Pacific: A Very Wide, Structural Moat

Stephen Dodson presented his in-depth investment thesis on Union Pacific (UNP) at Wide-Moat Investing Summit 2015.

Union Pacific: Major North American rails today have a wide, structural moat. It is essentially impossible to build a new rail network from scratch: The California high-speed rail project is estimated to cost $70 billion for 500 miles of track (with eminent domain). The Amtrak high-speed Boston-to-DC proposal comes with an estimated cost of $151 billion and is estimated to take 25 years to complete for 400 miles of track. Meanwhile, Union Pacific has an enterprise value of less than $100 billion yet owns 31,000 miles of track. Rails are structurally the cheapest way to move large goods, as they use 75% less fuel than trucking for the same load. Rails are the only way to ship large, bulky goods (grain, aggregates). Delivery speed is catching up to that of trucks through new intermodal terminals. Rails are still priced 15-20% cheaper than trucking. UNP competes in a duopolistic market, with the only competitor, BNSF, also committed to annual price increases.

About the instructor:

Stephen Dodson founded the Bretton Fund in 2010 and serves as its president and portfolio manager. Most recently, Stephen served as president of Parnassus Investments, which was founded in 1984 and manages the Parnassus Funds, a family of mutual funds for individual and institutional investors. Stephen was with Parnassus from 2002 to 2008 and served in a number of areas within the firm, including chief operating officer, portfolio manager, and chief compliance officer. In 2008, Institutional Investor News named him one of the 20 Rising Stars of Mutual Funds. He is a board member of the philanthropy group Full Circle Fund, serving on its executive committee, and has led projects for education reform in California. Prior to Parnassus, he worked for the venture capital group of Advent International, a private equity firm, and was an investment banker for Morgan Stanley in New York and Menlo Park. He holds a BS in business administration from the University of California, Berkeley.

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