1. Sashikanth (Sash) Yenika Vanditha Ravindranath
Investment Managers
Fang Liu
Madina Yunussova
Tanvi Rotkar
Sashikanth (Sash) Yenika
Vanditha Ravindranath
March 10, 2016

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

3. Current Holding Purchased: 100 shares @ $148.20 on April,2013
Holding Details
Purchased: 100 $ on April,2013
Cost basis: $14,820
2 for 1 split in June, 2014
Sold: 100 $ on April, 2015
Purchased: 100 $84.71 on November, 2015
Current market value: $16,028 (3/09/2016)
Gain: $147 (+0.93%)
Current Dividend Yield: +2.73% ($2.20 per share)
Sources: Union Pacific k (Pg. 5), UNP website

4. Company Introduction
Incorporated in 1862 with headquarter in Omaha, Nebraska
Operates railroads and offers freight transportation services
Links 23 states in the western two-thirds of the country
Critical link in the global supply chain
Has the largest railroad network of 32,100 route miles
The only railroad serving all six major Mexico gateways
Maintain a fleet of 8,500 locomotives and is served by around 42,600 employees
The railroad's diversified business mix includes Agricultural Products, Automotive, Chemicals, Coal, Industrial Products and Intermodal
Sources: Union Pacific k (Pg. 5), UNP website

5. Business Overview Revenue Breakdown Key Strategies Key Strengths
Freight Revenue – 93.5%
Other Revenue – 6.5%
Key Strategies
Increase network and terminal capacity
Replace old and less efficient locomotives with new and more efficient
Key Strengths
Increase in Demand for Consumer Items
Recovery of the commodity markets will improve business growth
Key Risks
Fluctuating USD
Volatile Fuel Prices
Regulations
Sources: Union Pacific k (Pg. 5), UNP website

6. SWOT Threats Opportunities Strengths Weakness
Global market leader
Diversified customer base
Increased fuel efficiency
Lower carbon footprint
Strong ROIC
Only player connected to all Mexican gateways
Weakness
Regulated industry
Competitors
Slowdown for coal mining
Opportunities
Increasing population
Strong industry avenue growth
Capital expenditures will increase the profit margins
Higher trade value
Threats
Low fuel cost and volatility
Decreasing coal demand
Supply constraints, exchange rates and commodity prices
Competition with Hyper-loop in the longer future

7. Industry Overview
The Rail Transportation industry : companies that operate railroads across the United States.
Long-term overlook is positive
Domestic market: fluctuates with the economic cycle (GDP)
2016 – 2020 CAGR: 2.3%
2010 – 2015 CAGR: 2.7%

8. Revenue Growth Drivers
Improving Labor Market
Freight Volume
Demand for Rail Transportation
Revenue Growth
Increasing Population
Demand for Goods
Increase in Import
Rail transportation industry will benefit from the growing demand for speedy and fuel efficient services
US population growth is estimated to increase to M by 2021

9. Revenue Growth Drivers
The industry is sensitive to import and export volumes
When import and export trade volumes rise, demand increases, boosting revenue
When fuel costs increase, trains become a more cost-effective shipment option
The industrial manufacturing sector is the largest user of industry services
As manufacturing output increases, the demand for long-distance freight rail increases

10. Porter Five Forces High Moderate High Low Moderate
Rivalries among Existing Competitors
Power of Suppliers
Threat of New Entrants
Power of Buyers
Threat of Substitute Products
Sources locomotives from two suppliers
Strict approval process
Own installation and maintenance
High
Own advantages
Effect of fuel price
Moderate
High
Low
Profits encourage new entrants
High capital costs of new railroads
Huge networks of existing players
Laws and environmental regulations
Moderate

11. Financial Analysis 2013 2014 2015 Change % 2015 vs 2014
2013
2014
2015
Change % 2015 vs 2014
Average Train speed (miles per hour)
26.0
24.0
25.4
6.0%
Average Terminal dwell time (hours)
27.1
30.3
29.3
(3.0%)
Operating ratio
66.1%
63.5%
63.1%

12. Financial Analysis (cont’d)
DuPont Analysis
2012
2013
2014
2015
Tax Burden
62.4%
62.3%
62.1%
Interest Burden
93.7%
94.7%
95.3%
95.1%
Operating Profit Margin %
32.2%
33.9%
36.5%
36.9%
Asset Turnover
0.5x
0.4x
Leverage
2.4x
2.3x
2.5x
2.6x
RoE
20.3%
21.2%
25.2%
23.5%

13. Stock market prospects

14. Technical Analysis

15. Comparable Valuation Comparable Companies Trailing P/E Forward P/E
Price/Book Value
EV/EBITDA
Canadian Pacific Railway Limited
19.24x
15.06x
5.56x
10.52x
CSX Corporation
11.81x
12.65x
1.97x
6.70x
Kansas City Southern
17.04x
16.39x
2.09x
9.63x
Norfolk Southern Corporation
13.94x
13.66x
1.79x
7.73x
Average
15.51x
14.44x
2.85x
8.65x
Each Company was weighed equally
Source: Capital IQ

16. Number of Shares Outstanding
Comparable Valuation
UNP Multipliers
Implied Share price
Trailing EPS
5.70x
$88.40
Forward EPS
5.99x
$86.51
Book Value
24.73x
$70.54
EBITDA
10,064x
$86.96
Number of Shares Outstanding
837.2M
Weighted Average Share Price 
$83.10
Current Price (03/09/2016) 
$80.14
Upside  
3.70%
Source: Team Calculation

17. Revenue Projections
Source: Team Calculation

18. WACC Calculations
Source: Team Calculation

19. DCF Valuation
Source: Team Calculation

20. HOLD Recommendation $82.49 External Drivers DCF Valuation $81.65
Implied Price
$82.49
HOLD
DCF Valuation $81.65
60%
Comparable
Valuation $83.10
External Drivers
40%
Stock Price
Improving productivity
Favorable mix
EPS accretive share repurchase
Dividend Yield 2.2%
Presence at Mexico gateways
Potential challenges from crude, ethanol and frac sands
Increased competition
Decrease in global growth rate
Stock Price