Investment Managers Pien-Cheng (William) Wei Sashikanth Yenika Yue (Benjamin) Xu Yuqing Zhang Zeyu Chi Presented on 11/05/2015

Agenda  Current Holdings  UNP – Company Overview  Industry Analysis  UNP – Financial Analysis  Peer Benchmarking  Financial Projections  Valuation  Recommendation

Current holdings  Purchased: 100 $ on April,2013  Cost basis: $14,820  2 for 1 split in June, 2014  Sold: 100 $ on April, 2015  Gain on sale: $3,390 (+45.75%)  Current market value: $8,819 (11/4)  Gain: $1,409 (+19.01%)

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  Has the largest railroad network of 31,974 route miles  The only railroad serving all six major Mexico gateways  Maintain a fleet of 8,500 locomotives and is served by around 50,000 employees Sources: Union Pacific k (Pg. 5), UNP website

Business Overview ► Revenue:  Freight revenue (94%)  Other revenue (6%) ► Key Strategies  Increase network and terminal capacity  Replace old and less efficient locomotives with new and more efficient ► Key Risks Involved  Fluctuating US$  Volatile fuel prices  Regulations Sources: Union Pacific k (Pg. 25, 38), Factbook 2014 (Pg.12, 30)

SWOT analysis StrengthsWeaknesses -Diversified revenue streams -Legacy pricing contracts -Strong ROIC -Heavy dependence on few suppliers of rail and locomotives -Affected by weather and climate change -Volatile US$ and uncertain energy environment OpportunitiesThreats -Agricultural and industrial product growth -Increasing energy exposure incl. high value added frac sand -Only player with access to all 6 Mexico gateways -Intense internal and external competition -Increased regulatory requirements like open access and revenue adequacy -Low fuel prices

Stock market prospects Sources: Yahoo Finance!

Source: IBISWorld Rail Transportation Industry - Overview  Operates short-haul and line-haul railroads, and intercity passenger trains  Sensitive to import and export volumes, crude oil prices, demand for coal and chemical manufacturing CAGR 4.6% CAGR 3.0%

Key Drivers  Increase in US Trade Value  Improved economic growth in Mexico and Canada  Rising global consumption  Expected US job and wage growth  Moderate growth in Industrial Production Index (IPI)  Low crude oil prices  Decrease in coal demand % Change in IPI Sources: IBISWorld

Rivalry among existing competitors Power of Suppliers Threat of New Entrants Power of Buyers Threat of Substitute Products Porter’s Five Forces Low High Medium High Medium

Financial Analysis Margin Analysis DuPont Analysis Return Analysis Leverage Analysis Sources: Union Pacific k

Ratio Analysis  Productivity gains due to new locomotives  Originates and delivers 60% of traffic while it is 50% for peers Greenblatt Ratios Greenblatt Ratios – Peer Comparison Sources: Union Pacific k, Yahoo Finance!

Management Analysis  Effective corporate governance policies  10 out of the 11 directors are independent  Use of majority voting for annual board elections  Issued options represented <1% of outstanding shares during the recent years  No executive officers on board committees

Peer Benchmarking CP transports merchandise freight of finished vehicles and auto parts, chemicals and plastics, crude oil and forest products Network of about 13,700 miles serving from the business centers in Canada and US Trans-loading, warehousing and distribution services of steel products KSU operates north/south rail route in the mid-west and southeast regions Network of about 6,500 route miles from the mid-west and southeast Customers including electric-generating utilities and intermodal transportation HUBG provides intermodal, truck brokerage and logistic services in North America Contracts with railroads to provide transportation for the shipment and freight brokerage Offers management services and technology solutions NSC has rail transportation of raw materials, intermediate products, finished goods and passenger trains Operates about 20,000 miles of road in 22 states, bimodal truckload transportation services Sources: Union Pacific k, Yahoo Finance!

Peer Benchmarking (Contd.) CompanyTrailing P/EForward P/EP/SalesP/BVWeight # CP15.26x17.15x3.34x5.67x30% KSU19.78x17.08x3.89x2.48x30% HUBG21.62x17.88x0.40x2.25x10% NSC14.24x14.00x2.23x2.00x30% UNP16.94x16.25x2.88x3.27x # Weight of each company assigned according to their similarity of service line and revenue sources with UNP Sources: Capital IQ

Relative Valuation ItemsPrice MultiplesWeight EPS (2014)Stock Price (Trailing P/E) 6.08x$ % Forward EPS (2015)Stock Price (Forward P/E) 7.09x$ % Sales per share (2014)Stock Price (P/Sales) 28.15x$ % Book Value per Share (2014)Stock Price (P/BV) 24.87x$ % Diluted Shares OutstandingWeighted Average $ m Current Price (11/4/2015) $88.19 Upside Potential 7.87% Sources: Capital IQ

Financial Projections Sources: Association of American Railroads, Bloomberg

WACC Sources: Bloomberg, UNP Q3 10-Q

DCF Valuation UNP expects to invest around 16-17% of revenue annually in the capital planning program Sources: UNP Factbook 2014

Final Implied Price Sources: Yahoo Finance!

Current Stock Price:$88.19 Relative Valuation: $95.13 DCF Valuation:$ Recommendation Recommendation: BUY 100 shares At current market price Sources: Yahoo Finance!  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 Stock Price