1. Union Pacific Corporation
UNP
Union Pacific Corporation
Danyun (Echo) Wang
Peiyang (Penny) Liu
Zhonghao (Nolan) Zhu
March 14, 2017

2. Agenda Current Holding Company Industry Financial Analysis Valuation
UNP
Current Holding
Company
Introduction
Business Overview
Management team
SWOT Analysis
Industry
Overview
Key Macroeconomic Drivers
Porter’s Five Forces
Financial Analysis
Ratio Analysis
Competitors
Valuation
Comparable
DCF
Technical Analysis
Recommendation
Agenda

3. Current Holding UNP Purchased: 100 shares @ $148.20 in April, 2013
2/1 stock split, owned 200 shares in June, 2014
Sold: 100 $108 in April, 2015
Purchased: 100 $84.71 in Nov. , 2015
Current price: $ (3/13/2017)-200 shares
Gain: $5409
Current Dividend Yield: +1.14% ($1.21 per share)
Source: Yahoo! Finance

4. Company Introduction
Founded in 1862 in Utah and headquartered in Omaha, Nebraska
Operates railroads and offers freight transportation services
With 42,919 employees represented by 14 major rail unions
Has the largest railroad network of 32,070 route miles
Links 23 states in the western two-thirds of the country by rail
Links Pacific Coast and Gulf Coast ports with the Midwest and eastern U.S. gateways
Connects with Canada's rail systems
Is the only railroad serving all six major Mexico gateways
Source: UNP 10K

5. Business Overview Rail Facilities Company Structure Track 2016 2015
Union Pacific Corporation
Union Pacific Railroad Company Inc.
Transentric, Inc.
PS Technology, Inc.
Insight Network Logistics, LLC
2016
2015
Locomotives (Units)
8539
8464
Owned
6512
6260
Leased
2027
2204
Freight Cars
65931
66863
34833
34299
31098
32564
Highway Revenue Equipment
100785
108554
55645
55719
45140
52835
Track
2016
2015
Own
20653
20264
Truckage rights or leases
11417
11820
Routes (Miles)
32070
32084

6. Business Overview How to earn money Revenue Breakdown
Generate freight revenue by transporting freight and other materials from six commodity groups.
Freight revenue vary with volume (carloads) and average revenue per car (ARC).
Changes in price, traffic mix and fuel surcharges drive ARC.
Price will be affected by inflation and fuel surcharge is determined by fuel prices.
Total Revenue Breakdown
Freight Revenue: 18601
Other revenue: 1340
Freight Revenue Breakdown
Agricultural Products: 3625
Automotive: 2000
Chemicals: 3474
Coal: 2440
Industrial Products: 3348
Intermodal: 3714
Core Pricing Gains
Source: UNP 10K

7. Management Team Strategy for creating long-term value
Improving Safety
Improving Efficiency
Improving Productivity
Implementing Six Value Tracks which encompass strategy
Lance M. Fritz
Chairman, President
Chief Executive Officer
Began his UNP career in Jul. 2000
Chairman of the board of directors for the Association of American Railroads
Beth F. Whited
Executive Vice President
Chief Marketing Officer
Joined UNP in and held a variety of executive roles including Investor Relations, and M&S
Six Value Tracks
World Class Safety
Outstanding employee safety performance.
Decreasing reportable personal injury rate.
Ultimate goal of an incident free environment.
Engaged Team
Align resources to meet demand of customers.
Improving efficiency ratio and system velocity.
Innovation
Resource Productivity
Excellent Customer Experience
Safely and efficiently handle current volume.
Improving safety and resiliency of network.
Maximize Franchise value
Improving total shareholder return.
Increasing declared dividend per share.
CFO in the Airfreight and Surface Transportation sector in the Institutional Investor
Robert M. Knight, Jr.
Executive Vice President
Chief Financial Officer
Was named as No. 1 CFO in 2014, 2015, 2016 and 2017 rankings
Cameron Scott
Executive Vice President
Chief Operating Officer
Joined the railroad in 1990 and held a variety of position related to operations
Source: UNP website

8. SWOT Analysis Strengths Weaknesses Opportunities Threats
Prestigious reputation and global market leader
Diversified business mix and large railroad network
Increased fuel efficiency
Only player connected to all Mexican gateways
Fluctuating demand for services and network capacity
Competitors
Opportunities
Threats
Higher energy prices
Favorable agricultural markets
Improving demand for U.S. consumer Products
Strengthening and diversifying franchise
Significant governmental and environmental regulation
Fluctuating fuel prices
Future significant investments in technology
High exposure to international markets
Source: UNP 10K

9. Industry Overview Key Statistics Snapchat Revenue $65.9bn
Annual Growth 11-16: -2.65%
Annual Growth 16-21: 3.4%
Profit: 20.2bn
Wages: $13.7bn
Business: 563
Major Companies
Market
Share
Revenue
($ million)
Union Pacific Corporation (UNP)
29.1%
19,140.1
Burlington Northern Santa Fe Corporation (BNSF)
28.6%
CSX Corporation
15.4%
1015.4
Norfolk Southern Corporation
14.6%
9593.7
Positive long-term outlook for rail transportation.
As the US economy continues to recover, the need to transport goods will grow.
The revenue is expected to grow at an average annual rate of 3.4% to $77.7 billion in the five years to 2021.
Profit margins are expected to increase due to the future expenditures that will be made to service growing demand.
Source:

10. Industry Overview
Source:

11. Industry Overview Supply Industries Demand Industries
Petroleum Refining
Rail Maintenance Services
Train, Subway & Transit Car Manufacturing
Agriculture, Forestry, Fishing and Hunting Mining
Coal Mining
Manufacturing
Petrochemical Manufacturing
Coal & Natural Gas Power
Related Industries
International Industries
Long-Distance Freight Trucking
Public Transportation
Sightseeing Transportation
Rail Freight Transport in Australia
Rail Passenger Transport in Australia
Source:

12. Macro Economic Drivers
Price of diesel
Estimated Value in 2017: $2.73 per gallon
Compound Growth: -7.2%
Forecast Value for 2022: $3.60 per gallon
Compound Growth: 5.7%
Total Trade Value
Estimated Value in 2017: $5.14 trillion
Compound Growth: 3.27%
Forecasted Value for 2022: $6.53 trillion
Compound Growth: 4.91%
Source:
Source:

13. Macro Economic Drivers
Industry Production Index
Estimated Value in 2017: Index value
Compound Growth: 1.7%
Forecast Value for 2022: Index value
Compound Growth: 1.4%
World Price of steaming coal
Estimated Value in 2017: $79.13 per metric ton
Compound Growth: -5.3%
Forecast Value for 2022: $64.93 per metric ton
Compound Growth: -3.9%
Source:
Source:

14. Porter’s Five Forces Threat of New Entrants LOW Threat of Substitutes
Barriers to entry in this industry are high and are steady
High capital costs of establishing new railroads
Due to the dependence on Class 1 operators to complete the task
Threat of Substitutes
Moderate
The level of technology change is medium
 Arise from other methods of transportation, including road, ocean, and air transportation
Power of Buyers
Moderate
Highly concentrated
The top four players account for 87.7% of revenue in 2016
500 operators to compete over the remaining market
Rivalry
Moderate
Competition in this industry is medium and the trend is steady
Compete on the basis of travel time, fuel consumption, safety, regulations and destinations
Power of Suppliers
High
Depend on two key domestic suppliers of high horsepower locomotives
Could experience a significant cost and difficulty obtaining rail
Source:

15. Financial Performance

16. Financial Performance
DuPont Analysis
Year
2012
2013
2014
2015
2016
Tax Burden
62.4%
62.3%
62.1%
62.6%
Interest Burden
93.7%
94.7%
95.3%
95.1%
93.0%
Operating Margin
32.2%
33.9%
36.5%
36.9%
Asset Turnover
0.5x
0.4x
Leverage
2.4x
2.3x
2.5x
2.6x
2.8x
ROE
20.3%
21.2%
25.1%
23.5%
21.5%

17. Comparable Companies
Canadian National Railway Company engages in rail and related transportation business. The company transports cargo, serving exporters, importers, retailers, farmers, and manufacturers. It operates a network of approximately 20,000 route miles of track spans Canada and mid-America connecting the Atlantic, the Pacific, and the Gulf of Mexico.
Canadian Pacific Railway Limited transports bulk commodities, including grain, coal, potash, fertilizers, and sulphur; and merchandise freight comprising finished vehicles and automotive parts, chemicals and plastics, crude oil, as well as petroleum, forest, industrial, metals, minerals, and consumer products.
CSX Corporation transports agricultural products, phosphates and fertilizers, food and consumer products, chemicals, automotive products, metals, forest products, minerals, and waste and equipment; and coal, coke, and iron ore to electricity-generating power plants, steel manufacturers, and industrial plants.
Kansas City Southern, through its subsidiaries, provides freight rail transportation services. The company operates north/south rail route between Kansas City, Missouri, and various ports along the Gulf of Mexico in Alabama, Louisiana, Mississippi, and Texas.
Norfolk Southern Corporation, together with its subsidiaries, engages in the rail transportation of raw materials, intermediate products, and finished goods. It also transports overseas freight through various Atlantic and Gulf Coast ports; provides logistics services; and operates scheduled passenger trains.

18. Comparable Companies (Contd.)

19. Comparable Companies (Contd.)

20. Comparable Valuation Source: Bloomberg Comparable Companies
TEV/Sales LTM
TEV/EBITDA LTM
P/ E LTM
forward P/E
P/B
Canadian National Railway Co
6.6x
12.2x
21.1x
19.52x
4.97x
Canadian Pacific Railway Ltd
5.9x
11.4x
20.3x
17.32x
6.29x
CSX Corp
3.9x
9.3x
26.4x
23.59x
3.78x
Kansas City Southern
5.0x
10.4x
19.7x
17.31x
2.28x
Norfolk Southern Corp
4.1x
9.9x
21.6x
19.45x
2.79x
Union Pacific Corp
4.9x
10.6x
21.2x
18.83x
4.35x
Source: Bloomberg

21. Comparable Valuation (Contd.)
Summary Statistics
TEV/Total Revenues LTM
TEV/EBIT LTM
P/ E LTM
forward P/E
P/B
High
6.6x
12.2x
26.4x
23.6x
6.3x
Low
3.9x
9.3x
19.7x
17.3x
2.3x
Mean
5.1x
10.6x
21.8x
19.4x
4.0x
Median
5.0x
10.4x
21.1x
3.8x
UNP Impllied Pirce
Multiples
TEV/Sales
TEV/EBIT
P/E
Forward P/E
P/B
Average
High $ $ $ $ $ $
Low $ $ $ $ $ $
Mean $ $ $ $ $ $
Median $ $ $ $ $ $
Implied Price
106.5
Source: Bloomberg

22. Financial Projections
Income Statement
Historical
Projected
For the Fiscal Period Ending
12 months Dec
12 months Dec
12 months Dec
12 months Dec
12 months Dec
12 months Dec
12 months Dec
12 months Dec
12 months Dec
12 months Dec
12 months Dec
Revenue
18,508
19,686
20,684
22,560
20,397
18,601
19,556
20,704
22,016
23,538
25,224
Other Revenue
1,049
1,240
1,279
1,428
1,416
1,340
1,394
1,449
1,507
1,568
1,630
Total Revenue
19,557
20,926
21,963
23,988
21,813
19,941
20,949
22,154
23,523
25,106
26,854
Revenue Growth Rate
N/A
7.0%
5.0%
9.2%
-9.1%
-8.6%
5.1%
5.8%
6.2%
6.7%
Compensation and Benefits
4,681
4,685
4,807
5,076
5,161
4,750
4,782
4,830
4,878
4,976
5,075
Transporation Fuel
3,581
3,608
3,534
3,539
2,013
1,489
1,608
1,769
1,999
2,299
2,644
Purchased Services and Materials
2,005
2,143
2,315
2,558
2,421
2,258
2,303
2,349
2,396
2,456
2,518
Depreciation
1,617
1,760
1,777
1,904
2,012
2,038
2,101
2,134
2,166
2,196
2,225
Equipment and Other Rents
1,167
1,197
1,235
1,234
1,230
1,137
1,171
1,206
1,242
1,286
1,331
Other Operating Expenses
782
788
849
924
997
1,067
1,141
1,221
1,307
1,398
Total Operating Expenses
13,833
14,181
14,517
15,235
13,761
12,669
13,032
13,430
13,903
14,520
15,191
Operating Margin
70.7%
67.8%
66.1%
63.5%
63.1%
62.2%
60.6%
59.1%
57.8%
56.6%
Operating Income
5,724
6,745
7,446
8,753
8,052
7,272
7,917
8,724
9,621
10,586
11,663
Other Income
112
108
128
151
226
192
194
196
198
Interest Expense
(572)
(535)
(526)
(561)
(622)
(698)
(724)
(774)
(830)
(895)
(968)
Income Before Income Taxes
5,264
6,318
7,048
8,343
7,656
6,766
7,387
8,144
8,986
9,887
10,893
Income Taxes
(1,972)
(2,375)
(2,660)
(3,163)
(2,884)
(2,533)
(2,783)
(3,068)
(3,385)
(3,725)
(4,103)
Net Income
3,292
3,943
4,388
5,180
4,772
4,233
4,604
5,601
6,163
6,790

23. DCF Valuation--WACC Cost of Equity CAPM (80%) 10 Year Treasury Note
10 Year Treasury Note
2.49%
Beta
1.11
Market Risk Premium 6%
Required rate of return
6.40%
Shareholders Return (20%)
Total Realized Return
119.01%
Realized Return
21%
WACC
Current Share Price
109.02
Diluted Shares Outstanding (mil)
835.40
Equity
Market Value of Equity
91075
Percent Equity Weight
86%
Cost of Equity
9.24%
Debt
Market Value of Debt
15007
Percent Debt Weight
14%
Cost of Debt
2.51%
Tax Rate
37.40%
8.2%
Business Premium
0.5%
Discount Rate
8.7%
Source: Bloomberg and projection

24. DCF Valuation Source: Bloomberg and projection (Millions) 2017E 2018E
Discounted Cash Flow 1 2 3 4
(Millions)
2017E
2018E
2019E
2020E
2021E
Terminal
EBIT
$7,917
$8,724
$9,621
$10,586
$11,663
Less: Taxes
-$2,783
-$3,068
-$3,385
-$3,725
-$4,103
Plus: Depreciation
$2,101
$2,134
$2,166
$2,196
$2,225
Less: Capital Expenditures
-$3,100
Changes in Net Working Capital
Less: Increses in A/R
-$104
-$189
-$96
-$111
-$122
Less: Increases in Materials and Supplies
-$16
-$42
-$18
-$55
-$61
Plus: Increases in A/P
-$12
-$57
$55
$63
$70
Free Cash Flow
$4,003
$4,402
$5,242
$5,855
$6,571
$119,682
Present Value
$4,051
$4,440
$4,564
$4,715
$85,867
Sum of Present Value of FCF
$107,641
Value Per Share
Enterprise Value
107641
Plus: Cash
1624
Less: Debt
-15007
Market Capitalization
94257
Share Price $
Key Rates Assumption
Business Risk Premium 1%
WACC
8.16%
Discount Rate
8.66%
Terminal Growth Rate
3.00%
Source: Bloomberg and projection

25. Technical Analysis

26. Terrible relationships between Mexico and US
Recommendation
Excellent cost control and high profit potential
Improving productivity
Relative low streaming coal price
Stock Price up
DCF Valuation
112.83
Comparable Valuation
106.5
109.67
50%
HOLD
Terrible relationships between Mexico and US
Uncertain Macroeconomy
Potential decrease in Crude Oil price in short time
Challenge in Trump’s trade policy
Last Price: $106.45
50%
Stock Price down