Student Management Investment Fund

Industrials Sector

Kendrick Bernal – Sector Manager

Scott Nunez – Associate ManagerEduardo Madrid - AnalystMauricio Loschi - AnalystCarlos Telleria - AnalystFrank Brown – Analyst

I. Economic DataII. Industry OutlookIII. Company InformationIV. Company DriversV. Company AnalysisVI. Valuation AnalysisVII. SummaryTable of

Contents

Economic DataEconomic Data

GDP 3rd Quarter 2.2% Inflation Rate

0.2%Unemployment Rate

5.0%Corp Credit A 10yr Bond147bps

Commodity prices have been falling due to weak economic growth and demand in developed nations

Industry Outlook

Freight Outlook

12%

20%

29%

39%

How Freight Moves-Percent Mile-Ton

Water Pipeline Truck Rail

18%

15%

14%11%9%7%7%7%

6%6%

Top 10 Commodities by Value

Machinery Electronics Motorized VehiclesMixed Freight Pharmaceuticals MiscellaneousTextiles/Leather Gasoline Plastics/RubberBase Metal

Company Info.Company Information

Market Data

52-week high124.5252-week low 74.78Previous close 77.55Market Cap66.89BOutstanding Shares 854.1MBeta .93EPS (ttm)

5.79Trailing P/E Ratio 13.53Forward P/E 12.58

Catalysts

Simple Business ModelFavorable Long-term prospectsOperated by Honest and Experienced ManagementAvailable at a very attractive price

Eagle Materials [Ticker: UNP]Union Pacific Corporation, through its subsidiary, Union Pacific Railroad Company, operates railroads in the United States. The company offers freight transportation services for agricultural products, including grains, commodities produced from grains, and food and beverage products; automotive products, such as finished vehicles and automotive parts; and chemicals consisting of industrial chemicals, plastics, crude oil, liquid petroleum gases, fertilizers, soda ash, sodium products, and phosphorus rock and sulfur products. It also provides transportation services for coal and petroleum coke; industrial products comprising construction products, minerals, consumer goods, metals, lumber, paper, and other miscellaneous products; and intermodal import and export containers and trailers.

Union Pacific

Stock Performance

Company Overview

Key Highlights Steady growth Stable through downturns Well Diversified

2008

2009

2010

2011

2012

2013

2014

2015

E20

16E

$0

$2,000

$4,000

$6,000

$8,000

$10,000

Operating Income

17%

9%

16%

18%

20%

20%

Freight RevenueMix

Agricultural ProductsAutomotiveChemicalsCoalIndustrial ProductsIntermodal

$23 Billion 51%49%

West Coast Market Share by Revenue

UNPBNSF

Company Drivers

Railroad Network• Approximately 32,000 miles of rail

• Connections to all 6 major U.S.-Mexico gateways

• Connections to Canadian gateways

• Serves all major West Coast ports

S.W.O.T. AnalysisStrengths• Only railroad serving all major

Mexico gateways• Connection with Canada’s rail

systems• High barrier to entry• Experienced executives and board

members

Opportunities• West coast ports resuming

normal operations• 120 million common equity

share repurchase program.

Weaknesses• Government regulation• Reliability in capital markets• Environmental laws and

regulations

Threats• Demand could exceed network

capacity• Risk of liabilities from operations• Competition

Risks Transportation of hazardous materials Strikes or work stoppages Increase in fuel prices Reliability on technology

Insurance coverageAgreements with labor unionsFuel surcharges Improvements to and acquisition of new technologies

Key Risks

Risk Mitigation

Executive Directors

Name(age) Since/Started

Position

Lance M. Fritz (52) 2015/2000 Chairman, President, CEORobert M. Knight (57) 2004/1980 CFODiane K. Duren (55) 2012/1985 Executive Vice President, Corporate

SecretaryGayla L. Thal (58) 2010/2004 Senior Vice President, Law and General

CounselEric L. Butler (54) 2012/1986 Executive Vice President of Marketing and

salesCameron Scott 2014/1990 Executive Vice Presidents-Operations

Company Analysis

Liability Distribution1-Year Default FY

2013FY

2014FY

2015Probability 0.0216

%0.0095

%0.0357%

Risk IG5 IG4 IG6

2016 2017 2018 2019 2020 Thereafter$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Debt Maturity Distribution

Debt Maturity Normal Acquistion

2%

85%

9% 3%Debt Distribution

Term LoansSenior Bonds and NotesCapital LeasesGeneral/Other Borrowings

$1.7B in undrawn credit facilities

Growth Outlook

2011 2012 2013 2014 2015E 2016E0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Net Income Margin

2011 2012 2013 2014 2015E 2016E $- $5,000.00

$10,000.00 $15,000.00 $20,000.00 $25,000.00 $30,000.00

Freight Revenues (in millions of USD)

2011 2012 2013 2014 2015E 2016E $- $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00

EPS (Adj.)Operating GoalsImprove network operationsRenew track infrastructure and fleetImprove strong safety performanceAchieve solid core pricing gains

  2010 2011 2012 2013 2014 LTM 2015Profitability

Gross Margin 42.4% 41.5% 44.4% 45.9% 48.3% 50.1%EBITDA Margin 38.4% 37.5% 40.6% 42.0% 44.4% 46.1%Net Income Margin 16.4% 16.8% 18.8% 20.0% 21.6% 22.3% Operating Ratio 70.6% 70.7% 67.8% 66.1% 63.5% 63.1%

Management Effectiveness Return on Assets 7.4% 8.1% 9.1% 9.6% 10.7% 10.0% Return on Equity 16.1% 18.1% 20.5% 21.4% 24.4% 24.1% Return on Capital 11.7% 13.1% 15.0% 15.6% 17.2% 15.9%

Balance Sheet Strength Debt to Equity 52.0% 47.9% 45.3% 45.1% 54.2% 64.7% Current Ratio 1.2x 1.1x 1.2x 1.1x 1.2x 1.1x

Fundamental Analysis

Increasing Margins

Increasing Returns

Consistent Balance Sheet Strength

Valuation Analysis

Comparable AnalysisNarrow Competitors

CSXNSCCP

CNR

Greater Returns Greater Financial Strength Greater Margins

Management Effectiveness

UNP Narrow Competitor

Broad Competitor

ROA 10.11% 7.75% 6.25%ROE 24.43% 21.35% 18.85%ROIC 11.65% 9.45% 7.09%Financial Strength UNP Narrow

CompetitorsBroad Competitor

EBITDA-CAPEX/ Interest Expense

11.93 5.60% n/a

Net Debt/ EBITDA 0.93 1.75 1.13Dividend Growth- 1yr

29.05% 7.97% -8.08%

Profitability Ratios

UNP Narrow Competitors

Broad Competitor

EBITDA Margin 44.43% 41.75% 18.90%Net Income Margin

21.59% 20.20% 5.39%

Revenue Growth 9.22% 7.85% 18.04%

Valuation

Buy

Current Price $77.55Target Price $98.00% Upside 26.4%

Average

ANR

DCF

P/TBV

EV/FCF

EV/EBIT

$25.00 $35.00 $45.00 $55.00 $65.00 $75.00 $85.00 $95.00 $105.00 $115.00 $125.00

Min to Median

Valuation Metrics UNP CSX NSC CP CNR

P/FCF 22.92 35.55 158.91 32.65 31.28P/E 14.86 13.33 15.80 18.52 17.83P/TBV 4.97 3.28 2.72 7.41 4.82EV/EBITDA 7.91 8.04 7.56

DCF AssumptionsGrowth Rate 3.13%WACC 6.50%

Undervalued

14Q4 14Q1 15Q2 15Q3 Current6

8

10

12

14

16

EV/EBITDA

UNP NSC CSX CP CNR

14Q4 14Q1 15Q2 15Q3 15Q4est0.00%

0.50%

1.00%

1.50%2.00%

2.50%

3.00%

3.50%

Dividend Yield

UNP NSC CSX CP CNR

• Cheap Stock• Strong Stock• Increasing Dividend• Experienced management-

120million share repurchase program

• Largest North American railroad by market cap

Summary

Summary

Simple Business Model Favorable Long-term prospects Operated by Honest and Experienced

Management Available at a very attractive price

Buy Current Price $77.55Target Price

$98.00% Upside 26.4% Catalyst

Consensus Rating:4.45

Buys: 75%Holds: 21%Sells: 3%

12M Tgt Px 26/31104.12Last Price

78.31Return Potential

33%LTM Return -32.5%