Union Pacific Corporation (UNP)

Ilham Bachtiar, Kyle Castner, Michael Haberkorn, Yichen Sun

Presented March 31, 2015

Today’s Agenda Introduction Macroeconomic

Overview Industry Analysis UNP Business

Overview Stock Market

Performance Financial Analysis Valuation Recommendation

Quarter to Quarter GDP Growth

Macroeconomic Overview• Steady GDP performance in the past year with

growth predicting to increase in 2015

Macroeconomic Overview• The rail road industry is based on trade

Source: IBIS World

Macroeconomic Overview

• Over 95% of rail road revenue is generated from bulk freight and intermodal services.

Source: IBIS World

Source: IBIS World

Macroeconomic Overview

• Mexico total expected freight traffic expected to increase at 4.1% CAGR thru 2020

Percent Change in Value of U.S.-Mexico Freight Flows (Feb 2013-Feb2014)Source: U.S. Department of Transportation

Mexico & OECD GDP Growth

Rail Transportation Industry Outlook

• Growingo Higher Demand

• Macro recovery• Organic growth

o Strategic partnership with transportation providers

o Higher profit margins due to upgrades

o Continuing capital investments

Source: IBIS World

Industry Porter’s Five Forces

Threat of New Entrants: Low

• Very capital intensive

Threat of Substitutes:

High• Trucks: low oil

price• Barges,

pipelines

Rivalry Among Existing Firms:

Medium• Highly

concentrated

Buyers Power : Low

- Lack of alternatives- Favorable margin

Suppliers Power: High

• A few suppliers of locomotives & rail

Chairman, CEO and CFO• Chairman: Jack Koraleski

o Worked within UNP since 1972 (Marketing and Finance)

• CEO: Lance Fritzo Worked with UNP since 2000 (Operations and

Management)

• CFO: Robert Knighto Worked within UNP since 2000 (Finance, focus

in automotive group)

Compensation Charts• Chairman

• CEO

• CFO

Other Management Numbers

Management QuantifiedName % Holdings TenureCNI 0.1590% 18.7NSC 0.2625% 16.5CSX 0.4437% 15.5CP 0.1363% 2.2UNP 0.3289% 17.6

Average 0.2661% 14.1

Company Overview• Vision :

o Building America

• Values :o Focus on Performanceo Ensure High Ethical Standardso Work as a Team

SWOT AnalysisStrengths Weaknesses

- Diversified Markets- Strong ROIC- Invest in Technology (PTC)

- Transport Hazardous Materials

- Labor Upheavals- Commodity volatility- Underfunded Pension

Opportunities Threats- Increasing U.S. Population

Base- Growing GDP- Increasing Environmental

Consciousness

- Governmental Regulations (STB)

- Weather Related - RR security and safety- Low oil prices: truck, coal

Source: IBIS World

Business Division

• Freight revenues increased during 2014 compared to 2013 driven by 7% volume growth and core pricing gains of 2.5%

• In terms of Q (units) sold, Freight Sales increased by 3.2%

Source: UNP 10-K

Current Stock Information

Source: Yahoo Finance

Metric Value

Current Stock Price

$110.10

Trailing P/E 19.15

Forward P/E 14.8

Dividend Yield 2.00%

Market Cap97.21

($ billions)Est. PEG Ratio 1.20

5 Year Dividend Growth

30.00%

FY 2011 FY 2012 FY 2013 FY 2014

Tax Burden NI/EBIT 62.54% 62.41% 62.26% 62.09%Interest Burden % EBT/OI 91.96% 93.67% 94.65% 95.32%Operating Profit Margin % OI/REV 29.27% 32.23% 33.90% 36.49%Asset Turnover Rev/Avg Asset 44.35% 45.37% 45.34% 46.83%Leverage Avg Asset/Avg Eqty 2.43 2.40 2.36 2.42ROE % 18.12% 20.51% 21.35% 24.43%Payout Ratio 28.49% 29.93% 31.24% 33.09%

DuPont Analysis

Current Holding: Apr-25-13 (2 for 1 Jun-9-14) 200 @ $74.10Current Gain: $7198,

49%

Stock Performance

Financial Analysis

Source: Bloomberg

FY 2010 FY 2011 FY 2012 FY 2013 FY 2014EBIT/Tangible Assets 13.37% 14.74% 16.43% 17.43% 19.33%EBIT/Enterprise Value 19.22% 21.79% 24.25% 25.35% 28.16%

Joe Greenblatt Ratios

ROA ∆ROA CFO ACCRUAL ∆Margin ∆Turn ∆Lever ∆Liquid

SEO (Secondary

Equity Offering)

10.11% 1.05% 7,385 2,205 2,025 1.49% 2.97% 18.75% No 8

Scores

Piotroski

Profitability Operating Eficiency Leverage/Liquidity

F_SCORE

Cost of Capital

Market Value of Equity 101,383 87.2%

Share Price 112.51$ Fully Diluted Shares Outstanding 901.1 Debt 14,905 12.8%

Cost of Debt 5.3%

Cost of Equity 9.0%CAPM Cost of Equity 8.99% 100.00%UNP Realized Return 27.23% 0.00%

Tax rate 37.91%WACC 8.26%Business Risk Premium 2.00%Discount Rate 10.26%

Terminal Growth 3.00%

Weighted Average Cost of Capital

Risk-Free Rate 2.00%Market Risk Premium 6.00%5-Year Beta 1.17

CAPM Cost of Equity 8.99%

Year Return

1 22.10%2 29.99%3 30.08%4 26.42%5 27.55%

Average Annual Return 27.23%

CAPM

Annual Realized Returns

Revenue Projection$ in Millions

2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019ERevenueAgricultural

Revenue Carloads (thousands) 865 918 934 900 874 973 909 922 911 920 950% Growth - 6.1% 1.7% -3.6% -2.9% 11.3% -6.6% 1.4% -1.1% 1.0% 3.3%Average Price per Car 3,080 3,286 3,561 3,644 3,746 3,881 3,994 4,110 4,230 4,353 4,480% Growth - 6.7% 8.4% 2.3% 2.8% 3.6% 2.9% 2.9% 2.9% 2.9% 2.9%Total Agricultural Revenues 2,664 3,017 3,326 3,280 3,274 3,776 3,629 3,788 3,854 4,005 4,256% of Freight Revenues 19.9% 18.8% 18.0% 16.7% 15.8% 16.7% 14.9% 14.2% 13.6% 13.2% 13.1%

ProjectedHistorical

CoalRevenue Carloads (thousands) 2,021 2,056 2,164 1,871 1,703 1,768 1,750 1,759 1,764 1,775 1,784 % Growth - 1.7% 5.3% -13.5% -9.0% 3.8% -1.0% 0.5% 0.3% 0.6% 0.5%Average Price per Car 1,543 1,697 1,888 2,092 2,336 2,334 2,404 2,476 2,550 2,627 2,706 % Growth - 10.0% 11.3% 10.8% 11.7% -0.1% 3.0% 3.0% 3.0% 3.0% 3.0%Total Agricultural Revenues (millions)3,118 3,489 4,086 3,914 3,978 4,127 4,208 4,356 4,500 4,663 4,827 % of Freight Revenues 23.3% 21.7% 22.1% 19.9% 19.2% 18.3% 17.3% 16.3% 15.9% 15.4% 14.9%

Total Freight Revenues 13,372 16,071 18,508 19,685 20,685 22,560 24,282 26,647 28,366 30,256 32,445 % Growth - 20.19% 15.17% 6.36% 5.08% 9.07% 7.63% 9.74% 6.45% 6.66% 7.23%

DCFUnion Pacific CorporationDCF 1 2 3 4 5

2015E 2016E 2017E 2018E 2019E Terminal

EBIT 9,933 11,152 12,065 13,221 14,553 Less: Taxes (3,547) (3,988) (4,318) (4,739) (5,223) Plus: Depreciation 2,206 2,330 2,486 2,658 2,856 Less: Capital Expenditures (4,300) (4,542) (4,846) (5,180) (5,566)

Changes in Net Working CapitalLess: Increses in A/R (130) (170) (128) (141) (162) Less: Increases in Materials and Supplies (84) (78) (58) (64) (74) Plus: Increases in A/P 507 373 280 308 355

Free Cash Flow 4,586 5,077 5,481 6,063 6,739 95,601 Present Value 4,159 4,176 4,089 4,102 4,135 58,664

Discount Rate 10.26% 10.26% 10.26% 10.26% 10.26% 10.26%Terminal Growth Rate 3.00%

Enterprise Value 79,327 Less: Debt 12,003 Market Capitalization 67,324

Share Price 74.71$

Comp Set (Product Segmentation)

UNPIntermodal 20.00%Agricultural Products 17.00%Automotive 9.00%Chemicals 16.00%Coal 18.00%Industrial Products 20.00%

NSCCoal 21.00%General Merchandise 57.00%Intermodal 22.00%Assigned: 40.00%CSXCoal 22.00%Merchandise 60.00%Intermodal 14.00%Other 4.00%Assigned: 35.00%

CNRU.S. 17.00%Transborder 33.00%Canadian 19.00%Overseas Traffic 31.00%Assigned: 10.00%CP 6464Agricultural Products 32.05%Coal 9.61%Timber 3.19%Chemicals 9.85%Crude 7.49%Metals 11.01%Automotive 5.52%Intermodal 21.27%Assigned: 15.00%

Comp Ratios and InfoUNP Comparables AnalysisTicker Name Mkt Cap (USD) Rev - 1 Yr Gr:Y EPS - 1 Yr Gr:Y P/ E ROE Ev/ EBITDA P/ B P/ S ROA LF ROIC LFUNP US Equity UNION PACIFIC CORP 102,599.09$ 9.22% 21.86% 20.43 24.43% 9.59 4.85 4.35 10.11% 11.65%CSX US Equity CSX CORP 34,303.26$ 5.35% 5.46% 17.62 17.81% 8.45 3.08 2.74 5.94% 8.06%NSC US Equity NORFOLK SOUTHERN CORP 33,778.43$ 3.37% 5.57% 17.20 16.87% 8.84 2.73 2.92 6.09% 7.60%CNI CN Equity CANADIAN NATL RAILWAY CO 55,634.94$ 14.74% 24.52% 23.33 23.97% 12.75 5.28 5.93 10.22% 11.48%CP CN Equity CANADIAN PACIFIC RAILWAY LTD31,279.68$ 7.94% 70.80% 28.49 23.23% 13.66 7.15 6.29 8.76% 10.51%

Raw Average 51,519.08$ 8.12% 25.64% 21.41 21.26% 10.66 4.62 4.45 8.23% 9.86%Difference 51,080.01$ 1.10% -3.78% -0.99 3.16% -1.07 0.24 -0.10 1.89% 1.79%

P/ E ROE Ev/ EBITDA P/ B P/ S ROA LF ROIC LFWeighted Averages: 19.65 18.87% 9.82 3.77 3.66 6.85% 8.59%

Comparable Valuation

Multiple Price WeightP/E 112.99$ 40.00%Ev/EBITDA 107.27$ 40.00%P/B 88.05$ 10.00%P/S 93.59$ 10.00%Final Blend: 106.27$

As of: 3/17/2015

Recommendation

• Current price below 20 and 200 Day MA.

• 20 Day MA above 200 Day MA

Momentum

• Steady growth projections

Growth

DCF Valuatio

n $74.71

Comparable Analysis Valuation $106.27

Current Stock Price

$110.10

SELL100

SharesLimit $108

• Currently owned:200

shares• Current Gain

$7,198, 49%Current Holding