1. Union Pacific Corporation
LITING SHEN
RYAN SEONG
November 8th, 2016

2. Agenda Current Holding Company Introduction Business Overview
SWOT Analysis
Industry and Macroeconomic drivers
Overview
Revenue Growth Drivers
Porter’s Five Forces
Financial Performance
Technical
Ratio Analysis
Valuation
Relative
DCF
Recommendation

3. Current Holding In April 2013,purchased 100 @ $148.20
In June 2014, 2 for 1 split
In April 2015,sold $108
In November 2015,purchased $84.71
Current market value: $ 18,150
Current price:90.75(11/7/2016)
Gain: $ 2,269

4. Company Introduction
Founded in 1862 and headquartered in Omaha, Nebraska
Operates railroads and offers freight transportation services
Has rail network Including 32,084 route miles
Links the Pacific Coast and Gulf Coast ports with the
Midwest and eastern United States gateways
Serves the western two-thirds of the country
Source: Union Pacific k (Pg. 5,6)
URL:

5. Business Overview Revenue Breakdown:
In 2015, the company generated total revenues $21,813
Freight revenues totaled $20,397
Other revenues $1,416
Key Strategies:
Aligns resources effectively to meet demand
Keeps safety performance
Uses robust capital program to ensure plenty of resources and network capacity
Source: Union Pacific k (Pg. 3,6,25)

6. SWOT Analysis Strengths Weaknesses Strong cash position
Diversified business mix
A vast network
Strong ROIC
Heavily depending on certain key suppliers
Fluctuating demand for our services and network capacity
Fierce competition
Opportunities
Threats
Future energy market opportunity
New business development in evolving domestic and global markets
Significant governmental and environmental regulation
Future significant investments in technology
Fluctuating fuel prices

7. Industry Overview Industry Life Cycle: Mature Phase
Declines in 2015 and 2016 because of fluctuations in oil prices
Fuel efficiency, demand for bulk freight, and low carbon footprint will increase demand for Rail Transportation
Managing fuel efficiency will be a factor in continued success in the industry
Investments to improve efficiency
Investments into high-speed rail systems
Source: IBISWorld

8. Revenue Growth Drivers
Closely related to the world price of crude oil and represents the cost of diesel fuel in US dollar per gallon.
Expected to rise over the next 5 years at an annualized rate of 11%
Largely due to a low 2017 base
Prices face downward pressure because of high production levels
Rapid industrialization improved the demand for petroleum
Built into model with regard to chemical revenue and fuel expenses
Source: IBISWorld

9. Revenue Growth Drivers
Total value of US trade by combining imports and exports of goods and services for the calendar year.
Expected to rise over the next 5 years at an annualized rate of 4.42%
The federal government aids support for trade
Global consumption is increasing
Particularly, Canada and Mexico are expected to improve economic growth
Concern: Trade deficit with China
Built into revenue model with regard to international business opportunities
Source: IBISWorld

10. Revenue Growth Drivers
Measures output from mining, manufacturing, electric, and gas industries.
Growth in the IPI projected to remain moderate through the next 5 years (1.4%)
Mining production declined
The price of iron, aluminum, nickel and other commodities decline
Measure of business activity and economic health
Built into model to help forecast US economy as a whole
Source: IBISWorld

11. . - Porter’s Five Forces Threat of New Entrants Substitutes Supplier
Bargaining
Power
Buyer
Rivalry
High
Moderate
Low
Forces
Level
Factors
Threat of New Entrants
Low
High Capital Costs
Economies of Scale
Large networks
Threat of Substitutes
Moderate
Land, ocean, and air
Advantage to ship bulk freight
Cost effective and timely
Supplier Bargaining Power
High
Two main locomotive suppliers
Highly regulated
Own installation/maintenance
Buyer Bargaining Power
Concentration in the industry
85% among top 4 companies
Rivalry
Compete on travel time, fuel consumption, safety, and regulations
Source: IBISWorld

12. Technical Analysis
Source: bigcharts.com

13. Financial Performance

14. Financial Performance(cont’d)
Dupont Analysis
2011
2012
2013
2014
2015
Tax Burden
62.5%
62.4%
62.3%
62.1%
Interest Burden
92.0%
93.7%
94.7%
95.3%
95.1%
Operating Margin
29.3%
32.2%
33.9%
36.5%
36.9%
Asset Turnover
0.4x
0.5x
Leverage
2.4x
2.3x
2.5x
2.6x
ROE
18.1%
20.3%
21.2%
25.1%
23.5%

15. Comparable Companies Company Name Market Cap Business Description
CSX Corp. (NasdaqGS:CSX)
28,577.5 M
Provides rail-based transportation services in the United States and Canada.
Norfolk Southern Corporation (NYSE:NSC)
27,150.6M
Engages in the rail transportation of raw materials, intermediate products, and finished goods.
Canadian National Railway Company (TSX:CNR)
48,226.2 M
Engages in rail and related transportation business. The company transports cargo serving exporters, importers, retailers, farmers, and manufacturers.
Kansas City Southern (NYSE:KSU)
9,441.1 M
Provides freight rail transportation services and serves the chemical and petroleum, industrial and consumer products, agriculture and minerals, energy, intermodal, and automotive markets.
Canadian Pacific Railway Limited (TSX:CP)
20,931.4 M
Operates a transcontinental railway in Canada and the United States. It transports bulk commodities and intermodal traffic.
Source: Capital IQ

16. Comparable Companies(cont’d)
Source: Capital IQ

17. Comparable Companies(cont’d)
TEV/Revenues LTM
TEV/EBIT LTM
LTM P/ E
Forward P/E
CSX Corp. (NasdaqGS:CSX)
3.5x
12.1x
17.0x
15.91x
Norfolk Southern Corporation (NYSE:NSC)
3.7x
17.2x
16.01x
Canadian National Railway Company (TSX:CNR)
6.3x
14.2x
18.6x
17.55x
Kansas City Southern (NYSE:KSU)
5.2x
14.4x
19.4x
17.45x
Canadian Pacific Railway Limited (TSX:CP)
5.9x
14.6x
19.0x
16.03x
Union Pacific Corporation (NYSE:UNP)
4.3x
11.9x
17.7x
16.38x
Summary Statistics
TEV/ Revenues LTM
TEV/EBIT LTM
LTM P/ E
Forward P/E
High
6.3x
14.6x
19.4x
17.6x
Low
3.5x
12.1x
17.0x
15.9x
Mean
4.9x
13.5x
18.2x
16.6x
Median
5.2x
14.2x
18.6x
16.0x
Source: Capital IQ

18. Comparable Companies(cont’d)
UNP Impllied Pirce
Multiples
TEV/Revenues LTM
TEV/EBIT LTM
LTM P/E
Forward P/E
Average
High $ $ $ $ $
Low $ $ $ $ $
Mean $ $ $ $ $
Median $ $ $ $ $
Implied Price :96.32
Source: Capital IQ

19. Revenue Projections

20. WACC Calculations

21. DCF Valuation

22. Recommendation HOLD $89.61 DCF Valuation $85.13 Comparable
Implied Price
$89.61
HOLD
DCF
Valuation
$85.13
60%
Comparable
Valuation
$96.32
40%