www.jpmorganmarkets.comNorthAmericaEquityResearch07January2019EquityRatingsandPriceTargetsMktCapRatingPriceTargetCompanyTicker($mn)Price($)CurPrevCurEndDatePrevEndDateCSXCSXUS53,622.6662.79OWn/c86.00Dec-19n/cn/cNorfolkSouthernNSCUS41,877.45150.53OWn/c203.00Dec-19n/cn/cUnionPacificUNPUS102,088.60137.79Nn/c169.00Dec-19n/cn/cSource:Companydata,Bloomberg,J.P.Morganestimates.n/c=nochange.Allpricesasof04Jan19.RailroadsU.S.RailroadPSRPotentialAnalysis-Feedback,Pushback,andFAQsonUpgradeofNSCtoOWAirfreight&SurfaceTransportationBrianP.Ossenbeck,CFAAC(1-212)622-1023brian.p.ossenbeck@jpmorgan.comBloombergJPMAOSSENBECKJ.P.MorganSecuritiesLLCCalebBHogan(1-212)622-9207caleb.b.hogan@jpmorgan.comJ.P.MorganSecuritiesLLCSanketPParab(91-22)6157-3342sanket.p.parab@jpmorgan.comJ.P.MorganIndiaPrivateLimitedLacey-AnnWisdom(1-212)622-9566lacey-ann.wisdom@jpmchase.comJ.P.MorganSecuritiesLLCSeepage16foranalystcertificationandimportantdisclosures,includingnon-USanalystdisclosures.J.P.Morgandoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.Thecenterpieceofour2019OutlookandupgradeofNSCtoOverweightwasadifferentiatedanalysisofkeyperformanceindicators,ratherthansimpleoperatingratiobenchmarking,toidentifypotentialproductivitygainsateachU.S.railnetwork.Inthisnoteweaddressfrequentquestionsandfeedbackontheanalysis,includingourpreferenceforNSCoverUNP,whichappearsfurtheroutofconsensusthanweinitiallyanticipated.InvestorsappearmoreconfidentthatUNPhasthestronger“PSRput”basedontheperceptionmanagementismorecommittedandundergreaterpressuretodriveproductivitygainsthanNorfolk.Thisviewiswidelyaccepted,inouropinion,butwebelievetheoperatingefficiencyandcompetitivenessofBNSFisstillbeingunderestimated,especiallyinaslowergrowthenvironment(seepages3-4).Conversely,webelievethe$600mm+ofspecificproductivity...
