- Credit Suisse

Transcription

- Credit Suisse

Top Picks
Credit Suisse Top Investment Ideas
May 4, 2016
Research Analysts
Credit Suisse US Equity Research
877 291 2683
[email protected]
Credit Suisse Global Product Marketing
212 538 4442
[email protected]
Arbin Sherchan, CFA
212 325 8967
[email protected]
Lori Calvasina
212 538 6396
[email protected]
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF
NON-U.S ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be
aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making
their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

BEYOND INFORMATION™
Client-Driven Solutions, Insights and Access
Top Picks
Methodology
 ‘One-stop shop’ for the research team ’s best ideas. Every research analyst identifies and ranks up
to 3 top stock picks based on a 6-12 month time horizon.
 Highlighting only high conviction ideas. In an effort to limit the list to our strongest ideas, analysts
were allowed to submit fewer than 3 stocks.
 Bonus sm all-cap pick: Analysts who do not list a name under $4.3 billion in market cap were given the
opportunity to add a “bonus small-cap pick.”
 Investm ent thesis: For each name, we include a short summary of our analyst’s thesis as a starting
point for further analysis.
Results
 131 Top Ideas: The exercise resulted in a list of 131 top stock ideas, representing ~15% of over 900
names covered by US analysts.
 Ideas Across Market Cap Spectrum : Out of the 131 names, 32 are small cap (under $4.3 billion), 56
are SMID cap (under $10.2 billion), and 77 are mid cap ($2.4-28.7 billion). A list of small caps can be
found on page 61.
 Ideas Across Styles: Out of the 131 names, 86 are growth names and 33 are value names. A list of
growth/value names by sector and market cap can be found on page 7.
 These should not be viewed as portfolios; they are simply a current snapshot of the analysts’ top picks in
their coverage universes.
Slide 1
Table of Contents
Section
Page
#1 Top Picks
3
Summary of Top Picks
4
Top Picks By Size & Style
7
Top Picks By Sector
Basic Materials
9
Consumer
12
Energy & Utilities
21
Financials
28
Health Care
37
Industrials
45
Services
51
Technology
54
Top Picks in Small Cap
61
Valuation Table
62
Slide 2
#1 Top Picks
Click here for previous edition, 4/8/16
BASIC MATERIALS
FINANCIAL
Ag Science
CF
Chemicals
AXTA
Metals & Mining
X
CONSUMER
INDUSTRIALS
Asset Managers
AMG
Aerospace & Defense
BEAV
Banks – Large Cap
JPM
Airfreight & Ground Transport
JBHT
Banks – Mid Cap
BBT
Airlines
LUV
Brokers & Exchanges
GS
Electrical Equip. & Multi-Industry
ETN
Insurance - P&C
CB
Engineering & Construction
CBI
Machinery
CMI
Apparel, Footwear & Softlines
HBI
Mortgage REITs
NRZ
Homebuilding & Building Products
CAA
REITs
TCO
Leisure
VAC
Specialty Finance
SYF
Media & Entertainment
TWX
Trust Banks, M&A Advisors & Market
Technology
LAZ
Packaged Food
SERVICES
Business & Professional Services
Environmental Services
Retail: Broadlines & Dept. Stores
COST
Knowledge Services
HEALTH CARE
Retail: Food & Drug
DG
Retail: Hardlines
HD
Restaurants
IT
K
MCD
ENERGY / UTILITIES
Alternative Energy
RUN
Independent Refiners
MPC
MLPs
GEL
Oil & Gas Exploration & Production
CXO
Oil Services & Equipment
SPN
CELG
Health Care Distribution & IT
ESRX
Healthcare Facilities
HCA
Internet
Life Science Tools & Diagnostics
ZTS
Payments & Financial Technology
GPN
Managed Care
UNH
Semiconductors
NXPI
Medical Supplies & Devices
BSX
Semiconductor Equipment
LRCX
Pharmaceuticals
BMY
Software
ADSK
SMID Cap Software
TWOU
RARE
TECHNOLOGY
Tech Hardware / Telecom Equipment
EURN
SMID Cap Oil & Gas Exploration &
Production
PDCE
New Top Pick
HMHC
Biotechnology
SMID Cap Biotechnology
Oilfield Services & Marine Transport
WM
Stock Moved Up in Rank
Stock Moved Down in Rank
FB
NOK
Slide 3
Sum m ary of Top Picks
BASIC MATERIALS
Analyst
#1
#2
#3
Ag Science
Chris Parkinson
CF
MON
AGU
Chemicals
Chris Parkinson
AXTA
APD
SHW
Metals & Mining
Curt Woodworth
X
CSTM
STLD
CONSUMER
Analyst
#1
#2
#3
Apparel, Footwear & Softlines
Christian Buss
HBI
NKE
LULU
Bonus Small
Cap Pick
Removals
Bonus Small
Cap Pick
Removals
Autos & Auto Parts
TSLA, DLPH, GM
Mike Dahl
CAA
TMHC
CSTE
Leisure
Ben Chaiken
VAC
SIX
MTN
Omar Sheikh
TWX
CBS
FOXA
Packaged Food
Rob Moskow
K
SJM
MDLZ
Retail: Broadlines & Dept. Stores
Michael Exstein
Retail: Food & Drug
Ed Kelly
DG
SYY
SFM
Retail: Hardlines
Seth Sigman
HD
SPWH
Restaurants
Jason West
MCD
PNRA
DRI
ENERGY / UTILITIES
Analyst
#1
#2
#3
Alternative Energy
Patrick Jobin
RUN
SCTY
JKS
Ed Westlake
MPC
MLPs
John Edwards / Bhavesh
Lodaya
GEL
EQM
TEP
Ed Westlake / Mark Lear
CXO
DVN
NBL
James Wicklund
SPN
WFT
SLB
Greg Lewis
EURN
STNG
New Top Pick
COST
Bonus Small
Cap Pick
Removals
VLO
Slide 4
ENERGY / UTILITIES
Analyst
#1
#2
#3
SMID Cap Oil & Gas Exploration & Production
Mark Lear
PDCE
FANG
GPOR
FINANCIALS
Analyst
#1
#2
#3
Asset Managers
Craig Siegenthaler
AMG
Banks – Large Cap
Susan Katzke
JPM
BAC
Banks – Mid Cap
Jill Shea
BBT
KEY
Brokers & Exchanges
Christian Bolu
GS
ICE
Insurance - P&C
Ryan Tunis
CB
ALL
AJG
Mortgage REITs
Doug Harter
NRZ
PMT
NSM
REITs
Ian Weissman
TCO
PLD
BDN
Specialty Finance
Moshe Orenbuch
SYF
V
Trust Banks, M&A Advisors & Market Technology
Ashley Serrao
LAZ
NDAQ
ITG
HEALTH CARE
Analyst
#1
#2
#3
Biotechnology
Alethia Young
CELG
GILD
BMRN
Health Care Distribution & IT
Robert Willoughby
ESRX
XRAY
CAH
Scott Fidel
HCA
LPNT
Erin Wilson
ZTS
Managed Care
Scott Fidel
UNH
Matt Keeler
BSX
Pharmaceuticals
Vamil Divan
BMY
LLY
Kennen Mackay
RARE
MDVN
New Top Pick
Bonus Small
Cap Pick
Removals
Bonus Small
Cap Pick
Removals
C
ZION
Bonus Small
Cap Pick
Removals
CNC
PFE
Slide 5
INDUSTRIALS
Analyst
#1
#2
#3
Aerospace & Defense
Rob Spingarn
BEAV
LLL
OA
Allison Landry
JBHT
UNP
CP
Airlines
Julie Yates
LUV
DAL
AAL
Electrical Equip. & Multi-Industry
Julian Mitchell
ETN
MMM
IR
Jamie Cook
CBI
ACM
Machinery
Jamie Cook
CMI
PH
ALSN
SERVICES
Analyst
#1
#2
#3
Anjaneya Singh
IT
NLSN
SERV
Andrew Buscaglia
Knowledge Services
Trace Urdan
HMHC
LOPE
NORD
TECHNOLOGY
Analyst
#1
#2
#3
Internet
Stephen Ju
FB
AMZN
GOOGL
Paul Condra
GPN
VNTV
Semiconductors
John Pitzer
NXPI
AVGO
Farhan Ahmad
LRCX
Software
Phil Winslow
ADSK
BOX
SMID Cap Software
Michael Nemeroff
TWOU
ULTI
Kulbinder Garcha
NOK
AAPL
New Top Pick
Bonus Small
Cap Pick
Removals
KBR
CAT
Bonus Small
Cap Pick
Removals
Bonus Small
Cap Pick
Removals
WM
HAWK
INTC
MLNX
AMAT, RTEC
ORCL
ANET
Slide 6
Top Picks By Siz e & Style
Small Cap (<$4.3B)*
Mid Cap (>4.3B, <28.7B)*
Large Cap (>$28.7B)*
Growth Stocks
AXTA, CF, SHW, STLD
Basic Materials
Consumer
Energy/Utilities
Financials
Health Care
APD, MON
CAA, SFM, SPWH, VAC
CBS, DG, DRI, HBI, K, LULU, MTN, PNRA, SIX,
SYY
COST, FOXA, HD, MCD, NKE, TWX
RUN, SCTY
MPC
SLB
ITG, TCO
AJG, AMG, LAZ
ICE, V
LPNT, RARE
BMRN, CAH, CNC, MDVN, XRAY, ZTS
BMY, BSX, CELG, ESRX, GILD, HCA, LLY, UNH
AAL, ACM, ALSN, BEAV, CMI, IR, JBHT, LUV,
PH
DAL, MMM, UNP
Industrials
Services
HMHC, LOPE
IT, NLSN, SERV, WM
Technology
BOX, TWOU
ADSK, ANET, GPN, LRCX, ULTI, VNTV
AAPL, AMZN, AVGO, FB, GOOGL, INTC, ORCL
TMHC
SJM
MDLZ
GPOR, PDCE, SPN, STNG
CXO, DVN, FANG, NBL, WFT
BDN, NRZ, NSM, PMT
ALL, KEY, NDAQ, PLD, SYF, ZION
Value Stocks
Basic Materials
Consumer
Energy/Utilities
Financials
X
Health Care
Industrials
BAC, BBT, CB, GS, JPM
PFE
CBI
LLL, OA
ETN
Services
Technology
* Note: Market Cap cut offs are based on Russell classifications.
Slide 7
Top Picks by Sector / Industry
Symbols:
New Top Pick since last publication
Company has been upgraded in rank since last publication
Company has been downgraded in rank since last publication
Chris Parkinson
Basic Materials
Ag Science
Rank
Company
[email protected]
(212) 538-6286
Pricing
Price: $33.34
1
CF Industries
Holding Inc.
(CF)
Target: $40.00
Mkt Cap: $7.8B
Price: $95.65
2
Monsanto
Company
(MON)
Target: $97.00
Mkt Cap: $41.8B
Rationale
We acknowledge that further concerns over Chinese Yuan depreciation and the consequent effects on global urea
prices will lead to further volatility. However, we believe the market significantly under-appreciates CF's best-in-class
transportation and logistics capabilities and its ability to generate strong free cash flow, even at a cyclical low. In our
view ASPs in both ammonia and UAN will surprise to the upside, further supporting our constructive view.
MON remains positioned to benefit from opportunities to enhance long-term profitability on the back of higher margin
product launches and further product penetration (i.e.- Intacta soybeans) in addition to portfolio upgrades. Increased
biotech acres in S. America with stacked traits and the potential for Xtend launch in 2016 which should drive higher
margins and LT growth post '16, mitigating FX headwinds in S. America.
Price: $86.00
3
Agrium Inc.
(AGU)
Target: $93.00
We remain optimistic regarding the retail segment's potential to optimize its store footprint and further benefit from
operating leverage. Private label sales should also continue to benefit segment margins. Within wholesale, favorable
N. American nitrogen economics should provide some offset to the declines in the global potash market.
Mkt Cap: $11.9B
Note: No change to Top Picks since last publication.
Source: Credit Suisse; Data as of 2-May-16
9
Chris Parkinson
Basic Materials
Chemicals
Rank
Company
[email protected]
(212) 538-6286
Pricing
Price: $28.98
1
Axalta Coating
Systems
(AXTA)
Target: $33.00
Mkt Cap: $6.9B
Price: $145.87
2
Air Products &
Chemicals
(APD)
Target: $161.00
Mkt Cap: $31.5B
Rationale
AXTA is currently our top pick due to i) continued execution on the Axalta Way and Fit for Growth cost cutting
initiatives; ii) steady growth in refinish as a result of increased miles driven, industry leading technology, and
alignment with NA MSO growth; and iii) new business wins enabling above market growth in light vehicle and
industrial. We believe that all the above should lead to higher-than-consensus FCF generation, enabling the company
to reach its leverage target of 2.5-3.0x in ~12 months (vs. company guidance of 12-18 months).
APD is our second favorite stock pick as (i.) we believe continued execution on long term cost-cutting targets; we
expect an additional ~300-350 bps of margin improvement from operational efficiencies to flow through over the next
~2 years, (ii.) best-in-class HyCo exposure to benefit from accelerating hydrogen demand, (iii.) ability to push modest
price increases in developed markets, and (iv.) lower domestic exposure to packaged gas, which fluctuates more with
the macro economy vs. onsite. We also believe intermediate term optionality exists due to the Versum spin and low
leverage (only 2.2x levered), offering plenty of dry powder for inorganic growth initiatives.
Price: $289.51
3
Sherwin-Williams
Company
(SHW)
Target: $319.00
Despite the expensive VAL premium acquisition, SHW will continue to have the among the highest long term ROICs
in the industry post debt pay down in '17/'18, likely gain share in NA architectural, build out a stronger European
presence and continue to benefit from raw material relief in the near term.
Mkt Cap: $26.8B
10
Curt Woodworth
Basic Materials
Metals & Mining
Rank
Company
[email protected]
(212) 325-5117
Pricing
Price: $20.30
1
United States
Steel Corp.
(X)
Target: $22.00
Mkt Cap: $3.0B
Price: $5.66
2
Constellium
(CSTM)
Target: $10.00
Mkt Cap: $0.5B
Price: $25.31
3
Steel Dynamics,
Inc.
(STLD)
Target: $27.00
Mkt Cap: $6.2B
Rationale
United States Steel (X) is our top pick in the steel space given it has the highest operating leverage to the bullish flat
rolled scenario we see for 2Q16 and going into the back half of the year. For context, every $25/st move in ASP for
X's tons sold into the spot market translate into ~$200mn in EBITDA. In addition, we see upside risk to margins, as
the market might be underestimating the magnitude of Carnegie Way cost reductions due to the depressed market
conditions in 2015. We forecast outsized FCF yield in 2016 based on healthy EBITDA generation and strong WC
release.
Constellium is our top pick in the aluminum space due to its depressed valuation, which in our view does not
appropriately reflect the company's fundamentals, including a clear pathway for US BiW growth and improved liquidity
profile. While there have been some missteps since the acquisition of Wise Metals and management may need to
regain investors trust, the recent JV expansion announcement provides for a streamlined capex outflow and improved
FCF profile. CSTM has best-in-class product competency in both aerospace and aluminum body sheet, which have
compelling medium term growth in our view.
STLD is the best positioned of the domestic steel mills to capitalize on higher sheet pricing and we expect margin
expansion from its low cost footprint. We believe 2H of 2015 is not indicative of 2016 EPS potential, as both volumes
and metal margins are likely to recover while destocking ends and domestic supply/demand fundamentals come into
better balance. As the low cost producer in the US, we expect STLD to recover more quickly than peers and take
meaningful market share over the next few years. STLD is uniquely positioned in our view to leverage its strong
balance sheet for both additional organic growth projects as well as acquisitions. STLD has significant hot metal
capacity available at both Roanoke and Columbia City and we look for STLD to build downstream capability to
leverage this latent capacity. Our $27 price target assumes STLD trades at 7.7x 2017 EV/EBITDA.
11
Christian Buss
Consumer
Apparel & Footwear
Rank
Company
Pricing
[email protected]
(212) 325-9667
Rationale
Price: $29.31
1
Hanesbrands Inc.
(HBI)
Target: $39.00
Strong and steady free cash flow generator with opportunity to catalyze EPS growth via acquisitions and mix shift
towards premium priced products.
Mkt Cap: $11.1B
Price: $59.59
2
Nike Inc.
(NKE)
Target: $68.00
We view Nike as a best-in-class global brand with the potential to sustain double-digit earnings growth on a multi-year
basis. We view the company as defensive in light of its international exposure and market share capture potential in a
slowing North American consumer environment.
Mkt Cap: $100.4B
Price: $66.72
3
lululemon
athletica Inc.
(LULU)
Target: $76.00
Mkt Cap: $11.4B
We are encouraged to see steady demand momentum across categories and channels and believe upcoming
product innovation should sustain momentum as the company continues to recapture lapsed consumers. We
continue to view the gross margin expansion opportunity as significant and have increasing conviction lululemon will
be able to recapture this margin as operational and leadership changes take hold.
12
Consumer
Rank
Company
Pricing
Price: $32.85
1
CalAtlantic Inc.
(CAA)
Target: $40.00
Mkt Cap: $3.9B
Price: $14.26
2
Taylor Morrison
(TMHC)
Target: $18.00
Mkt Cap: $1.7B
Price: $37.70
3
Caesarstone Ltd.
(CSTE)
Target: $47.00
Mkt Cap: $1.3B
Mike Dahl
[email protected]
(212) 325 5882
Rationale
We think CAA's well-located land investments (legacy SPF positions) and relatively attractive market exposure will
drive higher, more sustainable ROEs than peers. Additionally, the SPF-RYL merger creates potential for non-cycle
dependent upside in terms of cost synergies (we est. 100bps of margin enhancement) and shared best practices
(potential to manage up legacy RYL's below average absorptions). We view CAA's valuation of 1.25x our YE'16 BV
as attractive vs. the large-cap peer group average of 1.4x given CAA's forecast 13.5% ROE vs. the 12.5% large-cap
peer avg.
TMHC currently trades at a ~25% discount to the group (0.9x '16 TBV est. vs. total builder average of 1.2x). We see
solid demand trends in several core markets including Atlanta, Austin, Dallas and Phoenix (together represent ~1/3 of
deliveries), plus recent acquisitions should drive above average order growth (we est. '16 orders +15% even with
conservative -5% absorption forecasts compared to peer group order growth of 10%). TMHC does have outsized
Houston exposure relative to the group; however, we think the current discount valuation more than reflects Houston
headwinds. With a forecast 10% ROTE, we think TMHC should be trading at least at 1.0x TBV which would still be a
slight discount to the group average but represents >15% upside from current levels.
We see secular tailwinds from increased quartz conversion/penetration in US, with CSTE remaining favorably
positioned given its significant capacity expansion and opportunity to expand into new channels. We est. 12% organic
revenue CAGR through ’17 with 25% EBITDA margins, both of which are well above the peer average. The stock
trades at 15x ’16 EPS vs. building product avg. of 18x.
13
Ben Chaiken
Consumer
Leisure
Rank
Company
[email protected]
(212) 325-2585
Pricing
Price: $61.86
1
Marriott Vacations
Worldwide
(VAC)
Target: $73.00
Mkt Cap: $1.7B
2
Six Flags
Entertainment
Corp.
(SIX)
Price: $59.69
Target: $67.00
Mkt Cap: $5.6B
Price: $130.76
3
Vail Resorts
(MTN)
Target: $145.00
Mkt Cap: $4.7B
Rationale
Trading at trough multiples, we see the recent sell-off as unfounded, and as such an excellent opportunity for entry
with 10% upside potential from current levels. VAC has an excellent product offering, robust balance sheet ($200m
net cash surplus), and strong consumer brand recognition, but trading at 7.8x TTM EV/EBITDA we believe VAC could
rerate from its recent ~3 turn compression, given strong fundamentals. We see upside to VAC shares through strong
organic growth, a new unit pipeline not being properly valued by the street, and synergies from the MAR/HOT merger
which should provide a significant new customer base for VAC to market to.
4% dividend, leader in theme park industry with regards to innovation and brand quality, strongest management team.
We believe SIX will be able to capitalize on their pricing power over the next few years, driven by their improved ticket
pricing strategy. SIX could also see upside from attendance growth in 2016, fueled by strong early season pass sales
and a growing active pass base. Further, we believe there is incremental upside from international deals that is not
priced into the Street's estimates.
MTN continues to build off of their robust pricing power and focus on margin improvement. We see potential upside
from the integration of PCMR/Canyons (first year of full integration), tuck-in acquisitions, as well as their capital
allocation strategy. As MTN continues to roll up regional assets, we believe there is upside to its EPIC pass sales and
pricing power.
14
Omar Sheikh
Consumer
Rank
Company
Pricing
Price: $75.32
1
Time Warner Inc.
(TWX)
Target: $90.00
Mkt Cap: $59.3B
Price: $56.47
2
CBS Corporation
(CBS)
Target: $70.00
Mkt Cap: $25.8B
Price: $30.36
3
21st Century Fox
Inc.
(FOXA)
Target: $37.00
Mkt Cap: $58.1B
[email protected]
(212) 325-6818
Rationale
We are bullish on Time Warner given (1) as a pure-play content owner, it is structurally well-positioned as
consumption of video content migrates online and new opportunities to monetize emerge; (2) the roll-out of HBO
NOW should tap new demand for the product and could substantially boost 2020 HBO EBITDA, as should the
upcoming affiliate renewal cycle beginning at the end of 2016; (3) Turner screens well on our proprietary genre
analysis, and we remain bullish on the company's ability to grow affiliate fees long term; and (4) if we were to strip out
HBO at valuations of $30bn-$35bn, the rest of Time Warner is currently trading at a significant discount.
We are bullish on CBS due to (1) superior positioning, given limited exposure to generalist cable networks; (2) our
view on advertising, where we think strong growth is likely in 2016 given CBS has the Superbowl, will benefit from
political advertising around the election, and where we do not see a long-term material shift from TV to digital; (3) the
significant growth opportunities highlighted in the Analyst Day including international licensing of Showtime, domestic
growth of Showtime OTT & CBS All-Access, and retrans/reverse comp growth; and (4) an undemanding valuation,
where the 12m forward PE multiple is at the low end of the recent trading range.
We are bullish on FOXA due to (1) the potential for significant value to be generated in Hulu and STAR India, two
assets we believe are misunderstood by investors; (2) our view on advertising, where we think strong growth is likely
in 2016 from political advertising around the election, and where we do not see a material long term shift from TV to
digital; (3) Fox's sports exposure to the NFL and MLB; and (4) Fox's compelling SOTP valuation, where we value
FOX shares at $37 based on stakes in Hulu ($5bn), STAR India ($7.2bn), Sky ($9.5bn), Shine-Endemol ($1.5bn) and
a value for core Fox at 8.3x fiscal 2017 EV/EBITDA, in line with peers.
15
Rob Moskow
Consumer
Packaged Food
Rank
Company
[email protected]
(212) 538-3095
Pricing
Price: $77.44
1
Kellogg Company
(K)
Target: $86.00
Mkt Cap: $27.5B
Price: $127.68
2
J.M. Smucker Co.
(SJM)
Target: $142.00
Mkt Cap: $15.3B
Price: $44.31
3
Mondelez
(MDLZ)
Target: $48.00
Mkt Cap: $70.6B
Rationale
We believe Kellogg represents the best risk-reward in our space. The savings from restructuring and ZBB provide
unique visibility into 7-9% EPS growth and we expect the pipeline of new innovation for the Kashi brand and stronger
DSD sales for snacks to drive stronger performance as the year progresses. With the stock trading at a valuation
discount to peers on a P/E basis and having almost zero support from the sell side, Kellogg has a long runway for
positive ratings revisions as it attempts to regain its blue-chip status. We expect the benefits from SG&A leverage,
including the implementation of zero-based budgeting across its business geographically to more than offset
investment in improving the quality of its food and sets the table for strong operational leverage in 2016.
The company’s strong organic growth performance this year will be driven by the launch of Dunkin’ k-cups, expanding
its presence in PetSmart, and lapping easy comparison for the Folgers brand. In a nutshell, the positive momentum in
the coffee business and the likelihood that the company will beat its $200 million pet food synergy target offsets the
risk of a bumpy CEO transition. Our benchmarking suggests that if management can right-size the overhead
expenses, it can boost EPS to $7.61 by FY18 and get the stock to $152 in just short of two years.
With its strong emerging market platform (44% of sales) and excellent brands (Oreo, Cadbury, Trident), Mondelez is a
key beneficiary of the consumer trend toward snacking in emerging markets. We think the appointment of Nelson
Peltz to the Board will lead to better execution by current management and an improvement in operating margins to
15-16% in 2016 and higher in subsequent years. The recent divestiture of the coffee business is a good example of
how we expect Peltz will continue to drive value creation for shareholders.
16
Consumer
Retail: Broadlines & Department Stores
Rank
Company
Pricing
Michael Exstein
[email protected]
(212) 325-4147
Rationale
Price: $150.93
1
Costco Wholesale
Corporation
(COST)
Target: $165.00
COST remains one of the few conventional retailers that continues to deliver positive traffic, market share gains, and
a validated model for international expansion. Furthermore, their business model appears largely shielded from the
margin erosion from e-commerce impacting most retailers.
Mkt Cap: $66.3B
17
Ed Kelly
Consumer
Retail: Food & Drug
Rank
Company
Pricing
Price: $82.50
1
Dollar General
(DG)
Target: $90.00
Mkt Cap: $23.7B
Price: $48.61
2
Sysco
Corporation
(SYY)
Target: $52.00
Mkt Cap: $27.4B
Price: $28.24
3
Sprouts Farmers
Markets
(SFM)
Target: $32.00
Mkt Cap: $4.3B
[email protected]
(212) 325-3241
Rationale
DG represents one of the more attractive investments in staples retail today, in our view. The company offers
investors attractive and highly visible 10-15% annual earnings growth, paced by 2-4% comps, 6-8% square footage
growth, relatively stable operating margins, and an aggressive share repurchase program. New internal initiatives
outlined at its recent analyst day should yield consistently strong operating momentum and provide support for these
targets. On the other hand, DG also provides a defensive growth angle, as the company typically gains share as the
U.S. consumer weakens. Overall, we believe it’s difficult to find investment ideas poised to deliver under multiple
macro backdrops.
We remain positive on SYY as we believe this leading, but historically underperforming franchise is poised to rebase
its earnings higher while positioning itself for sustained long-term growth. The company, whose EBITDA has been
essentially flat since 2010, recently announced an acceleration of its strategic repositioning plan in an effort to drive
upside to its previous three-year operating income goals. Management now believes it can generate at least $500
million in incremental EBIT by the end of 2018. We continue to view SYY as an under-earning franchise facing a
large opportunity to improve performance with a more aggressive shift in strategy. Activist involvement ensures the
board is focused on value creation for shareholders.
SFM is one of the most compelling growth stories in consumer, in our view, given its differentiated model, high
returns, large new store opportunity, and robust earnings growth outlook. The company’s recent results are
particularly impressive given poor results at peers and a deflationary backdrop – SFM managed to accelerate comps
in Q4 while holding pricing discipline amid an increasingly challenging competitive landscape. SFM may be the only
food retailer with the opportunity to exceed expectations in 2016.
18
Seth Sigman
Consumer
Retail: Hardlines
Rank
1
2
Company
Pricing
[email protected]
(212) 538-8043
Rationale
Home Depot
(HD)
We view HD as a best-in-class retailer with a strong management team that participates in one of the strongest
segments of retail, marked by oligopoly pricing, reduced supply, and relative insulation from e-commerce. From a
macro standpoint, despite the weakening in GDP forecasts (and a weak Q1), the segments that matter most for HD
Price: $136.05
remain healthy (Consumer Spending and Residential Investment), and both have shown an acceleration in the first
quarter. Furthermore, as HD has shown in recent performances, they have the ability to offset any slowdown in the
Target: $145.00 broader economy with market share gains and other initiatives. HD also stands to benefit from the ongoing erosion of
SHLD's retail business in appliances and tools. Lastly, internal opportunities include the company's focus on the Pro
Mkt Cap: $170.3B (supported by the acquisition of Interline Brands), increasing vendor collaboration, and additional supply chain
improvements, which position HD well for higher sales productivity. Combined with share buybacks, which have been
growing at a 5% CAGR, we expect double-digit earnings growth to continue despite limited square footage growth
opportunities.
Sportsman's
Warehouse
Holdings, Inc.
(SPWH)
We view SPWH as one of our most interesting small cap ideas. We continue to believe SPWH offers a unique growth
store in this group, with a store growth strategy that is working and should insulate SPWH more from competition
going forward, along with a supportive industry demand outlook along with a number of merchandising initiatives. At a
time when others in the sporting goods sector are retrenching, slowing growth, cutting costs and rethinking their
growth strategies, we believe SPWH has found a store recipe that works. Furthermore, we believe SPWH is sheltered
from many of the disruptive issues that others in the sector are facing (e-commerce and the related supply chain
investments). SPWH continues to gain share in a highly fragmented sector, and this could accelerate if consolidation
plays out amongst its peers. We believe SPWH has been successful in finding smaller markets where its unique, low
cost model can earn strong returns but protects it from larger competition, which is important given the aggressive
store growth in the industry. Furthermore, these smaller market stores should help shelter SPWH from any
marketplace disruption from TSA liquidation sales in the short term.
Price: $11.21
Target: $16.00
Mkt Cap: $0.5B
19
Jason West
Consumer
Restaurants
Rank
Company
[email protected]
(617) 556-5745
Pricing
Rationale
Investors may feel they missed this one given the re-rating of the multiple and as several major catalysts have been
announced (All Day Breakfast, McPick 2, leverage, G&A cuts). However, we believe the evolution of MCD's balance
sheet and business model (higher franchise mix) argue for a permanently higher multiple. We also forecast 27% EPS
Target: $135.00 growth from 2015-17, largely driven by buybacks and G&A cuts. EPS/dividend growth alone could continue to push
the stock higher, with potential for further upside should MCD announce meaningful new sales drivers in future
Mkt Cap: $112.5B quarters, most likely via comprehensive asset/tech investments, similar to what has occurred at MCD UK (40
consecutive quarters of SSS growth).
Price: $128.20
1
McDonald's Corp
(MCD)
2
Panera Bread
Company
(PNRA)
Price: $214.58
Target: $225.00
Mkt Cap: $5.1B
Price: $63.61
3
Darden
Restaurants, Inc
(DRI)
Target: $72.00
Mkt Cap: $8.1B
Our thesis of accelerating SSS as prior investments gain steam is starting to play out. (2-yr traffic improved ~500bps
from 1Q15 to 4Q15.) PNRA's nascent delivery rollout also has the potential to drive ~300bps of SSS over the next ~2
years (assuming 33% of stores add delivery with 8% avg. SSS lift.) The combination of P2.0 conversions, delivery,
labor investments, upgraded customer analytics, healthy catering sales, and better marketing all provide good
visibility on SSS. In the current market, this visibility should earn a premium.
DRI continues to post positive surprises on sales and EPS, most recently with F3Q16 results. DRI’s core Olive
Garden brand (~60% of profits) has outperformed industry benchmarks for the past qtrs., which follows ~4 yrs. of
underperformance. We find that these positive momentum stories tend to continue longer than investors expect,
driving sustained periods of share price outperformance. DRI has also continued to raise the bar on cost savings
targets, and our benchmarking work suggests more room for upside here. Further, while valuation is rich by historical
standards, part of this premium is due to healthy FCF, which drives a ~5-6% FCF yield and ~3% div. yield for the
stock.
20
Patrick Jobin
Energy & Utilities
Alternative Energy
Rank
Company
Pricing
Price: $7.97
1
Sunrun
(RUN)
Target: $18.00
Mkt Cap: $0.8B
Price: $29.55
2
SolarCity
(SCTY)
Target: $62.00
Mkt Cap: $2.9B
Price: $22.40
3
Jinko Solar
(JKS)
Target: $40.00
Mkt Cap: $0.7B
[email protected]
(212) 325-0843
Rationale
Sunrun is the third largest US residential solar installer with 9% market share. The company has a differentiated multichannel strategy with 1) a direct-to-customer channel and direct installation business, 2) a partner network of lead
generators, distributors, and installers, and 3) strategic partners looking to leverage existing partnerships and brand
power on the Sunrun platform. Sunrun is also unique by utilizing a customized pricing approach, enabling the
company to focus on earning above-average returns, all else equal, instead of approaching each market with a fixed
price for solar energy. Demand is robust with Q4 deployments up 83% y/y and guidance of 40% deployment growth in
2016. We arrive at a $21 valuation (176% upside) based on a DCF that conservatively embeds slowing growth and
reduced returns over time.
SolarCity is the leader in the US residential solar leasing/PPA market with a 34% market share. The company is a key
beneficiary of two trends in solar – lower solar costs making it a viable resource in more markets (residential solar
system costs have fallen 40% in four years) and the ability to lower the cost of capital through financing vehicles.
Demand is robust with Q4 bookings up 84% y/y and guidance of 44% installation growth in 2016. We estimate 32
states are economic solar adopters today and the market is ~1% penetrated. We arrive at a $89 base-case valuation
(~185% upside) based on a DCF that conservatively embeds slowing growth and reduced returns over time.
Jinko Solar remains our top stock pick in the upstream solar module manufacturing space given their cost leadership
in manufacturing, proven downstream execution capabilities, relative valuation and nearing opportunity to leverage
the value in operating solar assets in China. The company has also opened a new manufacturing plant in Malaysia,
which allows a more flexible manufacturing base to optimize trade flows given import duties into the US.
21
Ed Westlake
Energy & Utilities
Independent Refining
Rank
Company
Pricing
Price: $38.58
1
Marathon
(MPC)
Target: $48.00
Mkt Cap: $20.4B
[email protected]
(212) 325-6751
Rationale
MPC has had a tough start to 2016, given the downward revisions to MPLX EBITDA guidance due to weaker than
expected commodity prices for the MWE portfolio and the resulting impact on upstream producer activity as well as
maintenance across its own refining system. However, the longer term attractions remain intact. Over time, MPC will
significantly improve the Galveston Bay refinery, grow logistics with the market for North East gas and NGL's, deliver
MPC's own logistics investments, and continue to drive value in its leading retail franchise, Speedway. We're
comfortable that MPC value will rise over time.
Note: MPC is new #1 Top Pick. Removed VLO (Downgraded to Neutral).
22
John Edwards / Bhavesh Lodaya
Energy & Utilities
MLPs
Rank
Company
[email protected] / [email protected]
(713) 890-1594 / (212) 325-2337
Pricing
Price: $32.00
1
Genesis Energy,
LP
(GEL)
Target: $46.00
Mkt Cap: $3.5B
Price: $77.60
2
EQT Midstream
Partners, LP
(EQM)
Target: $109.00
Mkt Cap: $6.1B
Price: $42.55
3
Tallgrass Energy
Partners, L.P.
(TEP)
Target: $54.00
Mkt Cap: $2.9B
Rationale
Both defensive in terms of low direct commodity price risk and offensive in terms of visibility to distribution growth via
high expected distribution coverage over the next 3-4 years as a result of the acquistion of offshore assets from EPD
a few weeks ago. That acquistion was approximately 25-30% accretive to DCF providing visibility to distribution
growth the next few years. The risk is that GEL does not provide guidance on project back log, is exposed to some
volumetric risk in the low commodity price environment and is on the smaller side (about $5B mkt cap), offset by
minimum volume commitments and the lack of capital investment required to sustain ~10% distribution growth at least
the next 4 years. GEL has the added advantage of no IDRs.
Distribution growth at EQM will be driven by the $3Bn+ organic project backlog in the most advantaged areas of the
northeast, that are underpinned by long-term contracts. EQM will also be the direct beneficiary of EQT’s dry gas well
development in the Utica. Its healthy, investment grade balance sheet with current leverage of under 2x and a
forecasted LT leverage of under 3x, makes project financing easier. EQM is targeting a 20% annual distribution
growth through 2017. We remain confident of EQM’s double-digit distribution growth prospects in the 2018 and
beyond timeframe as its projects are placed in service.
Tallgrass continues to impress operationally and mgmt. gave a lot of color on what opportunities they see in front of
them while they execute on their 20%/yr 2015-17 distribution CAGR. Given the strong yield at TEP (5.3%) and TEGP
(2.5%), they also remain potential acquirers of other midstream players though the ask remains too high for some
assets in the market, given the challenged environment. With its low leverage of 2.6x TEP maintains enough flexibility
to finance its growth without coming to the equity market, unlike a number of peers. TEP is not witnessing any
slowdown in its crude transportation volumes (PXP) given its four supply points, providing ample optionality.
23
Energy & Utilities
Rank
Company
Pricing
Price: $117.06
1
Concho
Resources, Inc.
(CXO)
Target: $123.00
Mkt Cap: $15.4B
Price: $34.56
2
Devon Energy
Corp
(DVN)
Target: $37.00
Mkt Cap: $18.5B
Price: $36.44
3
Noble Energy
(NBL)
Target: $41.00
Mkt Cap: $15.8B
Ed Westlake / Mark Lear
[email protected] / [email protected]
(212) 325-6751 / (212) 538-0239
Rationale
CXO has delivered outstanding operational performance in 2015 as it has quickly moved spending levels more in
balance with cash flow in the current commodity environment. The company has reduced its operated rig count 65%
from 4Q14 levels to 13 rigs currently, and capital expenditures have dropped 63% over the same period to $301MM.
While the Northern Delaware remains the company’s “bread and butter” delivering ~30% ATAX IRR’s at the futures
strip, CXO and the industry continue to drive improving performance in the Southern Delaware and the Midland Basin
will be a bigger focus in 2016. While the company still expects to direct the bulk of its capital to the Northern
Delaware, well results over in the Midland have been hard to ignore, and the company discussed that the area will
receive a bigger piece of the capital pie in 2016, with the ability to drive more pad efficiency and drill longer laterals.
The company is sitting on 110k net acres in the Midland basin, with a large position in Midland and Upton Counties,
offsetting operators that have derisked multiple high return opportunities including the Wolfcamp A, B and Lower and
Middle Spraberry.
DVN has a significant resource of low cost core of the core shale. The company has realized significant operational
improvements through the downturn and has a lot of capital flexibility given major projects have been completed.
2016 capex has been cut 75%, and a reduced dividend, job cuts, cost savings, and an equity offering have helped to
shore up the balance sheet. DVN's core of the core Eagle Ford, Bone Springs and core STACK should have among
the best economics in shale. DVN has also maintained its $2-3bn disposal target which prevent further upside to
current leverage. Consolidated Net debt-cashflow would be 7.5x at the strip in 2017 before any E&P disposals
(assuming $42 WTI), but just 3.5x at the CS deck ($54 WTI in 2017).
NBL reaffirmed its $1.5Bn capital program in 2016 allowing it to maintain cash flow neutrality at our deck ($35/Bbl
WTI). It has allocated 67% of the budget to onshore U.S., running 2 rigs in the DJ Basin with another 1 – 2 rigs in
Texas. It has a healthy DUC inventory of 100 wells in the DJ and Texas assets and another 85 DUCs in the Marcellus
giving it the flexibility to meet production targets while maintaining cash flow neutrality in the challenged macro
environment. It also has $250MM budgeted for the Gulf of Mexico with a majority allocated to exploratory drilling in
the Silvergate and Katmai prospects, and another $100MM allocated for Eastern Mediterranean development. In
addition to a previously reported dividend cut, NBL noted that it had sold $200MM of non-producing offshore assets in
1Q16. The company also expressed an appetite for further asset sales primarily in the Eastern Mediterranean,
including selling down some interests in Tamar and Leviathan and could add additional cash to reduce NBL's current
leverage.
24
Energy & Utilities
Rank
Company
Pricing
Price: $16.89
1
Superior Energy
Services, Inc.
(SPN)
Target: $12.00
Mkt Cap: $2.6B
Price: $8.20
2
Weatherford
International, Inc.
(WFT)
Target: $13.00
Mkt Cap: $7.3B
James Wicklund
[email protected]
(214) 979-4111
Rationale
Survivability is not a question for SPN, so the duration of the current downcycle is less critical for SPN than the other
companies in our universe. SPN has ~$500mm cash on the balance sheet and a debt to cap of 40%, further
impairments are also unlikely as the company recorded a $807.6mm reduction in value of assets in 2Q15 and a
$755mm reduction in 3Q15, citing both long-lived assets and goodwill reduction. Pressure pumping (one of SPNs
primary business lines) is 100% spot market, implying first mover advantage in a recovery. Its blue-chip customer list
doesn’t insulate it from losses, but implies a more likely and more robust rebound. Management is dedicated to
making the company profitable at current activity levels, which will result in significant positive incremental margins
and a faster return to previous earnings levels. We view Q2 2016 as a bottom in domestic activity, and, while any
recovery may be slow, hitting bottom and beginning recover will result in significant upside for SPN shares.
Although the stock has been volatile to start the year, we continue to see the company achieving its FCF goals.
Zubair's reversal from cash drag to cash contributor should result in a $200M YoY FCF swing in 2016 and combined
with operating cash savings, WFT could generate north of $600M in FCF in 2016. We think that cash flow success is
not discounted in the stock today, in particular at its current price. The company issued $678mm in equity in March
alleviating short-term liquidity concerns, which was the main drag on the stock. Post-equity raise, we think WFT has
the liquidity to survive the downcycle. There is continued concern and comment about management and operations
after missteps of the past few years but we see a serious, professional and experienced line of senior management,
much of it new, that has delivered good results thus far.
We believe that oil prices bottomed at $26 in January and that the US rig count will bottom in Q2. Though any
valuation above current prices is challenging, buying an oilfield services company that is exceptionally well positioned
to gain share, improve margins, and post higher returns near a cyclical bottom is rarely a bad idea. The pushback is
Target: $80.00
that SLB has less exposure to a NAM land recovery (the first market to recover), which is true. SLB could lag our
other top picks during a NAM land recovery; for investors with a longer time horizon, the technology, integration and
Mkt Cap: $110.4B culture advantages SLB posses are more than enough for long-term financial and operational outperformance. We
expect these results (assisted by successful integration of CAM) to drive the stock over the next few years.
Price: $79.40
3
Schlumberger
(SLB)
25
Energy & Utilities
Rank
Company
Pricing
Price: $10.98
1
Euronav NV
(EURN)
Target: $20.00
Mkt Cap: $1.7B
Greg Lewis
[email protected]
(212) 325-6418
Rationale
EURN's position as a dominate VLCC and Suezmax spot player makes it the beta crude tanker stock for the tanker
market up cycle. In addition, with a net debt to capital of 31%, EURN is moderately leveraged, which should provide
management with ample flexibility for fleet acquisitions and to return cash shareholders in an up-cycle (where we
are). EURN expects to pay out 80% of net income as dividends (~9.5% 2016 yield).
Price: $6.30
2
Scorpio Tankers
Inc.
(STNG)
Target: $10.00
STNG is the BETA play for the product tanker trade with a lot of optionality (dividends, buybacks, yield spinoff). The
company should benefit from a pickup in product tanker dayrates as US exports ramp.
Mkt Cap: $1.1B
26
Energy & Utilities
SMID Cap Oil & Gas Exploration & Production
Rank
Company
Pricing
Price: $64.24
1
PDC Energy
(PDCE)
Target: $81.00
Mkt Cap: $3.0B
Price: $87.61
2
Diamondback
Energy, Inc.
(FANG)
Target: $96.00
Mkt Cap: $6.3B
Price: $30.02
3
Gulfport Energy
(GPOR)
Target: $38.00
Mkt Cap: $3.8B
Mark Lear
[email protected]
(212) 538-0239
Rationale
PDCE's formal 2016 guidance left its production target unchanged while capex was lowed $40MM as a result of
efficiencies realized in its Wattenberg drilling program and leaving its four Wattenberg and one Utica rig program
intact. Much like its peers, PDCE is focused on balance sheet management and with the new budget we project that it
will be roughly cash flow neutral in 2016 with a net debt/EBITDA of 1.5x at the current strip (vs. 1.4x in 2015). The
company has a strong hedge book that will support 2016 activity, but as hedges roll in 2017, it has noted an ability to
flex its program to maintain a peer-leading balance sheet under sustained low oil prices.
FANG set a $280-$375MM capex budget and widened production guidance to 32.0-38.0 Mboe/d, a ~3% reduction at
the midpoint from the previous range. FANG additionally widened completion guidance to 30-70 for the year, and
expects to manage completion cadence to adjust to commodity prices. We project FANG spending $310MM and
delivering 37.2 Mboe/d of production, equating to ~12% growth yr/yr and a year-end leverage ratio of 1.5x at the strip
(vs the group at 4.8x). At the low end of the capital guidance range in 2016, FANG expects to defer ~4 – 5
completions per quarter, exiting the year with 30 – 40 gross DUCs. With a sizeable backlog, we see FANG delivering
10% production growth in 2017 at only a modest increase in capex yr/yr, and believe the company remains well
positioned to accelerate activity in a price recovery.
GPOR has chosen to slow spending in the current environment, with its 2016 capex budget of $450MM equating to a
~40% reduction yr/yr. Despite the drop in spending, we project 30% annual and 15% 4Q16/4Q15 production growth,
and estimate that leverage at the futures strip expands to only 2.7x annualized 4Q16 EBITDA from 1.9x at YE15.
Compared to a ~5x median leverage multiple for our E&P coverage universe, GPOR trades at a ~2.3x discount. At
the high end of the production guidance range the company has 76% of gas volumes hedged at $3.29/MMBtu
(compared to the 2016 strip at $2.15), and we estimate 45% of 2017 gas volumes are hedged at $3.07/MMBtu (a
level where its dry gas projects deliver better than a 40% ATAX IRR).
27
Craig Siegenthaler
Financials
Asset Managers
Rank
Company
[email protected]
(212) 325-3104
Pricing
Price: $171.85
1
Affiliated
Managers Group
(AMG)
Target: $246.00
Mkt Cap: $9.2B
Rationale
(1) Capital Deployment via Deals and Buybacks: AMG has announced 5 new deals since 3Q15, and its deal pipeline
remains robust, skewed towards Alt Managers (currently ~35% of earnings). Additionally, we expect buybacks to
provide support in the event of slower deal execution. sell-side estimates currently embed zero deals, limited
buybacks. (2) Diverse Manager Base coupled with resilient institutional flows have offset weakness in the retail
channel (US driven). Despite weaker flows in 2H15, the retail channel appears to be at an inflection point and has
rebounded nicely in early ‘16 (+4B expected in 1Q16).
28
Susan Katzke
Financials
Banks – Large Cap
Rank
Company
Pricing
[email protected]
(212) 325-1237
Rationale
Price: $63.79
1
JPMorgan Chase
& Co.
(JPM)
Best in class execution—including organic revenue growth through investment in the bank's well-integrated, market
share leading financial services businesses, coupled with a willingness to tightly manage expenses, and optimize
Target: $75.00
capital should drive better than average earnings growth and returns on equity for JPMorgan. First quarter 2016
results were consistent with our confidence in recommending this stock; upcoming CCAR results should be a further
Mkt Cap: $233.6B catalyst for the shares.
Bank of America
Corp.
(BAC)
Simpler and Stronger. Target price $18. Achievement of that target price relies heavily on the long-anticipated
realization of the earning power inherent in the Bank of America franchise. We believe this franchise can 1) grow
revenues, 2) become materially more efficient, and 3) return more to shareholders, increasing both ROTE and capital
Target: $18.00
payouts, over time. We forecast earnings of $1.30 per share for 2016, and $1.55 per share for 2017; downside risk
ties to the weakened macro outlook. Forecast 6-8% tangible book value growth should support upside; more
Mkt Cap: $152.3B
substantial outperformance relies on more visible earnings and return momentum.
Price: $14.77
2
Note: BAC is new #2 Top Pick. Removed C (We see better opportunities elsewhere).
29
Jill Shea
Financials
Banks – Mid Cap
Rank
Company
Pricing
Price: $35.41
1
BB&T Corp.
(BBT)
Target: $42.00
Mkt Cap: $28.8B
Price: $12.46
2
KeyCorp
(KEY)
Target: $14.00
Mkt Cap: $10.3B
Price: $27.50
3
Zions
Bancorporation
(ZION)
Target: $30.00
Mkt Cap: $5.6B
[email protected]
(212) 325-5801
Rationale
We expect BB&T and its diversified business model to continue to generate above-average returns. We forecast a
2016 ROTE of 15%, well above the mid-cap peer median. A focus on expense control, solid loan growth, fee income
growth, and solid capital positioning provide support against the backdrop of a challenging revenue environment.
While BB&T is less asset sensitive than the average peer bank, the company still stands to benefit modestly from a
rising interest rate environment. We expect the core businesses to continue to demonstrate y/y growth and for
financial results to be positively impacted by the close and integration of the Susquehanna transaction, as well as the
pending National Penn transaction. Cost savings are an additional lever for the company to help demonstrate
expense control and continue to generate positive operating leverage and post improved efficiency over the course of
2016.
KeyCorp has been growing earnings through a combination of low-single-digit revenue and expense growth and
generating positive operating leverage. The story has hinged on its ability to generate positive operating leverage,
particularly in this low interest rate environment. The shares have been weaker following the announced acquisition of
First Niagara—with some weakness due to the healthy price paid (1.7x TBV relative to FNFG's 9% ROTE) and
upfront tangible book value dilution (-12%). That said, the reaction appears overdone relative to modest EPS
accretion and a 200bp estimated benefit to ROTCE. The deal is expected to be 5% accretive to EPS in 2018 once full
cost savings are achieved; revenue synergies are a potential source of EPS upside. Over time, we think that the deal
provides opportunities for cost saves, increased scale, improved market share positioning and potential revenue
synergies.
Capital positioning has been strengthened and investments are ongoing, which puts the company in a much better
position for improved longer-term profitability over time. ZION is making investments and upgrades to its platform and
technology and ZION is posting efficiency gains. Separately, we view ZION as among the best positioned asset
sensitive bank in our mid cap bank universe with the smallest securities portfolio, shorter duration securities book,
outsized cash position and preponderance of variable rate loans which reprice quickly with a rise in rates. Even
absent rate rises, ZION is remixing the balance sheet and deploying cash which is improving NIM, providing a
revenue lift and improving operating efficiency. Furthermore, we expect increased capital return post-2016 CCAR
results, with return in the 45% payout range, up from 15% in 2015---a positive sign in the company's progress in derisking and bolstering capital. A risk to earnings and our thesis is further deterioration in the energy portfolio and
increased loss content/reserve build, beyond what we are currently embedding. Beyond the energy portfolio, a
broader contagion to the rest of the Texas portfolio would present an even further risk to credit costs going forward—
although credit quality outside of energy appears to be holding up.
Note: BBT moved to #1 (from #3). KEY moved to #2 (from #1). ZION moved to #3 (from #2).
30
Christian Bolu
Financials
Brokers & Exchanges
Rank
Company
Pricing
Price: $166.18
1
Goldman Sachs
Group, Inc.
(GS)
Target: $180.00
Mkt Cap: $69.6B
Price: $244.68
2
IntercontinentalEx
change, Inc.
(ICE)
Target: $280.00
Mkt Cap: $29.1B
[email protected]
(212) 538-9805
Rationale
We view GS as a best-in-class brokerage franchise with solid market positioning across myriad of client businesses
and a strong balance sheet. With a proven ability to gain and sustain market share across the franchise and a long
track record of performance and achieving premier returns, we expect GS will continue to deliver fundamental results
that are at the high end of the peer group.
We view ICE as a best in class growth story at a discount with free option on Europe. Undemanding valuations (ICE
trades at discount to U.S. peer exchanges), superior EPS growth prospects, and low embedded volume growth
expectations are all positives. In addition, over time we expect cyclical uplift to revenues as European rate volatility
ultimately normalizes. With a significant proportion of revenues coming from stable, high margin non-transaction
revenues (market data, listings), revenue growth prospects for ICE are amongst the most visible within the U.S.
financial exchanges space. In addition, full realization of NYX merger expense synergies through 2017 provide
additional support to earnings regardless of topline trends.
Note: **Goldman Sachs (GS) is co-covered by Susan Katzke. No change to Top Picks since last publication.
31
Ryan Tunis
Financials
Insurance – P&C
Rank
Company
Pricing
Price: $118.95
1
CB Limited
(CB)
Target: $128.00
Mkt Cap: $54.9B
[email protected]
(212) 325-6306
Rationale
We view the ACE CB deal as an aggressive, strategically sound and consistent move by ACE, as the company
rounds out its footprint in a number of key US markets (High net worth personal lines, professional lines, surety,
middle market commercial) made possible by the high level of balance sheet flexibility shared by both companies (we
think over $7b of excess deployable capital was sitting on both balance sheets). Several areas not explicitly
mentioned or guided to by the company that we think are important to consider and positive for forward numbers
include: 1) likelihood of a lower run-rate tax rate for CB earnings following tax planning strategies, 2) limited
partnership income that will be included in ACE's operating earnings but were omitted from CB, 3) revenue synergies
given the limited overlap of the two companies, 4) resumption of capital management which we think will happen in
2017 and is supported by meaningful free cash flow between the two companies and still manageable debt levels 5)
reinsurance cost saves as the scale of the combined entity gives ace even more buying power.
Price: $65.36
2
Allstate
Corporation
(ALL)
Target: $74.00
We believe miles driven data so far this year and analysis of statutory data point to a deceleration of frequency and
margin deterioration in 2016 for ALL. In addition, we still think ALL can return capital above operating earnings for the
next year.
Mkt Cap: $24.5B
Price: $46.90
3
Arthur J.
Gallagher & Co.
(AJG)
Target: $47.00
Mkt Cap: $8.3B
Our top broker idea headed into 2016 is AJG. At AJG's December investor day CEO, Pat Gallagher, reset the bar on
2016 US base commissions and fees guiding to 1.5-2% organic growth vs. consensus expectations likely closer to
2.5-3% which has caused AJG to be a big relative underperformer since. Despite this, our view is that what is bad for
AJG is at least as bad for MMC and AON at this point in the cycle given MMC and AON's mix toward large corporate
and reinsurance brokerage where there is the most negative market impact. With consensus estimates likely factoring
in flat margins for AJG vs. MMC/AON where there is improvement expected, we see less downward revision risk for
AJG. Elevated share issuance in 2015 and fears of further 2016 share issuance have also been culprits for AJG's
underperformance. Headed into 2016, we don't foresee any large scale AJG acquisitions and think the company can
complete $600-700mm of M&A with very little need for share issuance, given its better cash position in 2016 vs. 2015.
But one move that we think would be viewed favorably by the investors: have the board change the primary
compensation metrics from gross EBITAC growth to "per share" EBITAC growth. It's a simple fix, but it's one that
would instill greater market confidence in the company's M&A strategy, especially with the importance of discipline at
all-time highs given a greater opportunity set of deals internationally.
32
Doug Harter
Financials
Mortgage REITs
Rank
Company
[email protected]
(212) 538-5983
Pricing
Price: $12.17
1
New Residential
(NRZ)
Target: $17.00
Mkt Cap: $2.8B
2
3
PennyMac
Mortgage
Investment Trust
(PMT)
Nationstar
Mortgage
Holdings Inc.
(NSM)
Price: $13.39
Target: $16.00
Mkt Cap: $0.9B
Price: $11.53
Target: $19.00
Mkt Cap: $1.2B
Rationale
NRZ offers an attractive total return potential considering its longer term upside as the value of the call rights are
recognized. The pace of MSR transfers accelerated throughout 2015, and we continue to see enough opportunity for
NRZ to grow its investment portfolio. This growth will be funded by leverage against the excess MSR portfolio. NRZ
has the potential to add up to $1.0b against these assets and each $100m adds $0.02-0.03 to annual EPS. The
simplification of the investment portfolio also enhances the stability of earnings, further adding to the upside.
PMT is undergoing a transition in its portfolio as the distressed portfolio runs off and is replaced by flow investments
from the correspondent business. The company is well positioned to handle that migration and deliver more stable
returns as a result. As PMT continues to execute this strategy, we expect shares to move closer to book value. Over
the next year, the equity allocation to distressed lending will decline as MSR and CRT investments grow. The decline
in distressed should improve the consistency of overall returns as distressed lending returns have been the most
volatile and MSRs have consistently exceeded targeted levels.
Servicing profitability (pre-tax) improved over the course of 2015. Importantly, this is being achieved while growing the
subservicing business, which is generally less profitable. With a $55 billion subservicing contract already awarded,
NSM will be able to (at least) maintain servicing portfolio size without the need to acquire any MSRs. This shift
towards a less capital intensive business model should allow for better returns on capital and better free cash flow
generation. NSM has already begun using that free cash flow to return to shareholders with $55 million of shares
repurchased in 1Q and $184 million remaining on the buyback authorization. Currently NSM trades at 27% discount
to book value, without factoring in any value for Xome (NSM’s end-to-end online real estate services platform), which
we value at $4/share (8x 2016 EPS). As returns on capital improve, we see this discount narrowing.
33
Ian Weissman
Financials
REITs
Rank
Company
[email protected]
(212) 538-6889
Pricing
Price: $70.93
1
Taubman
Centers, Inc.
(TCO)
Target: $90.00
Mkt Cap: $4.3B
Price: $46.01
2
Prologis, Inc.
(PLD)
Target: $48.00
Mkt Cap: $24.2B
Price: $15.19
3
Brandywine
Realty Trust
(BDN)
Target: $16.00
Mkt Cap: $2.7B
Rationale
Taubman Centers (TCO) is our top pick across the REIT space (Outperform, $90 TP). The valuation is compelling
with the company trading at a 29% discount to NAV (compared with a 3% discount for peers). One of the near-term
catalysts for the story will be an acceleration of core NOI growth in 2016. We estimate TCO can deliver high 4%
organic SS NOI growth in 2016 and high 5% SS NOI growth including redevelopment; notwithstanding potential
moderation in tourism spending, increases in bankruptcies, or tepid CPI growth (which drives annual base rent
bumps).
We are retaining Prologis (PLD) on our top-pick list (Outperform, $48 TP). The company trades at a 23.7x multiple to
our 2016 AFFO estimate (in-line with peers). However, we believe the valuation is attractive as the company should
trade at a premium to peers given its asset quality, balance sheet strength, and management depth. We believe the
stock is positioned for strong growth this year as it works through its ~$2.0bn of development capital spend funded
with European venture dispositions.
We are retaining Brandywine (BDN) on our top-pick list (Outperform, $16 TP). The stock trades at a 11% discount to
NAV (compared with a 8% discount for peers). The company is taking the appropriate steps to shed non-core assets
using proceeds to de-lever its balance sheet, repurchase shares at a steep discount, and fund the development
pipeline. While dilution from asset sales and lower leverage will dampen FFO growth in 2016/2017, we expect the
company's multiple to expand as operating metrics improve and leverage falls.
34
Moshe Orenbuch
Financials
Specialty Finance
Rank
Company
Pricing
[email protected]
(212) 538-6795
Rationale
Price: $31.33
1
Synchrony
Financial
(SYF)
Target: $38.00
Epitomizes the Lend-Centric model with strong receivables growth (exceeds that of the general card industry), a
protected customer base, built-in credit protection, and is expected to return capital in 2H 2016.
Mkt Cap: $26.1B
Price: $78.46
2
Visa Inc.
(V)
Target: $85.00
Continues to navigate post-Durbin environment well. Expected to recapture most of its debit market share through
new pricing and keep rapidly expanding international business. Demonstrated ability to enhance margins if weaker
economic actively leads to slower revenue growth.
Mkt Cap: $187.1B
35
Financials
Trust Banks, M&A Advisors & Market Technology
Rank
Company
Pricing
Price: $35.57
1
Lazard Ltd.
(LAZ)
Target: $44.00
Mkt Cap: $4.6B
Price: $63.01
2
NASDAQ Group
Inc.
(NDAQ)
Target: $68.00
Mkt Cap: $10.3B
3
Investment
Technology
Group Inc.
(ITG)
Price: $19.68
Target: $26.00
Mkt Cap: $0.7B
Ashley Serrao
[email protected]
(212) 538-8424
Rationale
We view Lazard as a long-term market share gainer across both its asset management and financial advisory
franchises. While there will be choppiness around emerging markets, institutional investors remain under-allocated
and we believe the secular story here is intact. In addition, despite growing uncertainty about the current M&A cycle,
we believe the firm is well-positioned to thrive given its exposure to Europe and the US, strong global restructuring
franchise (top-tier in energy) and strong revenue backlog, as well as the revenue diversity and stability provided by
the asset management business. All in, we see no reason why Lazard can't continue to drive margins higher toward
29%, given the positive implications for compensation from the ongoing revenue mix shift towards asset
management. Valuation is attractive at current levels, as market prices are not baking in much in terms of future EPS
growth. We also highlight the potential for another special dividend in 2016, the fourth since 2012.
We continue to like the NDAQ story—we believe that the firm's corporate/technology solutions opportunity remains
underappreciated, and like the plethora of growth opportunities at the firm's disposal (charging for NFX, Canada,
options, innovating with pricing to launch more cash equities venues, operating broker-dealer dark pools). Moreover,
we believe growth will be buffeted by robust expense discipline, driving strong FCF generation and supporting
aggressive capital management (opportunistic buybacks and M&A). Furthermore, we see limited downside here given
the defensibility of the model (70%+ recurring revenues and an extra kick from volatility in market services). With that
said, we believe the re-rating component of our thesis has largely played out, and improvement from here will rely on
driving recurring revenues even higher (towards 80% of revenues) and demonstrating stronger than expected organic
growth.
Following our recent meetings with new CEO Frank Troise, we are increasingly confident in management’s ability to
execute an effective turnaround plan and believe the views and opportunities for the firm expressed in our recent
notes are intact–restoration of market share and driving share to new highs, accretive deployment of capital and
garnering of incremental efficiencies (technology optimization, focused product spend, exit of research). All in, we see
$1.95 long-term EPS power from the execution of such a strategy, and look forward to more clarity from Mr. Troise on
the 2Q16 earnings call in July.
36
Alethia Young
Health Care
Biotechnology
Rank
Company
[email protected]
(212) 538-0640
Pricing
Rationale
Price: $104.97
1
Celgene
Corporation
(CELG)
Target: $140.00
We believe that CELG looks cheap relative to its growth after reviewing current and pipeline products. We see more
upside on base business products than consensus and guidance. We like Celgene’s pipeline that consists of internal
and external candidates that leads us to believe it is best in class.
Mkt Cap: $81.3B
Price: $89.00
2
Gilead Sciences,
Incorporated
(GILD)
3
Biomarin
Pharmaceuticals,
Incorporated
(BMRN)
The consensus view of Gilead is that there is a major patent cliff for the $13.5B HIV franchise in 2018-2021. For its
Hep C franchise, there are also concerns around a lack of sustainability of revenues. These concerns have
Target: $120.00 contracted the 2016 P/E multiple to ~8x. Our in-depth analysis of HIV and HCV suggests that both of these fears are
overdone and that shares currently trade at a steep discount relative to the sustainable level of earnings they should
Mkt Cap: $120.6B continue to deliver to 2025 and beyond.
Price: $86.90
Target: $114.00
Mkt Cap: $14.1B
We think BioMarin may be one of the top biotech performers over the next few months due to a large number of
upcoming catalysts (4 clinical, 1 regulatory). On last night’s earnings call management sounded upbeat on all the
upcoming programs and we agree there is reason to be upbeat. If we see positive data in these events we think stock
could be worth $126 - $134/sh. Big surprise factor would be an EU DMD approval (not in our valuation) worth $47/sh.
37
Health Care
Healthcare Distribution & IT
Rank
Company
Pricing
Price: $73.62
1
Express Scripts
(ESRX)
Target: $85.00
Mkt Cap: $46.6B
Price: $60.25
2
DENTSPLYSIRONA
(XRAY)
Target: $70.00
Mkt Cap: $14.2B
Price: $79.50
3
Cardinal Health
(CAH)
Target: $102.00
Mkt Cap: $26.2B
Robert Willoughby
[email protected]
(212) 325-1497
Rationale
Cost containment solutions offered by the PBM industry are increasingly relevant, with healthcare payors on the hook
for burgeoning drug cost trends, particularly with the proliferation of new specialty pharmaceuticals and biologics. As
the largest and last independent PBM in the space, ESRX is well positioned to benefit from improving organic growth
trends.
XRAY's all stock deal with high-end dental technology provider Sirona Dental Systems created an attractive
investment alternative in a compelling global dental market. XRAY's growth and profit profile improve, and with
expected synergies and no intangible asset creation or additional debt issuance, its ROIC profile also improves
drastically. XRAY offers a diversified model, with leadership in dental consumables and equipment globally, and is a
proxy for the overall dental market, which has improving fundamentals in terms of dental services utilization.
Absent stronger generic inflation that buoyed industry earnings in recent quarters, CAH still has material growth
drivers in its maturing Red Oak generic sourcing initiative, an accretive acquisition strategy, and ongoing capital
deployment initiatives. Early feedback on the Cordis and Harvard Drug acquisitions is encouraging, and the
naviHealth deal, while small, adds a relevant growth business for a value-based healthcare market.
38
Scott Fidel
Health Care
Rank
Company
Pricing
[email protected]
(212) 538-0812
Rationale
Price: $81.21
1
HCA Holdings,
Inc.
(HCA)
Target: $83.00
Poised to continue to generate above average volume growth and market share gains. Historically low leverage
profile suggests continued benefits from capital deployment.
Mkt Cap: $32.1B
Price: $67.00
2
LifePoint Health,
Inc.
(LPNT)
Target: $79.00
Margin ramp from recent acquisitions an underappreciated tailwind. Flexible balance sheet to deploy capital for
additional M&A and share buyback. Advantages of non-urban footprint beginning to re-emerge.
Mkt Cap: $2.9B
39
Health Care
Rank
Company
Pricing
Erin Wilson
[email protected]
(212) 538-4080
Rationale
Price: $48.03
1
Zoetis
(ZTS)
Target: $58.00
As the leader in animal health, ZTS is highly levered to rebounding industry fundamentals, and earnings growth
should accelerate over an improving cost and capital structure. Our focus is on underappreciated efficiency initiatives
that should drive meaningful operating margin expansion that ensures double-digit EPS growth in 2017 and beyond.
Mkt Cap: $23.9B
40
Scott Fidel
Health Care
Managed Care
Rank
1
Company
UnitedHealth
Group
Incorporated
(UNH)
[email protected]
(212) 538-0812
Pricing
Rationale
Price: $132.10
Target: $141.00
UNH is entering 2016 well-positioned to produce organic share gains in both Commercial & Medicare markets. The
stock also now the most de-risked as it relates to continued public health insurance exchange pressure in 2016.
Mkt Cap: $125.5B
Price: $62.87
2
Centene
Corporation
(CNC)
Target: $78.00
View recent correction as attractive buying opportunity. Near-term catalyst expected in 1Q15 when HNT deal closes,
as the acquisition is expected to be materially accretive in year 1. See above-average organic prospects in core
business and less known Medicaid rate headwinds vs. peers.
Mkt Cap: $10.7B
41
Health Care
Rank
Company
Pricing
Matt Keeler
[email protected]
(212) 325-9008
Rationale
Price: $22.00
1
Boston Scientific
Corp
(BSX)
Target: $22.00
We believe BSX is well positioned to deliver 4%+ organic top-line growth through the next-gen S-ICD, US quadripolar
ICD, US Synergy, US Watchman & European Lotus launches which combined with above-peer margin leverage
driving (10%+ EPS growth) will be sufficient to drive continued outperformance.
Mkt Cap: $29.8B
42
Vamil Divan
Health Care
Pharmaceuticals
Rank
Company
Pricing
Price: $71.96
1
Bristol Myers
Squibb Co.
(BMY)
Target: $75.00
Mkt Cap: $120.1B
Price: $76.75
2
Eli Lilly & Co.
(LLY)
Target: $91.00
Mkt Cap: $84.7B
Price: $32.80
3
Pfizer
(PFE)
Target: $38.00
Mkt Cap: $203.1B
[email protected]
(212) 538-5394
Rationale
We see BMY as our top-pick in US Pharma driven by its leadership position in immuno-oncology (I-O). We believe
the overall I-O market opportunity is still being underappreciated by investors. We expect continued strong uptake of
BMY’s Opdivo in advanced lung cancer and melanoma as well as positive newsflow from their pipeline, most notably
the first-line lung cancer study that should read out in November.
We see LLY as our second top pick in our coverage, and this is based on LLY’s strong return to growth story with
maturation of its mid-late stage clinical pipeline. Investment positives: (1) The near-term upside we expect from LLY’s
diabetes drug Jardiance following the recent release of positive cardiovascular outcomes data for the drug; (2) and
underappreciated and relatively de-risked phase 3 pipeline (outside of one higher risk asset in solanezumab for
Alzheimer’s) and (3) management commitment to long-term expense targets and dividend growth.
We see PFE as our third top pick in our coverage. Despite the fall of the proposed AGN deal, we see PFE’s
underlying product story as being underappreciated (especially in areas such as oncology and vaccines), with
potential upside coming from new business development efforts and the announcement of a potential split of the
company by year end, along with a strong dividend yield also supporting the stock at current levels.
Note: BMY moved to #1 (from #2). LLY moved to #2 (from #3). PFE moved to #3 (from #1).
43
Health Care
Rank
1
Company
UltraGenyx
Pharmaceutical,
Inc
(RARE)
Pricing
Kennen Mackay
[email protected]
(212) 538-5241
Rationale
Price: $69.46
Target: $104.00
We see pullback ahead of near-term accelerated approval for Ace-ER & KRN23 as a buying opportunity. We
anticipate KRN23 launch above St estimates based on RARE’s XLH patient registry.
Mkt Cap: $2.7B
Price: $58.01
2
Medivation, Inc
(MDVN)
Target: $63.00
Bullish on Xtandi’s re-acceleration as sales reps factor into growth figures, TERRAIN/STRIVE publications allow
medical education in urology setting and TERRAIN/STRIVE label additions in H2:16 allows for marketing.
Mkt Cap: $9.5B
44
Rob Spingarn
Industrials
Aerospace & Defense
Rank
Company
Pricing
Price: $48.79
1
BE Aerospace
Inc.
(BEAV)
Target: $58.00
Mkt Cap: $5.0B
[email protected]
(212) 538-1895
Rationale
This business is a strong proxy vehicle for long-term air travel growth (which we see as one of the most attractive
end-markets in Industrials; and BEAV is profitably leveraged to both the OE and aftermarket cycles. Increased
content on new aircraft is on the way. While growth in 2016 will be low single digit (mix & timing), it will pick up again
in 2017 given higher volumes (Boeing and Airbus deliveries rising) and content expansion on new aircraft (737
lavatories, A350 galleys, oxygen tanks on several platforms, strong seating business). Also, primary competitor to
BEAV in seating market has been having execution and quality issues which could present market share
opportunities for BEAV. Stock is cheap after the pullback. While the company had previously favored debt pay-down
over share repurchases in the near-term, it recently started executing on its share buyback program. Lastly, we
continue to believe BEAV is a potential takeout candidate, and see a takeout as another potential exit opportunity for
investors.
Price: $133.54
2
L-3
Communications
(LLL)
Target: $155.00
LLL is the cheapest stock among the Defense primes on a FCF yield basis. We believe that (1) divesting some of the
lagging service-driven businesses, and (2) margin upside from integration of legacy acquisitions should drive a catchup trade to peers.
Mkt Cap: $10.3B
Price: $87.11
3
Orbital ATK Inc.
(OA)
Target: $100.00
Mkt Cap: $5.1B
Compelling margin expansion, cash flow & capital deployment story: OA is well positioned in a bottoming defense
market and a growing commercial space market, and we view this as an exciting margin & cash flow story which will
support a favorable (and balanced) capital allocation strategy. The merger with ATK presents key strategic & financial
synergy opportunities that are expected to be fully integrated by 2016 YE and should drive margin expansion (200300bps over 3 years).
Credit Suisse has decided not to enter into business relationships with companies that Credit Suisse has determined to be involved in the development,
manufacture or acquisition of anti-personnel mines and cluster munitions. For Credit Suisse's position on the issue, please see https://www.creditsuisse.com/media/cc/docs/responsibility/policy-summaries-en.pdf
45
Industrials
Rank
Company
Pricing
Price: $83.40
1
JB Hunt Transport
Services
(JBHT)
Target: $96.00
Mkt Cap: $9.4B
Price: $88.12
2
Union Pacific
(UNP)
Target: $94.00
Mkt Cap: $74.1B
Price: $145.44
3
Canadian Pacific
Railways
(CP)
Target: $169.00
Mkt Cap: $27.8B
Allison Landry
[email protected]
(212) 325-3716
Rationale
JBHT still has significant runway to achieve meaningful expansion in its intermodal business, which represents
around three-quarters of its consolidated EBIT. The intermodal segment has significant secular growth legs remaining
as there is a large opportunity to convert existing truckload business to rail intermodal service over the next several
years. Further, the company has an opportunity to grow volumes via expanded partnerships with CNI and CSX, and
potentially even gain access to cross-border Mexico through a partnership with KSU. Given the relative visibility on
non-cyclical intermodal volume growth potential, we think the skepticism is overdone regarding JBHT's ability to
achieve its long term intermodal load growth target of 7% to 10%.
UNP is our top value pick for 2016 given the company's attractive risk-reward profile, and its historical ability to
sustain EPS growth in weak volume environments (we are forecasting a ~3% volume decline in 2016). While coal,
intermodal and potentially ag volumes are likely to decline this year, we highlight that the company will continue to
rely more on its traditional strengths including strong pricing, productivity gains and cost control (with an easy comp
after lapping weather-related service issues in 2015 that dragged on the O.R. by ~1%) to generate positive EPS
growth. We also note that the company has room to cushion the bottom line by expanding share buybacks via
incremental leverage. We think that expectations have been washed out on the buy side and sell side.
CP will likely continue to improve its O.R. while simultaneously improving service. It remains the only rail that we
currently expect double-digit EPS growth at over the next few years. With its valuation having fallen below its
Canadian peer and closer to the industry average, we see an opportunity in CP shares. Outstanding operating team
will continue to drive improvements in operating ratio in 2016. Still opportunity to convert truckloads to intermodal with
improved service. Aggressive on buybacks.
46
Julie Yates
Industrials
Airlines
Rank
Company
[email protected]
(212) 325-3706
Pricing
Price: $44.01
1
Southwest
Airlines Co.
(LUV)
Target: $60.00
Mkt Cap: $28.1B
Price: $42.17
2
Delta Air Lines,
Inc.
(DAL)
Target: $58.00
Mkt Cap: $32.5B
Price: $34.43
3
American Airlines
Group Inc.
(AAL)
Target: $47.00
Mkt Cap: $19.9B
Rationale
LUV's de-rating has been the sharpest among peers, which seems unwarranted given that unit revenues are still
outperforming the industry combined with the quality of the balance sheet, insulation from currency headwinds, and
rising shareholder returns. Unit revenue performance is only one of two to show sequential improvement in Q1,
especially excluding stage and gauge headwinds and considering how much of the network is under development.
We see over $1B-$1.5B of opportunity from numerous ancillary and operational revenue levers in 2017 and believe
the market is focusing too much on fears of a Q1 RASM miss. LUV’s consensus 2016 multiple of 9x is nearly 50%
below the 17.6x average in 2014 and is well below record low levels seen in mid-2012.
Delta is the best-in-class, cleanest story in airlines. A key holding for airline investors given lower debt levels, a fully
integrated merger, an established and generous shareholder return program, the best FCF generation in the group,
and a leading position in the corporate market share that yields a domestic unit revenue premium to the industry. DAL
has exhibited strong capacity discipline in a soft yield environment and reallocated capacity in a way that should lead
to continued unit revenue outperformance.
We recently upgraded AAL in January to reflect what we view as a better set up relative to 2015 now that merger
integration milestones are in the rear view. In our view, managements newly bullish tone and new revenue
management initiatives (particularly in cabin segmentation) will give AAL more control over its pricing destiny than at
peers. With newly inked 5-year labor contracts, AAL also holds some of the least risk to cost inflation while other
peers face a pattern bargaining environment with risk to the downside.
47
Industrials
Electrical Equipment & Multi-Industry
Rank
Company
Pricing
Julian Mitchell
[email protected]
(212) 325-6668
Rationale
Price: $63.46
1
Eaton Corporation
(ETN)
Target: $69.00
Among the stocks within our EE/MI coverage, ETN offers inexpensive valuation coupled with realistic organic growth
guidance and substantial cost-cutting. In addition, the scope for portfolio change remains a supportive back up
option.
Mkt Cap: $29.1B
Price: $168.34
2
3M
(MMM)
We think the risk / reward is attractive after the stock's 2H15 pull-back, particularly when considered against other
'defensive' EE/MI peers. MMM is one of the few stocks in our group that has a chance of growing EPS at a doubleTarget: $178.00 digit pace next year, without our having to believe in a sharp macro improvement. MMM's balance sheet can be put to
work to shore up organic growth through buybacks (spend target is $4-5bn for 2015, up from $3-5bn) or M&A
Mkt Cap: $102.1B (company has only disbursed around half of the $5-10bn of M&A spend targeted for 2013-2017).
Price: $66.14
3
Ingersoll-Rand
Plc
(IR)
Target: $72.00
Mkt Cap: $17.0B
IR is one of the best plays on the recovering U.S. non-residential construction cycle and well placed to take market
share in Commercial HVAC. We see strong incremental margins as volumes accelerate based on strong execution
with respect to cost-out / simplification efforts over the past several years. With a strong top line, strong incremental
margins, and a very friendly capital allocation policy (prefer to return capital to shareholders via buybacks) this is one
of our preferred names for 2016. In addition, given the recent M&A activity within our space (Apollo-ADT, JCI-TYC,
HON-UTX discussions), IR should receive a take-out premium.
48
Industrials
Rank
Company
Pricing
Price: $39.48
1
Chicago Bridge &
Iron
(CBI)
Target: $51.00
Mkt Cap: $4.2B
Price: $32.81
2
AECOM
(ACM)
Target: $36.00
Mkt Cap: $5.0B
Jamie Cook
[email protected]
(212) 538-6098
Rationale
We like CBI as a strong OCF / deleveraging story which we believe will result in multiple expansion assuming
execution and should set the stock up to outperform the group this year. OCF should approximate net income with
potential for upside assuming one-time project pre-payments. More realistic award guidance give mores credibility to
the guide, while there is still potential for large projects like Cameron / Mozambique to be booked in FY’16.
ACM is a self-help story post the URS deal driven by cost cutting, which can improve margins. It is important to note,
ACM has increased its cost synergies already post the deal. Additionally ACM targets $600-800M in FCF per year
which will be used to deleverage. ACM is one of the best positioned companies to benefit from an increase in US
infrastructure spend, and capabilities are now enhanced via the URS acquisition.
Note: CBI is new #1 Top Pick. ACM is new #2 Top Pick. Removed KBR (We see better opportunities elsewhere).
49
Jamie Cook
Industrials
Machinery
Rank
Company
[email protected]
(212) 538-6098
Pricing
Price: $116.53
1
Cummins Inc.
(CMI)
Target: $125.00
Mkt Cap: $19.9B
Price: $115.50
2
Parker Hannifin
Corporation
(PH)
Target: $126.00
Mkt Cap: $15.7B
Rationale
We find CMI attractive as it is sitting in a Net Cash position with balance sheet optionality on M&A and repo. We have
more certainty now that FY’17 will be the trough and see potential for a recovery in FY’18. Also we believe that
concerns around market share erosion are overdone, and market share in China is likely not getting enough credit
due to the total size of that market.
PH is a high quality short cycle industrial with solid returns and FCF generation. We view PH as a self-help story
driven by a new CEO concentrated on streamlining the organization, which in turn should drive a 200 bps margin
improvement over the cycle. This is coupled with an increased focus on organic growth. Also, PH has a strong
balance sheet that gives management great optionality in such an environment both in terms of M&A and/or stock
repurchase.
Price: $28.73
3
Allison
Transmission
(ALSN)
Target: $33.00
Over 40% of ALSN's sales are levered to later cycle NA straight truck, which is still ~30% below prior peak levels with
low to mid-single digit growth prospects.
Mkt Cap: $4.9B
Note: PH is new #2 Top Pick. CMI moved to #1 (from #2). ALSN moved to #3 (from #1). Removed CAT (We see better opportunities elsewhere).
50
Services
Rank
Company
Pricing
Price: $88.32
1
Gartner Inc
(IT)
Target: $95.00
Mkt Cap: $7.3B
Price: $52.51
2
Nielsen Holdings
(NLSN)
Target: $58.00
Mkt Cap: $18.9B
3
ServiceMaster
Global Holdings
Inc
(SERV)
Price: $38.21
Target: $45.00
Mkt Cap: $5.2B
Anjaneya Singh
[email protected]
(212) 325-7306
Rationale
Salesforce growth and productivity has had a high correlation with Gartner's stock and contract value, the best
leading indicator for the company's performance. Gartner's salesforce growth 15-20%, which should result in higher
existing wallet share and new prospect conversion over time. Additional productivity presents upside for both margins
and growth, and therefore likely for the stock as well. Furthermore, we believe that the research business is likely to
grow much faster than other segments in the longer term. As this business has higher margins, the company should
continue to see margin expansion due to mix shifts. Finally, we note that Gartner operates in a $61B market and has
significant room to grow market share (currently ~3%). Based on the growth potential and the limited cyclicality of the
business, we believe Gartner will be able to achieve returns higher than its cost of capital for many years into the
future.
Nielsen should benefit from the creation of measurement tools around online and mobile by using its competitive
advantage in TV ratings and its Buy segment footprint. Now that these Total Audience and Total Content ratings have
all been developed, we believe that the advertising industry will eventually adopt them as currency, solidifying
Nielsen's dominance in the industry. While the revenue opportunity for these products in the near-term remains
limited, we believe the stock will see some rerating as fears around disruption and disintermediation abate. Our sense
is post a de-levering to a multiple of slightly below ~3x, NLSN will be in a position to be a large dividend payer based
on its recurring revenue base (90%+ retention rates), asset-light model and limited cyclicality (core TV segment grows
4-5% on average across the cycle). Even without a dividend, the strong free cash flow should support significant
capital return through repurchases.
ServiceMaster (SERV) is a unique company in our space, operating pest control (Terminix), home warranty
(American Home Shield), and a number of groups of franchises (Franchise Services Group). In our sum of the parts
analysis, it appears that the company is undervalued. While the business usually trades in the ~11-12x EBITDA
range, peer pest control companies trade significantly higher multiples. This implies that investors are applying a
much lower multiple to the Terminix business or that investors are valuing the rest of SERV's portfolio at a level we
think is unexplainably cheap. In either case, we think that the stock can re-rate above the historical range as the
management executes on the steady growth and margin expansion opportunities at Terminix and the home warranty
business becomes better understood. Aside from the relative valuation thesis, SERV should continue to delever as it
grows and pays down debt. This should drive further value for shareholders and improve the capital structure given
the high-coupon debt the company issued when going private. We see the free cash flow characteristics of the
business model as very attractive given payment and subscription models of the pest control and the warranty
businesses, which should help the company delever quickly. Finally, we see a secular growth opportunity for the
company, both through shareholder-friendly tuck-in M&A in the pest control segment and long-term growth of home
warranties and increasing penetration of that market by ServiceMaster.
51
Andrew Buscaglia
Services
Rank
Company
Pricing
Price: $59.98
1
Waste
Management, Inc.
(WM)
Target: $65.00
Mkt Cap: $26.6B
[email protected]
(212) 325-5870
Rationale
We like WM's capital allocation potential and believe it will benefit from M&A (tuck-in's) on the horizon adding to an
already robust base-line FCF of ~$1.4B per year. The company anticipates adding $50-75M in EBITDA from M&A
alone in 2016. WM is also buying back stock aggressively and screens cheap on a P/FCF basis. WM's pricing
strategy is gaining traction, helping improve the bottom line and we believe there is upside on the costs providing a
boost to margins. WM should also be one of the biggest beneficiaries of the coal ash oppty LT.
52
Trace Urdan
Services
Knowledge Services
Rank
1
Company
Houghton Mifflin
Harcourt
Company
(HMHC)
Pricing
[email protected]
(415) 249-7926
Rationale
Price: $20.66
Target: $23.00
Stock undervalued relative to upswing in buying cycle anticipated in 2017 and 2018. As valuation begins to look
forward to those years, multiple should move higher.
Mkt Cap: $2.5B
Price: $44.05
2
Grand Canyon
Education, Inc
(LOPE)
Target: $62.00
Completion of campus expansion should allow FCF to accelerate over next several years which is not currently
valued in the stock. Company is aggressively buying back shares and looking at new geographies in which it might be
able to expand.
Mkt Cap: $2.1B
Price: $21.05
3
Nord Anglia
Education Inc.
(NORD)
Target: $23.00
Stock traded off due to exposure to China and Oil & Gas sectors. As fall enrollment in new Shanghai and Houston
schools becomes apparent, valuation should recover.
Mkt Cap: $2.2B
53
Stephen Ju
Technology
Internet
Rank
1
Company
Facebook Inc.
(FB)
[email protected]
(212) 325-8662
Pricing
Rationale
We use the discounted cash flow (DCF) method to calculate our $145 target price for Facebook. Our five-year DCF
uses a 3% terminal growth rate and 10.5% discount rate. We apply this discount rate to our 2016-2021 unlevered free
Price: $118.57
cash flow estimates for Facebook. We use our discounted unlevered FCF (free cash flow) estimates from 2016
through 2021 to arrive at the stock's current trading price. Drivers to our investment thesis and Outperform rating
Target: $145.00 include: 1) Facebook will be able to drive long term revenue growth without a material lift in ad loads, with near-term
growth drivers including Instagram, Premium Video, and DPA (via price inflation for core mobile/desktop newsfeed) 2)
Mkt Cap: $339.1B Street models are too conservative and underestimate the long-term monetization potential of upcoming new
products 3) Optionality and upward bias to estimates, which do not contemplate contributions from multiple other
products including WhatsApp, Messenger, and Offers/Local.
2
We use the discounted cash flow (DCF) method to calculate our $800 target price for AMZN. Our 5-year DCF uses a
3% terminal growth rate and a market-implied discount rate derived by discounting our unlevered FCF (free cash
flow) estimates from 2016 through 2021 to arrive at the stock's current trading price. We then applied this discount
Amazon com Inc.
Target: $880.00 rate to our 2015-2021 unlevered free cash flow estimates for AMZN. We maintain our Outperform rating for AMZN
(AMZN)
shares, and factors that can provide potential upside to our estimates include: 1)E-commerce segment mispriced – at
Mkt Cap: $322.7B Amazon's current market cap 2) Capital intensity to run AWS is leveling off as we anticipate usage rates have
dropped below 100%
3
We use the discounted cash flow (DCF) method to calculate our $900 target price for Google. Our five-year DCF uses
a 3% terminal growth rate and a market-implied discount rate derived by discounting our unlevered FCF (free cash
flow) estimates from 2016 through 2021 to arrive at the stock's current trading price. We then applied this discount
Price: $714.41
rate to our 2016-2021 unlevered free cash flow estimates for GOOG. Overall, our Outperform investment thesis for
GOOG shares remains predicated on the following factors that can potentially drive material increases to our current
Target: $920.00
estimates and hence share appreciation: (1) Faster-than-expected narrowing of the mobile-desktop monetization gap
– this will be through a combination of the continued benefits from Enhanced Campaigns as well as a plethora of
Mkt Cap: $486.4B
other products including app install, as well as increased ad load on the mobile and desktop SERP. (2) Moderation of
increases to its capital expenditure following a multi-year investment cycle. (3) Larger-than-expected contribution from
Google's larger non-search businesses, namely YouTube and Google Play
Price: $683.85
Alphabet
(GOOGL)
54
Technology
Rank
Company
Pricing
Paul Condra
[email protected]
(212) 325-8903
Rationale
Price: $73.26
1
Global Payments
Inc.
(GPN)
Target: $80.00
Stock looks attractive on recent pullback. High confidence in management’s ability to generate cost and revenue
synergies from HPY acquisition. See long runway for GPN to continue to expand international portfolio through M&A
and JV arrangements. Our $80 price target implies 23x our C2017 EPS forecast and 17x C2017 Adj. EV/EBITDA.
Mkt Cap: $11.3B
Price: $54.64
2
Vantiv, Inc.
(VNTV)
Target: $62.00
Mkt Cap: $10.5B
We like Vantiv for its domestic exposure (no FX risk), de-leveraging, exposure to more non-discretionary spend
channels (higher debit mix), and TRA buy-down (similar effect of share repurchase). Fundamentals in merchant
acquirer space remain strong, and we think VNTV is a good way to play the space. Multiples have also come down
nicely amid general market weakness, giving investors a good entry point. Our $62 price target implies 22x our 2017
EPS and 15x our 2017 Adj. EV/EBITDA.
Note: GPN is new #1 Top Pick. Removed HAWK (We see better opportunities elsewhere).
55
John Pitzer
Technology
Semiconductors
Rank
1
Company
NXP
Semiconductors
N.V.
(NXPI)
Pricing
[email protected]
(212) 538-4610
Rationale
Price: $86.34
Target: $120.00
Premium growth going forward will be more diverse, higher quality & levered which should drive multiple expansion.
LT EPS potential of $9-10.
Mkt Cap: $21.7B
Price: $146.08
2
Broadcom Ltd
(AVGO)
Target: $180.00
FBAR and Tomahawk growth. Strong cost synergies, LT Rev CAGR of 6-8% and deleveraging opportunities. LT EPS
of $13-15 before additional M&A.
Mkt Cap: $57.0B
Price: $30.61
3
Intel Corp.
(INTC)
Target: $40.00
"Last-man-standing" on Moore's Law, DCG structural growth; PC/Tablets stable, free option on mobile. EPS Potential
of $4.00.
Mkt Cap: $144.4B
Note: INTC is new #3 Top Pick. Removed MLNX (We see better opportunities elsewhere).
56
Technology
Rank
Company
Pricing
Farhan Ahmad
[email protected]
(415) 249-7929
Rationale
Price: $76.59
1
Lam Research
Corp.
(LRCX)
Target: $98.00
Increasing SAM opportunity (3D NAND, multi-patterning in logic and DRAM).
Mkt Cap: $12.2B
Note: Removed AMAT and RTEC (We see better opportunities elsewhere).
57
Phil Winslow
Technology
Software
Rank
Company
[email protected]
(212) 325-6157
Pricing
Price: $61.37
1
Autodesk Inc.
(ADSK)
Target: $100.00
Mkt Cap: $13.8B
Price: $12.91
2
Box, Inc.
(BOX)
Target: $24.00
Mkt Cap: $1.6B
Rationale
We believe that several significant drivers to Autodesk's financial performance—including (1) increasing revenue per
user due to the forced migration to subscription offerings (2) monetizing new cloud-based add-on services and
standalone software, (3) expanding the company's user base via rental license offerings, and (4) eventually raising
maintenance pricing to converge with the higher-priced Basic Subscription model—will result in meaningful long-term
upside to revenue (at limited incremental cost) versus the market's current expectations as implied by Autodesk's
current share price.
Although there is some concern that an increasingly competitive landscape could result in Box experiencing per-seat
pricing pressure or difficulty in gaining market share, we maintain a positive opinion of management's vision in terms
of Box's enterprise-focused strategy, technology platform, and focus on incorporating incremental, value added
functionality (e.g., workflow, vertical-specific features, etc.) that should enable the company to differentiate its offering
in the near to medium term. Furthermore, we remain optimistic in regards to Box Developer Edition.
Despite the negative impact to reported revenue growth and operating margins due to FX translation headwinds and
the faster-than-expected shift to the cloud, we believe Oracle stands to benefit from several drivers in FY2016,
including (1) the potential for further improvements in sales force productivity, (2) adoption of the In-Memory option of
Target: $50.00
Oracle Database 12c (see Speed Could Kill Consensus DB Estimates), (3) increasing customer adoption of Oracle
Fusion Applications (see The Apps Revolution Manifesto Says, "A Wise Man Believes in Oracle Fusion
Mkt Cap: $167.2B
Applications!"), and (4) the continued massive market opportunity for Engineered Systems.
Price: $40.30
3
Oracle
Corporation
(ORCL)
58
Michael Nemeroff
Technology
SMID Cap Software
Rank
Company
Pricing
Price: $28.40
1
2U, Inc
(TWOU)
Target: $32.00
Mkt Cap: $1.3B
2
The Ultimate
Software Group,
Inc.
(ULTI)
[email protected]
(212) 325-2052
Rationale
We view TWOU as a best-in-class higher education technology provider, and we fully expect that it will continue to
transform the higher-ed landscape, gain market share, and successfully execute program launches with top-tier
universities. We believe the company is well positioned to generate >+30% revenue growth with clear line-of-sight
to profitability.
Price: $197.64
Target: $225.00
Highly consistent execution and visibility into future operating results (~99% visibility that recurring revenue will
accelerate in 2016) warrant its premium valuation to the peer group (trading at 7.5x 2016 EV/Sales vs. SaaS peers
of 4.0x), in our view.
Mkt Cap: $6.0B
59
Technology
Rank
Company
Pricing
Kulbinder Garcha
[email protected]
(212) 325-4795
Rationale
Price: $5.93
1
Nokia
(NOK)
Target: $9.96
We see scope for materially higher synergies than expected post ALU deal. Combined with a powerful IP story, we
believe that EBIT at the combined entity could almost double to €4.3bn by 2018E, despite a challenging spending
environment.
Mkt Cap: $34.0B
Price: $93.64
2
Apple Inc
(AAPL)
Target: $150.00
Mkt Cap: $512.9B
Multiple growth drivers including increasing share within compute (iPhone, iPad, Mac) and greater adoption of the iOS
ecosystem as well as a commitment to cash distributions. Additionally, the market may underestimate the gross profit
contribution from Services, but more importantly its growth potential and the annuity type business it drives in terms of
retention and replacement across the business.
Price: $67.07
3
Arista Networks
(ANET)
Target: $90.00
ANET has a unique technological advantage that allows it to differentiate and disrupt within the current oligopolistic
networking market, which should drive strong, sustained financial performance over time.
Mkt Cap: $4.6B
60
Top Picks in Small Caps
PE
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
Com pany
2U, Inc
Box, Inc.
Brandyw ine Realty Trust
Caesarstone Ltd.
CalAtlantic Inc.
Chicago Bridge & Iron
Constellium
Euronav NV
Genesis Energy, LP
Grand Canyon Education, Inc
Gulfport Energy
Houghton Mifflin Harcourt Company
Investment Technology Group Inc.
Jinko Solar
LifePoint Health, Inc.
Marriott Vacations Worldw ide
Nationstar Mortgage Holdings Inc.
New Residential
Nord Anglia Education Inc.
PDC Energy
PennyMac Mortgage Investment Trust
Scorpio Tankers Inc.
SolarCity
Sportsman's Warehouse Holdings, Inc.
Sprouts Farmers Markets
Sunrun
Superior Energy Services, Inc.
Tallgrass Energy Partners, L.P.
Taubman Centers, Inc.
Taylor Morrison
UltraGenyx Pharmaceutical, Inc
United States Steel Corp.
TWOU
BOX
BDN
CSTE
CAA
CBI
CSTM
EURN
GEL
LOPE
GPOR
HMHC
ITG
JKS
LPNT
VAC
NSM
NRZ
NORD
PDCE
PMT
STNG
SCTY
SPWH
SFM
RUN
SPN
TEP
TCO
TMHC
RARE
X
Price
28.40
12.91
15.19
37.70
32.85
39.48
5.66
10.98
32.00
44.05
30.02
20.66
19.68
22.40
67.00
61.86
11.53
12.17
21.05
64.24
13.39
6.30
29.55
11.21
28.24
7.97
16.89
42.55
70.93
14.26
69.46
20.30
TP
32
24
16
47
40
51
10
20
46
62
38
23
26
40
79
73
19
17
23
81
16
10
62
16
32
18
12
54
90
18
104
22
% Upside
12.7%
85.9%
5.3%
24.7%
21.8%
29.2%
76.7%
82.1%
43.8%
40.7%
26.6%
11.3%
32.1%
78.6%
17.9%
18.0%
64.8%
39.7%
9.3%
26.1%
19.5%
58.7%
109.8%
42.8%
13.3%
125.8%
-29.0%
26.9%
26.9%
26.2%
49.7%
8.4%
2014
NM
NM
NM
15.7x
61.6x
7.5x
10.0x
NM
26.1x
18.1x
NM
NM
13.7x
6.5x
20.5x
20.6x
3.9x
7.7x
79.0x
59.7x
5.3x
NM
NM
20.1x
38.3x
NM
8.9x
31.4x
5.4x
6.5x
NM
4.5x
2015
NM
NM
NM
15.5x
16.7x
6.6x
NM
4.8x
36.2x
15.7x
NM
NM
22.3x
4.0x
16.7x
16.6x
9.3x
6.3x
48.1x
42.4x
10.6x
5.0x
NM
22.6x
32.2x
NM
NM
22.8x
40.8x
10.1x
NM
NM
EPS Grow th
PB
2014
2015
2014
33.0%
38.9%
12.0x
4.6%
36.6%
2.2x
-91.8% -1210.1%
1.2x
28.3%
1.3%
4.0x
9.8%
268.1%
NM
6.0%
12.5%
1.5x
-49.0% -1188.4% -11.9x
75.4%
604.1%
0.8x
16.2%
-28.0%
2.3x
27.5%
15.2%
4.2x
-161.4%
43.3%
1.0x
-36.7%
-24.4%
1.6x
48.5%
-38.6%
1.7x
55.2%
62.4%
0.9x
15.8%
23.1%
1.5x
33.8%
24.0%
1.9x
140.7%
-58.3%
0.8x
55.5%
21.9%
1.1x
187.3%
64.2%
9.2x
14.3%
40.8%
1.9x
-17.3%
-49.4%
0.6x
38.2%
2238.5%
0.9x
-111.4% -96.6%
3.4x
-17.7%
-10.8%
-3.9x
49.6%
19.0%
6.2x
-1665.9% 30.1%
2.3x
14.0%
-166.5%
0.6x
307.9%
37.8%
1.2x
687.0%
-86.9%
-104.8x
30.9%
-35.5%
0.3x
78.1%
-76.3% 61113.4x
650.1% -143.0%
0.7x
DY
2014
4.0%
0.7%
7.4%
9.6%
18.2%
3.7%
9.7%
1M
25.3%
4.5%
7.7%
9.5%
-1.4%
10.2%
11.0%
10.0%
4.2%
2.4%
9.6%
2.2%
-13.3%
10.9%
-3.1%
-5.8%
17.8%
5.0%
0.0%
7.7%
-1.9%
9.8%
21.7%
-7.4%
-0.7%
23.8%
30.3%
15.9%
0.3%
0.4%
4.5%
22.7%
Perform ance
3M
48.3%
26.2%
20.7%
6.3%
7.9%
4.5%
-3.4%
-4.6%
17.1%
20.8%
6.9%
21.8%
18.1%
13.6%
-5.1%
30.1%
24.0%
13.1%
25.7%
25.2%
-0.7%
11.9%
-7.8%
-12.9%
19.0%
-4.4%
86.8%
30.3%
0.6%
21.4%
14.3%
186.3%
12M
4.5%
-26.2%
4.2%
-37.7%
-19.9%
-20.8%
-69.1%
-19.9%
-34.0%
2.0%
-39.2%
-11.0%
-32.2%
-22.1%
-6.2%
-26.7%
-55.2%
-28.2%
-19.1%
13.3%
-36.0%
-33.4%
-52.0%
19.1%
-11.1%
-35.7%
-14.7%
-3.4%
-23.7%
16.1%
-12.7%
61
Valuation Table
PE
Com pany
BASIC MATERIALS
Ag Science
1 CF Industries Holding Inc.
2 Monsanto Company
3 Agrium Inc.
Chem icals
1 Axalta Coating Systems
2 Air Products & Chemicals
3 Sherw in-Williams Company
Metals & Mining
1 United States Steel Corp.
2 Constellium
3 Steel Dynamics, Inc.
CONSUMER
Apparel, Footw ear & Softlines
1 Hanesbrands Inc.
2 Nike Inc.
3 lululemon athletica Inc.
Hom ebuilding & Building Products
1 CalAtlantic Inc.
2 Taylor Morrison
3 Caesarstone Ltd.
Leisure
1 Marriott Vacations Worldw ide
2 Six Flags Entertainment Corp.
3 Vail Resorts
Media, Cable & Satellite
1 Time Warner Inc.
2 CBS Corporation
3 21st Century Fox Inc.
Packaged Food
1 Kellogg Company
2 J.M. Smucker Co.
3 Mondelez
EPS Grow th
2014
2015
PB
2014
DY
2014
1M
-80.8%
7.1%
25.1%
0.4x
6.2x
1.8x
15.9%
1.8%
3.6%
3.8%
8.9%
-2.8%
13.2%
9.5%
3.2%
-43.4%
-19.2%
-17.6%
19.6%
13.7%
26.9%
5.7x
2.8x
28.4x
2.1%
0.8%
-0.4%
0.4%
0.6%
24.7%
11.5%
16.3%
-7.9%
-0.5%
2.6%
-143.0%
-1188.4%
-51.9%
0.7x
-11.9x
2.0x
1.9%
22.7%
11.0%
10.0%
186.3%
-3.4%
44.3%
-12.7%
-69.1%
14.7%
44.8%
10.8%
-2.3%
17.7%
24.5%
-0.5%
7.9x
10.0x
8.7x
3.1%
-3.2%
-2.9%
-2.4%
-4.7%
7.6%
-6.7%
18.3%
5.0%
16.7x
10.1x
15.5x
9.8%
30.9%
28.3%
268.1%
-35.5%
1.3%
5.3x
0.3x
4.0x
-1.4%
0.4%
9.5%
7.9%
21.4%
6.3%
-19.9%
-23.7%
-37.7%
20.6x
75.9x
NM
16.6x
36.8x
42.6x
33.8%
-35.1%
-25.3%
24.0%
106.5%
300.0%
1.9x
24.9x
5.9x
3.3%
1.0%
-5.8%
2.6%
-1.2%
30.1%
20.7%
7.2%
-26.7%
25.2%
31.0%
19.5%
24.0%
21.9%
18.0x
18.9x
18.2x
15.7x
16.9x
17.7x
18.2%
5.7%
21.8%
14.7%
11.6%
3.2%
2.7x
4.4x
3.9x
1.7%
1.0%
0.8%
3.2%
2.4%
6.2%
6.8%
21.1%
16.8%
-12.0%
-9.8%
-12.0%
11.1%
11.2%
8.3%
NM
22.7x
25.0x
21.8x
23.7x
26.5x
4.3%
14.4%
-4.5%
-5.7%
2.6x
2.3x
1.8%
1.3%
-0.5%
-3.7%
7.4%
7.0%
-0.5%
5.6%
21.2%
9.3%
14.6%
Ticker
Price
TP
% Upside
2014
2015
CF
MON
AGU
33.34
95.65
86.00
40
97
93
20.0%
1.4%
8.1%
1.6x
17.9x
14.7x
8.2x
16.7x
11.7x
-15.6%
14.9%
-21.7%
AXTA
APD
SHW
28.98
145.87
289.51
33
161
319
13.9%
10.4%
10.2%
32.5x
24.8x
32.7x
27.1x
21.8x
25.8x
4.9%
21.4%
X
CSTM
STLD
20.30
5.66
25.31
22
10
27
8.4%
76.7%
6.7%
4.5x
10.0x
18.4x
NM
NM
38.3x
650.1%
-49.0%
HBI
NKE
LULU
29.31
59.59
66.72
39
68
76
33.1%
14.1%
13.9%
20.4x
40.2x
35.3x
17.4x
32.3x
35.4x
CAA
TMHC
CSTE
32.85
14.26
37.70
40
18
47
21.8%
26.2%
24.7%
61.6x
6.5x
15.7x
VAC
SIX
MTN
61.86
59.69
130.76
73
67
145
18.0%
12.2%
10.9%
TWX
CBS
FOXA
75.32
56.47
30.36
90
70
37
K
SJM
MDLZ
77.44
127.68
44.31
86
142
48
1.0%
1.5%
Perform ance
3M
12M
62
Valuation Table
PE
Com pany
Ticker
CONSUMER
Retail: Broadlines & Departm ent Store
1 Costco Wholesale Corporation
COST
Retail: Food & Drug
1 Dollar General
DG
2 Sysco Corporation
SYY
3 Sprouts Farmers Markets
SFM
Retail: Hardlines
1 Home Depot
HD
2 Sportsman's Warehouse Holdings, Inc.
SPWH
Restaurants
1 McDonald's Corp
MCD
2 Panera Bread Company
PNRA
3 Darden Restaurants, Inc
DRI
ENERGY/UTILITIES
Alternative Energy
1 Sunrun
RUN
2 SolarCity
SCTY
3 Jinko Solar
JKS
1 Marathon
MPC
MLPs
1 Genesis Energy, LP
GEL
2 EQT Midstream Partners, LP
EQM
3 Tallgrass Energy Partners, L.P.
TEP
Oil & Gas E&P
1 Concho Resources, Inc.
CXO
2 Devon Energy Corp
DVN
3 Noble Energy
NBL
Oil Services & Equipm ent
1 Superior Energy Services, Inc.
SPN
2 Weatherford International, Inc.
WFT
3 Schlumberger
SLB
1 Euronav NV
EURN
2 Scorpio Tankers Inc.
STNG
Price
TP
% Upside
2014
2015
EPS Grow th
2014
2015
PB
2014
DY
2014
1M
150.93
165
9.3%
32.8x
28.1x
0.4%
16.7%
5.5x
0.9%
-4.6%
1.6%
3.8%
82.50
48.61
28.24
90
52
32
9.1%
7.0%
13.3%
26.1x
4.3x
38.3x
23.9x
26.4x
32.2x
10.0%
531.1%
49.6%
9.2%
-83.6%
19.0%
5.0x
5.5x
6.2x
2.4%
-5.5%
3.2%
-0.7%
8.1%
13.6%
19.0%
12.3%
30.8%
-11.1%
136.05
11.21
145
16
6.6%
42.8%
35.9x
20.1x
28.6x
22.6x
22.3%
-17.7%
25.7%
-10.8%
15.4x
-3.9x
0.9%
-7.4%
8.6%
-12.9%
24.2%
19.1%
128.20
214.58
63.61
135
225
72
5.3%
4.9%
13.2%
26.7x
32.7x
42.4x
25.9x
34.4x
24.3x
-13.2%
-2.2%
-51.9%
3.1%
-4.9%
74.6%
9.9x
4.0x
3.9x
0.9%
0.8%
-5.1%
3.4%
10.0%
2.3%
31.1%
17.1%
11.0%
7.97
29.55
22.40
18
62
40
125.8%
109.8%
78.6%
NM
NM
6.5x
NM
NM
4.0x
-1665.9%
-111.4%
55.2%
30.1%
-96.6%
62.4%
2.3x
3.4x
0.9x
23.8%
21.7%
10.9%
-4.4%
-7.8%
13.6%
-52.0%
-22.1%
38.58
48
24.4%
8.5x
6.5x
30.6%
31.2%
2.0x
2.4%
6.0%
-4.2%
-24.8%
32.00
77.60
42.55
46
109
54
43.8%
40.5%
26.9%
26.1x
21.4x
31.4x
36.2x
16.6x
22.8x
16.2%
56.3%
307.9%
-28.0%
28.6%
37.8%
2.3x
2.6x
1.2x
7.4%
2.7%
3.7%
4.2%
7.3%
15.9%
17.1%
13.5%
30.3%
-34.0%
-10.0%
-14.7%
117.06
34.56
36.44
123
37
41
5.1%
7.1%
12.5%
27.7x
6.7x
14.6x
NM
13.0x
66.9x
-76.0%
-48.7%
-78.1%
2.3x
0.6x
1.2x
2.9%
15.8%
29.9%
18.1%
31.6%
40.0%
18.8%
-6.1%
-49.6%
-27.5%
16.89
8.20
79.40
12
13
80
-29.0%
58.5%
0.8%
8.9x
7.9x
13.8x
NM
NM
22.8x
14.0%
68.4%
17.3%
-166.5%
-132.5%
-39.5%
0.6x
0.9x
2.7x
30.3%
9.9%
10.1%
86.8%
37.4%
15.3%
-35.7%
-44.0%
-14.6%
10.98
6.30
20
10
82.1%
58.7%
NM
NM
4.8x
5.0x
75.4%
38.2%
604.1%
2238.5%
0.8x
0.9x
10.0%
9.8%
-4.6%
11.9%
-19.9%
-33.4%
2.5%
3.4%
1.3%
Perform ance
3M
12M
63
Valuation Table
PE
Com pany
Ticker
Price
ENERGY/UTILITIES
SMID Cap Exploration & Production
1 PDC Energy
PDCE
64.24
2 Diamondback Energy, Inc.
FANG
87.61
3 Gulfport Energy
GPOR
30.02
FINANCIALS
Asset Managers
1 Affiliated Managers Group
AMG
171.85
Banks - Large Cap
1 JPMorgan Chase & Co.
JPM
63.79
2 Bank of America Corp.
BAC
14.77
Banks - Mid cap Cap
1 BB&T Corp.
BBT
35.41
2 KeyCorp
KEY
12.46
3 Zions Bancorporation
ZION
27.50
Brokers, Exchanges & Trust Banks
1 Goldman Sachs Group, Inc.
GS
166.18
2 IntercontinentalExchange, Inc.
ICE
244.68
Insuance - P&C
1 CB Limited
CB
118.95
2 Allstate Corporation
ALL
65.36
3 Arthur J. Gallagher & Co.
AJG
46.90
Mortgage REITs
1 New Residential
NRZ
12.17
2 PennyMac Mortgage Investment Trust
PMT
13.39
3 Nationstar Mortgage Holdings Inc.
NSM
11.53
REITs
1 Taubman Centers, Inc.
TCO
70.93
2 Prologis, Inc.
PLD
46.01
3 Brandyw ine Realty Trust
BDN
15.19
Specialty Finance
1 Synchrony Financial
SYF
31.33
2 Visa Inc.
V
78.46
Trust Banks, M&A Advisors & Maket Technology
1 Lazard Ltd.
LAZ
35.57
2 NASDAQ Group Inc.
NDAQ
63.01
3 Investment Technology Group Inc.
ITG
19.68
EPS Grow th
2014
2015
PB
2014
TP
% Upside
2014
2015
81
96
38
26.1%
9.6%
26.6%
59.7x
35.6x
NM
42.4x
46.6x
NM
14.3%
91.3%
-161.4%
40.8%
-23.7%
43.3%
246
43.1%
14.5x
13.3x
11.1%
9.5%
75
18
17.6%
21.9%
11.8x
39.4x
10.4x
11.0x
21.6%
-59.3%
13.5%
257.7%
1.1x
0.7x
42
14
30
18.6%
12.4%
9.1%
11.9x
11.1x
15.2x
12.7x
11.1x
16.5x
35.8%
2.3%
-32.6%
-6.2%
0.3%
-7.5%
180
280
8.3%
14.4%
9.6x
25.0x
13.5x
19.8x
10.4%
17.7%
-28.9%
26.4%
128
74
47
7.6%
13.2%
0.2%
12.0x
12.1x
19.1x
11.9x
12.6x
17.9x
5.5%
-4.9%
8.6%
0.7%
-4.0%
6.6%
17
16
19
39.7%
19.5%
64.8%
7.7x
5.3x
3.9x
6.3x
10.6x
9.3x
55.5%
-17.3%
140.7%
21.9%
-49.4%
-58.3%
1.1x
0.6x
0.8x
90
48
16
26.9%
4.3%
5.3%
5.4x
37.3x
NM
40.8x
27.4x
NM
687.0%
90.0%
-91.8%
-86.9%
36.1%
-1210.1%
38
85
21.3%
8.3%
11.3x
9.0x
11.7x
30.0x
-2.0%
354.2%
44
68
26
23.7%
7.9%
32.1%
10.9x
19.8x
13.7x
9.7x
18.3x
22.3x
59.2%
20.7%
48.5%
DY
2014
1.9x
2.2x
1.0x
1M
Perform ance
3M
12M
7.7%
14.1%
9.6%
25.2%
23.0%
6.9%
13.3%
7.0%
-39.2%
4.9%
40.2%
-24.1%
2.5%
0.8%
6.5%
8.9%
11.9%
11.6%
0.3%
-8.3%
1.1x
1.0x
0.9x
2.7%
2.1%
0.6%
5.7%
13.6%
13.8%
12.1%
15.8%
27.7%
-7.9%
-13.5%
-2.9%
1.0x
2.2x
1.4%
1.1%
4.0%
3.8%
9.5%
-7.5%
-15.9%
8.4%
-1.6%
-4.2%
5.1%
5.8%
9.0%
25.1%
10.5%
-6.6%
-2.1%
9.6%
18.2%
5.0%
-1.9%
17.8%
13.1%
-0.7%
24.0%
-28.2%
-36.0%
-55.2%
-104.8x
1.7x
1.2x
9.7%
2.9%
4.0%
0.3%
3.1%
7.7%
0.6%
17.2%
20.7%
-3.4%
13.8%
4.2%
-3.5%
-70.1%
2.2x
7.6x
0.5%
6.8%
1.1%
16.0%
6.9%
-0.6%
19.3%
12.8%
8.4%
-38.6%
6.1x
1.9x
1.7x
-10.3%
-4.7%
-13.3%
10.8%
1.1%
18.1%
-31.3%
28.5%
-32.2%
3.3%
0.9%
64
Valuation Table
PE
Com pany
HEALTH CARE
Biotechnology
1 Celgene Corporation
2 Gilead Sciences, Incorporated
3 Biomarin Pharmaceuticals, Incorporated
Healthcare Distribution & IT
1 Express Scripts
2 DENTSPLY-SIRONA
3 Cardinal Health
1 HCA Holdings, Inc.
2 LifePoint Health, Inc.
1 Zoetis
Managed Care
1 UnitedHealth Group Incorporated
2 Centene Corporation
1 Boston Scientific Corp
Pharm aceuticals
1 Bristol Myers Squibb Co.
2 Eli Lilly & Co.
3 Pfizer
1 UltraGenyx Pharmaceutical, Inc
2 Medivation, Inc
INDUSTRIALS
Aerospace & Defense
1 BE Aerospace Inc.
2 L-3 Communications
3 Orbital ATK Inc.
1 JB Hunt Transport Services
2 Union Pacific
3 Canadian Pacific Railw ays
EPS Grow th
2014
2015
PB
2014
Ticker
Price
TP
% Upside
2014
2015
CELG
GILD
BMRN
104.97
89.00
86.90
140
120
114
33.4%
34.8%
31.2%
28.2x
10.9x
NM
22.2x
7.0x
NM
24.5%
297.1%
40.9%
27.0%
55.9%
-400.1%
12.9x
8.5x
8.4x
ESRX
XRAY
CAH
73.62
60.25
79.50
85
70
102
15.5%
16.2%
28.3%
15.0x
24.0x
20.8x
13.3x
23.0x
18.2x
12.8%
6.3%
8.0%
13.3%
4.2%
14.2%
2.8x
3.4x
4.3x
HCA
LPNT
81.21
67.00
83
79
2.2%
17.9%
16.7x
20.5x
14.1x
16.7x
37.8%
15.8%
18.7%
23.1%
ZTS
48.03
58
20.8%
30.8x
27.2x
11.1%
UNH
CNC
132.10
62.87
141
78
6.7%
24.1%
22.0x
27.2x
20.6x
20.2x
BSX
22.00
22
0.0%
25.7x
BMY
LLY
PFE
71.96
76.75
32.80
75
91
38
4.2%
18.6%
15.9%
RARE
MDVN
69.46
58.01
104
63
BEAV
LLL
OA
48.79
133.54
87.11
JBHT
UNP
CP
83.40
88.12
145.44
DY
2014
1M
Perform ance
3M
12M
3.7%
-5.4%
2.6%
8.4%
7.6%
20.6%
-5.0%
-15.2%
-25.0%
6.5%
-2.0%
-3.2%
5.0%
1.6%
2.3%
-14.9%
17.1%
-7.1%
-4.5x
1.5x
2.5%
-3.1%
12.9%
-5.1%
9.0%
-6.2%
13.2%
22.0x
6.8%
15.1%
7.7%
3.8%
59.0%
6.6%
34.6%
4.0x
4.3x
1.7%
1.7%
16.0%
3.3%
16.7%
-0.0%
23.4x
17.2%
9.8%
4.6x
16.2%
23.3%
24.0%
38.6x
27.5x
14.9x
35.5x
22.3x
15.4x
1.8%
-32.9%
2.0%
8.8%
23.3%
-2.8%
8.0x
5.3x
3.0x
10.9%
4.5%
9.2%
22.2%
0.6%
8.8%
11.3%
5.0%
-3.8%
49.7%
8.6%
NM
17.0x
NM
40.2x
78.1%
702.8%
-76.3%
-57.7%
61113.4x
6016.2x
4.5%
25.6%
14.3%
84.9%
16.1%
-7.5%
58
155
100
18.9%
16.1%
14.8%
19.4x
19.9x
16.0x
16.0x
19.4x
17.5x
-32.5%
-18.3%
20.9%
2.7%
-8.3%
3.1x
1.0x
3.8x
1.8%
5.4%
12.7%
0.3%
20.8%
14.4%
0.5%
-18.9%
16.6%
17.6%
96
94
169
15.1%
6.7%
16.2%
26.2x
15.1x
20.9x
22.7x
15.8x
17.6x
10.4%
22.0%
32.9%
15.7%
-4.5%
18.7%
8.2x
3.7x
5.6x
1.0%
2.1%
0.8%
-1.3%
11.7%
10.2%
16.4%
22.9%
28.3%
-5.4%
-18.2%
-25.2%
0.5%
1.6%
2.0%
2.6%
3.1%
65
Valuation Table
PE
Com pany
Ticker
INDUSTRIALS
Airlines
1 Southw est Airlines Co.
LUV
2 Delta Air Lines, Inc.
DAL
3 American Airlines Group Inc.
AAL
Electrical Equipm ent & Multi-Industry
1 Eaton Corporation
ETN
2 3M
MMM
3 Ingersoll-Rand Plc
IR
1 Chicago Bridge & Iron
CBI
2 AECOM
ACM
Machinery
1 Cummins Inc.
CMI
2 Parker Hannifin Corporation
PH
3 Allison Transmission
ALSN
SERVICES
1 Gartner Inc
IT
2 Nielsen Holdings
NLSN
3 ServiceMaster Global Holdings Inc
SERV
Environm ental Services
1 Waste Management, Inc.
WM
Know ledge Services
1 Houghton Mifflin Harcourt Company
HMHC
2 Grand Canyon Education, Inc
LOPE
3 Nord Anglia Education Inc.
NORD
Technology
Internet
1 Facebook Inc.
FB
2 Amazon com Inc.
AMZN
3 Alphabet
GOOGL
Paym ents & Financial Technology
1 Global Payments Inc.
GPN
2 Vantiv, Inc.
VNTV
EPS Grow th
2014
2015
PB
2014
DY
2014
1M
74.6%
37.3%
56.3%
3.4x
4.0x
12.6x
0.5%
0.7%
1.2%
-1.2%
-10.3%
-12.9%
20.7%
-3.3%
-7.0%
3.3%
-7.6%
-30.3%
13.2%
11.5%
24.7%
-8.1%
1.3%
11.9%
1.9x
8.3x
3.0x
3.1%
2.0%
1.5%
-0.3%
0.5%
6.5%
29.5%
13.8%
35.5%
-10.0%
6.8%
-1.1%
6.6x
10.5x
6.0%
14.5%
12.5%
14.6%
1.5x
1.5x
0.7%
10.2%
6.5%
4.5%
27.1%
-20.8%
2.9%
13.2x
16.6x
22.9x
13.2x
15.7x
27.8x
14.6%
9.6%
42.8%
0.0%
5.6%
-17.8%
2.8x
2.6x
3.7x
2.4%
1.6%
1.8%
5.8%
3.3%
6.3%
31.0%
21.2%
23.1%
-17.4%
-4.3%
-7.6%
7.6%
10.5%
17.8%
38.9x
20.5x
26.4x
37.1x
19.7x
21.6x
13.9%
25.1%
66.6%
4.6%
4.2%
22.4%
48.3x
3.9x
12.2x
1.8%
-2.5%
-1.8%
0.0%
2.4%
11.2%
-5.7%
5.0%
17.1%
8.0%
65
8.4%
26.0x
22.9x
7.3%
13.4%
4.7x
2.5%
1.4%
15.1%
19.7%
20.66
44.05
21.05
23
62
23
11.3%
40.7%
9.3%
NM
18.1x
79.0x
NM
15.7x
48.1x
-36.7%
27.5%
187.3%
-24.4%
15.2%
64.2%
1.6x
4.2x
9.2x
2.2%
2.4%
0.0%
21.8%
20.8%
25.7%
-11.0%
2.0%
-19.1%
118.57
683.85
714.41
145
880
920
22.3%
28.7%
28.8%
66.7x
NM
27.8x
51.7x
NM
24.1x
90.9%
-16.6%
16.6%
29.1%
123.5%
15.6%
8.5x
29.1x
4.6x
2.2%
14.3%
-7.2%
3.5%
23.9%
-8.5%
50.1%
61.7%
29.6%
73.26
54.64
80
62
9.2%
13.5%
32.3x
28.7x
29.0x
24.0x
11.3%
19.7%
11.2x
12.4%
1.3%
29.5%
19.1%
45.0%
36.1%
Price
TP
% Upside
2014
2015
44.01
42.17
34.43
60
58
47
36.3%
37.5%
36.5%
21.6x
12.7x
6.1x
12.4x
9.3x
3.9x
79.7%
7.4%
117.1%
63.46
168.34
66.14
69
178
72
8.7%
5.7%
8.9%
13.5x
22.4x
19.7x
14.7x
22.1x
17.6x
39.48
32.81
51
36
29.2%
9.7%
7.5x
12.0x
116.53
115.50
28.73
125
126
33
7.3%
9.1%
14.9%
88.32
52.51
38.21
95
58
45
59.98
Perform ance
3M
12M
66
Valuation Table
PE
Com pany
Ticker
Technology
Sem iconductors
1 NXP Semiconductors N.V.
NXPI
2 Broadcom Ltd
AVGO
3 Intel Corp.
INTC
Sem iconductor Equipm ent
1 Lam Research Corp.
LRCX
Softw are
1 Autodesk Inc.
ADSK
2 Box, Inc.
BOX
3 Oracle Corporation
ORCL
SMID Cap Softw are
1 2U, Inc
TWOU
2 The Ultimate Softw are Group, Inc.
ULTI
Tech Hardw are / Telecom Equipm ent
1 Nokia
NOK
2 Apple Inc
AAPL
3 Arista Netw orks
ANET
EPS Grow th
2014
2015
PB
2014
DY
2014
1M
2.9%
5.2%
-7.4%
-5.7%
18.5%
9.6%
2.7%
-14.5%
19.0%
-8.4%
2.6x
-7.6%
8.6%
-0.8%
-30.2%
36.6%
-4.6%
6.0x
2.2x
3.8x
6.2%
4.5%
-2.1%
33.7%
26.2%
14.0%
6.6%
-26.2%
-9.2%
33.0%
31.4%
38.9%
25.9%
12.0x
20.9x
25.3%
0.5%
48.3%
14.6%
4.5%
18.2%
30.7%
13.6%
59.9%
90.1%
43.0%
57.5%
2.3x
5.2x
7.9x
2.2%
-14.9%
7.9%
-5.3%
-0.9%
16.4%
-8.8%
-27.4%
3.6%
Price
TP
% Upside
2014
2015
86.34
146.08
30.61
120
180
40
39.0%
23.2%
30.7%
18.1x
27.1x
13.1x
15.4x
16.0x
13.0x
52.5%
83.7%
22.6%
18.0%
69.2%
0.8%
39.7x
11.2x
2.6x
76.59
98
28.0%
17.1x
15.0x
98.8%
14.1%
61.37
12.91
40.30
100
24
50
62.9%
85.9%
24.1%
36.0x
NM
13.8x
51.5x
NM
14.5x
-13.3%
4.6%
7.3%
28.40
197.64
32
225
12.7%
13.8%
NM
NM
NM
73.0x
5.93
93.64
67.07
10
150
90
67.9%
60.2%
34.2%
17.0x
14.8x
41.7x
8.9x
10.4x
26.5x
1.2%
2.9%
Perform ance
3M
12M
67
Disclosure Appendix
68
Companies Mentioned (Price as of 02-May-2016)
21st Century Fox Inc. (FOXA.OQ, $30.36)
Express Scripts (ESRX.OQ, $73.62)
Scorpio Tankers Inc. (STNG.N, $6.3)
2U, Inc (TWOU.OQ, $28.4)
Facebook Inc. (FB.OQ, $118.57)
ServiceMaster Global Holdings Inc (SERV.N, $38.21)
3M (MMM.N, $168.34)
Gartner Inc (IT.N, $88.32)
Sherwin-Williams Company (SHW.N, $289.51)
AECOM (ACM.N, $32.81)
Genesis Energy, LP (GEL.N, $32.0)
Six Flags Entertainment Corp. (SIX.N, $59.69)
Affiliated Managers Group (AMG.N, $171.85)
Gilead Sciences, Incorporated (GILD.OQ, $89.0)
SolarCity (SCTY.OQ, $29.55)
Agrium Inc. (AGU.N, $86.0)
Global Payments Inc. (GPN.N, $73.26)
Southwest Airlines Co. (LUV.N, $44.01)
Air Products & Chemicals (APD.N, $145.87)
Goldman Sachs Group, Inc. (GS.N, $166.18)
Sportsman's Warehouse Holdings, Inc. (SPWH.OQ, $11.2)
Allison Transmission (ALSN.N, $28.73)
Grand Canyon Education, Inc (LOPE.OQ, $44.05)
Sprouts Farmers Markets (SFM.OQ, $28.24)
Allstate Corporation (ALL.N, $65.36)
Gulfport Energy (GPOR.OQ, $30.02)
Steel Dynamics, Inc. (STLD.OQ, $25.31)
Alphabet (GOOGL.OQ, $714.41)
HCA Holdings, Inc. (HCA.N, $81.21)
Sunrun (RUN.OQ, $7.97)
Amazon com Inc. (AMZN.OQ, $683.85)
Hanesbrands Inc. (HBI.N, $29.31)
Superior Energy Services, Inc. (SPN.N, $16.89)
American Airlines Group Inc. (AAL.OQ, $34.43)
Home Depot (HD.N, $136.05)
Synchrony Financial (SYF.N, $31.33)
Apple Inc (AAPL.OQ, $93.64)
Houghton Mifflin Harcourt Company (HMHC.OQ, $20.66)
Sysco Corporation (SYY.N, $48.61)
Arista Networks (ANET.N, $67.07)
Ingersoll-Rand Plc (IR.N, $66.14)
Tallgrass Energy Partners, L.P. (TEP.N, $42.55)
Arthur J. Gallagher & Co. (AJG.N, $46.9)
Intel Corp. (INTC.OQ, $30.61)
Taubman Centers, Inc. (TCO.N, $70.93)
Autodesk Inc. (ADSK.OQ, $61.37)
IntercontinentalExchange, Inc. (ICE.N, $244.68)
Taylor Morrison (TMHC.N, $14.26)
Axalta Coating Systems (AXTA.N, $28.98)
Investment Technology Group Inc. (ITG.N, $19.68)
The Ultimate Software Group, Inc. (ULTI.OQ, $197.64)
BB&T Corp. (BBT.N, $35.41)
J.M. Smucker Co. (SJM.N, $127.68)
Time Warner Inc. (TWX.N, $75.32)
BE Aerospace Inc. (BEAV.OQ, $48.79)
JB Hunt Transport Services (JBHT.OQ, $83.4)
UltraGenyx Pharmaceutical, Inc (RARE.OQ, $69.46)
Bank of America Corp. (BAC.N, $14.77)
JPMorgan Chase & Co. (JPM.N, $63.79)
Union Pacific (UNP.N, $88.12)
Biomarin Pharmaceuticals, Incorporated (BMRN.OQ, $86.9)Jinko Solar (JKS.N, $22.4)
United States Steel Corp. (X.N, $20.3)
Boston Scientific Corp (BSX.N, $22.0)
Kellogg Company (K.N, $77.44)
UnitedHealth Group Incorporated (UNH.N, $132.1)
Box, Inc. (BOX.N, $12.91)
KeyCorp (KEY.N, $12.46)
Vail Resorts (MTN.N, $130.76)
Brandywine Realty Trust (BDN.N, $15.19)
L-3 Communications (LLL.N, $133.54)
Vantiv, Inc. (VNTV.N, $54.64)
Bristol Myers Squibb Co. (BMY.N, $71.96)
Lam Research Corp. (LRCX.OQ, $76.59)
Visa Inc. (V.N, $78.46)
Broadcom Ltd (AVGO.OQ, $146.08)
Lazard Ltd. (LAZ.N, $35.57)
Weatherford International, Inc. (WFT.N, $8.2)
CB Limited (CB.N, $118.95)
LifePoint Health, Inc. (LPNT.OQ, $67.0)
Zions Bancorporation (ZION.OQ, $27.5)
CBS Corporation (CBS.N, $56.47)
Marathon (MPC.N, $38.58)
Zoetis (ZTS.N, $48.03)
CF Industries Holding Inc. (CF.N, $33.34)
Marriott Vacations Worldwide (VAC.N, $61.86)
lululemon athletica Inc. (LULU.OQ, $66.72)
Caesarstone Ltd. (CSTE.OQ, $37.7)
McDonald's Corp (MCD.N, $128.2)
CalAtlantic Inc. (CAA.N, $32.85)
Medivation, Inc (MDVN.OQ, $58.01)
Canadian Pacific Railways (CP.N, $145.44)
Mondelez (MDLZ.OQ, $44.31)
Cardinal Health (CAH.N, $79.5)
Monsanto Company (MON.N, $95.65)
Celgene Corporation (CELG.OQ, $104.97)
NASDAQ Group Inc. (NDAQ.OQ, $63.01)
Centene Corporation (CNC.N, $62.87)
NXP Semiconductors N.V. (NXPI.OQ, $86.34)
Chicago Bridge & Iron (CBI.N, $39.48)
Nationstar Mortgage Holdings Inc. (NSM.N, $11.53)
Concho Resources, Inc. (CXO.N, $117.06)
New Residential (NRZ.N, $12.17)
Constellium (CSTM.N, $5.66)
Nielsen Holdings (NLSN.N, $52.51)
Costco Wholesale Corporation (COST.OQ, $150.93)
Nike Inc. (NKE.N, $59.59)
Cummins Inc. (CMI.N, $116.53)
Noble Energy (NBL.N, $36.44)
DENTSPLY-SIRONA (XRAY.OQ, $60.25)
Nord Anglia Education Inc. (NORD.N, $21.05)
Darden Restaurants, Inc (DRI.N, $63.61)
Oracle Corporation (ORCL.N, $40.3)
Delta Air Lines, Inc. (DAL.N, $42.17)
Orbital ATK Inc. (OA.N, $87.11)
Devon Energy Corp (DVN.N, $34.56)
PDC Energy (PDCE.OQ, $64.24)
Diamondback Energy, Inc. (FANG.OQ, $87.61)
Panera Bread Company (PNRA.OQ, $214.58)
Dollar General (DG.N, $82.5)
Parker Hannifin Corporation (PH.N, $115.5)
EQT Midstream Partners, LP (EQM.N, $77.6)
PennyMac Mortgage Investment Trust (PMT.N, $13.39)
Eaton Corporation (ETN.N, $63.46)
Pfizer (PFE.N, $32.8)
Eli Lilly & Co. (LLY.N, $76.75)
Prologis, Inc. (PLD.N, $46.01)
Euronav NV (EURN.N, $10.98)
Schlumberger (SLB.N, $79.4)
69
Disclosure Appendix
Important Global Disclosures
The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report
accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or
indirectly related to the specific recommendations or views expressed in this report.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a
portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to OP the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return
relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most
attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are
based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings
were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s
coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is
assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between 5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for
Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment
recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst
expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector*
relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
70
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating
Versus universe (%)
Of which banking clients (%)
OP/Buy*
57%
(40% banking clients)
Neutral/Hold*
33%
Underperform/Sell*
9%
Restricted
1%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond
to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.)
An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a
material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's
Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and
analytics/disclaimer/managing_conflicts_disclaimer.html
Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any
taxpayer for the purposes of avoiding any penalties.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and
risk sections.
See the Companies Mentioned section for full company names
The subject company (UNH.N, SPN.N, HCA.N, AXTA.N, MDVN.OQ, MMM.N, SYF.N, FOXA.OQ, ZION.OQ, TWOU.OQ, DVN.N, BMRN.OQ, BOX.N, LAZ.N, EQM.N,
CXO.N, SPWH.OQ, DG.N, CNC.N, VNTV.N, NRZ.N, ZTS.N, LOPE.OQ, BEAV.OQ, NSM.N, NORD.N, ORCL.N, MCD.N, AAPL.OQ, STNG.N, SLB.N, JKS.N, MON.N,
AMG.N, CB.N, ACM.N, SJM.N, SERV.N, INTC.OQ, HD.N, MDLZ.OQ, LRCX.OQ, PMT.N, GILD.OQ, GPOR.OQ, FB.OQ, ANET.N, UNP.N, HMHC.OQ, CF.N, STLD.OQ,
GEL.N, ALSN.N, X.N, CAH.N, PDCE.OQ, CSTM.N, ITG.N, SCTY.OQ, AGU.N, CSTE.OQ, ALL.N, KEY.N, FANG.OQ, IT.N, PFE.N, NBL.N, ADSK.OQ, K.N, NXPI.OQ,
SYY.N, AVGO.OQ, V.N, AAL.OQ, BAC.N, NDAQ.OQ, GPN.N, GS.N, BBT.N, BSX.N, ESRX.OQ, TWX.N, BMY.N, CP.N, TMHC.N, AMZN.OQ, LLL.N, VAC.N, DAL.N,
CBI.N, LLY.N, RUN.OQ, TEP.N, APD.N, CELG.OQ, LPNT.OQ, JPM.N, CBS.N) currently is, or was during the 12-month period preceding the date of distribution of this
report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (UNH.N, SPN.N, HCA.N, AXTA.N, MMM.N, SYF.N, TWOU.OQ, DVN.N, BOX.N, EQM.N,
CXO.N, SPWH.OQ, VNTV.N, NRZ.N, ZTS.N, BEAV.OQ, NSM.N, NORD.N, ORCL.N, MCD.N, AAPL.OQ, SLB.N, JKS.N, MON.N, CB.N, SJM.N, SERV.N, INTC.OQ,
HD.N, MDLZ.OQ, GPOR.OQ, FB.OQ, ANET.N, UNP.N, HMHC.OQ, GEL.N, ALSN.N, CAH.N, PDCE.OQ, SCTY.OQ, KEY.N, FANG.OQ, PFE.N, NBL.N, NXPI.OQ,
AVGO.OQ, AAL.OQ, BAC.N, GS.N, BBT.N, ESRX.OQ, TWX.N, BMY.N, CP.N, TMHC.N, VAC.N, DAL.N, LLY.N, RUN.OQ, TEP.N, CELG.OQ, JPM.N, CBS.N) within
the past 12 months.
71
Credit Suisse provided non-investment banking services to the subject company (UNH.N, HCA.N, ZION.OQ, LAZ.N, VNTV.N, BEAV.OQ, CB.N, INTC.OQ, GILD.OQ,
X.N, ITG.N, ALL.N, KEY.N, BAC.N, GS.N, BBT.N, ESRX.OQ, TWX.N, VAC.N, RUN.OQ, CELG.OQ, JPM.N, CBS.N) within the past 12 months
Credit Suisse has managed or co-managed a public offering of securities for the subject company (UNH.N, HCA.N, AXTA.N, TWOU.OQ, DVN.N, CXO.N, SPWH.OQ,
NRZ.N, NORD.N, AAPL.OQ, CB.N, SJM.N, SERV.N, HD.N, MDLZ.OQ, UNP.N, GEL.N, PDCE.OQ, SCTY.OQ, KEY.N, FANG.OQ, AAL.OQ, GS.N, BBT.N, ESRX.OQ,
TWX.N, DAL.N, LLY.N, RUN.OQ, CELG.OQ, JPM.N, CBS.N) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (UNH.N, SPN.N, HCA.N, AXTA.N, MMM.N, SYF.N, TWOU.OQ, DVN.N,
BOX.N, EQM.N, CXO.N, SPWH.OQ, VNTV.N, NRZ.N, ZTS.N, BEAV.OQ, NSM.N, NORD.N, ORCL.N, MCD.N, AAPL.OQ, SLB.N, JKS.N, MON.N, CB.N, SJM.N,
SERV.N, INTC.OQ, HD.N, MDLZ.OQ, GPOR.OQ, FB.OQ, ANET.N, UNP.N, HMHC.OQ, GEL.N, ALSN.N, CAH.N, PDCE.OQ, SCTY.OQ, KEY.N, FANG.OQ, PFE.N,
NBL.N, NXPI.OQ, AVGO.OQ, AAL.OQ, BAC.N, GS.N, BBT.N, ESRX.OQ, TWX.N, BMY.N, CP.N, TMHC.N, VAC.N, DAL.N, LLY.N, RUN.OQ, TEP.N, CELG.OQ,
JPM.N, CBS.N) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (PNRA.OQ, UNH.N, SPN.N, HCA.N, AXTA.N,
MDVN.OQ, MMM.N, SYF.N, ZION.OQ, TWOU.OQ, DVN.N, BMRN.OQ, BOX.N, LAZ.N, EQM.N, CXO.N, MTN.N, SPWH.OQ, CNC.N, VNTV.N, NRZ.N, ZTS.N,
LOPE.OQ, BEAV.OQ, NSM.N, NORD.N, ORCL.N, MCD.N, AAPL.OQ, STNG.N, SLB.N, JKS.N, PH.N, MON.N, AMG.N, CB.N, ACM.N, SJM.N, SERV.N, INTC.OQ,
CMI.N, HD.N, MDLZ.OQ, LRCX.OQ, PMT.N, GILD.OQ, GPOR.OQ, FB.OQ, ANET.N, UNP.N, HMHC.OQ, CF.N, STLD.OQ, SHW.N, GEL.N, DRI.N, COST.OQ,
ALSN.N, X.N, CAH.N, PDCE.OQ, ITG.N, SCTY.OQ, AGU.N, ALL.N, XRAY.OQ, KEY.N, LULU.OQ, FANG.OQ, IT.N, PFE.N, NBL.N, ADSK.OQ, K.N, NXPI.OQ, SYY.N,
AVGO.OQ, V.N, AAL.OQ, BAC.N, NDAQ.OQ, GPN.N, GS.N, BBT.N, BSX.N, ESRX.OQ, TWX.N, BMY.N, CP.N, TMHC.N, AMZN.OQ, LLL.N, VAC.N, DAL.N, LUV.N,
CBI.N, LLY.N, JBHT.OQ, RUN.OQ, TEP.N, APD.N, CELG.OQ, LPNT.OQ, JPM.N, CBS.N, BDN.N) within the next 3 months.
Credit Suisse has received compensation for products and services other than investment banking services from the subject company (UNH.N, HCA.N, ZION.OQ,
LAZ.N, VNTV.N, BEAV.OQ, CB.N, INTC.OQ, GILD.OQ, X.N, ITG.N, ALL.N, KEY.N, BAC.N, GS.N, BBT.N, ESRX.OQ, TWX.N, VAC.N, RUN.OQ, CELG.OQ, JPM.N,
CBS.N) within the past 12 months
As of the date of this report, Credit Suisse makes a market in the following subject companies (PNRA.OQ, HBI.N, UNH.N, SPN.N, HCA.N, MDVN.OQ, MMM.N,
FOXA.OQ, AJG.N, ZION.OQ, DVN.N, BMRN.OQ, CXO.N, DG.N, CNC.N, VNTV.N, ZTS.N, BEAV.OQ, NSM.N, ORCL.N, MCD.N, AAPL.OQ, SLB.N, PH.N, ICE.N,
MON.N, AMG.N, CB.N, ACM.N, SJM.N, INTC.OQ, CMI.N, HD.N, MDLZ.OQ, LRCX.OQ, GILD.OQ, GPOR.OQ, FB.OQ, UNP.N, NKE.N, CF.N, STLD.OQ, SHW.N,
MPC.N, DRI.N, COST.OQ, X.N, CAH.N, PDCE.OQ, SCTY.OQ, IR.N, ALL.N, XRAY.OQ, KEY.N, LULU.OQ, IT.N, PFE.N, NBL.N, ADSK.OQ, ETN.N, GOOGL.OQ, K.N,
SYY.N, V.N, AAL.OQ, SFM.OQ, BAC.N, NDAQ.OQ, GPN.N, GS.N, BBT.N, BSX.N, ESRX.OQ, TWX.N, SIX.N, BMY.N, AMZN.OQ, LLL.N, DAL.N, LUV.N, LLY.N,
JBHT.OQ, APD.N, ULTI.OQ, CELG.OQ, JPM.N, CBS.N).
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (UNH.N, NRZ.N, STNG.N, DRI.N, RUN.OQ).
Credit Suisse has a material conflict of interest with the subject company (MMM.N) . Credit Suisse Securities (USA) LLC is acting as financial advisor to 3M on the
proposed acquisition of Ceradyne, Inc.
Credit Suisse has a material conflict of interest with the subject company (FOXA.OQ) . An Officer or Director of Credit Suisse is a Director of 21t Century Fox Inc.
(FOXA)
Credit Suisse has a material conflict of interest with the subject company (SLB.N) . Credit Suisse is acting as financial advisor to Cameron International (CAM) on its
announced acquisition by Schlumberger (SLB).
Credit Suisse has a material conflict of interest with the subject company (ICE.N) . Credit Suisse acted as a principal advisor to Interactive Data Corporation in
Intercontinental Exchange's acquisition of Interactive Data Corporation.
Credit Suisse has a material conflict of interest with the subject company (INTC.OQ) . Credit Suisse Securities (USA) LLC is acting as financial advisor to Intel Corp
(INTL) on its announced proposed acquisition of LSI’s Axxia Networking Business from Avago Technologies Limited (AVGO).
Credit Suisse has a material conflict of interest with the subject company (FB.OQ) . Credit Suisse has been named as a defendant in various putative shareholder classaction lawsuits relating to Facebook, Inc.’s May 2012 initial public offering. Credit Suisse’s practice is not to comment in research reports on pending litigations to which it
is a party. Nothing in this report should be construed as an opinion on the merits or potential outcome of the lawsuits.
72
Credit Suisse has a material conflict of interest with the subject company (NXPI.OQ) . Credit Suisse is acting as financial adviser to NXP Semiconductors NV (NXPI) in
relation to its proposed merger with Freescale Semiconductor Ltd (FSL).
As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (ORCL.N). As of
the date of this report, an analyst involved in the preparation of this report, Sitikantha Panigrahi, has following material conflicts of interest with the subject company. The
analyst or a member of the analyst's household has a long position in call options of Oracle Corporation (ORCL.N).
As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (PFE.N). As of the
date of this report, an analyst involved in the preparation of this report, Vamil Divan, has following material conflicts of interest with the subject company. The analyst or a
member of the analyst's household has a long position in the common stock Pfizer (PFE.N). A member of the analyst's household is an employee of Pfizer (PFE.N).
As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (BAC.N). As of the
date of this report, an analyst involved in the preparation of this report, Susan Katzke, has following material conflicts of interest with the subject company. The analyst or
a member of the analyst's household has a long position in the preferred stock Bank of America Corp (BAC).
As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (JPM.N). As of the
date of this report, an analyst involved in the preparation of this report, Susan Katzke, has following material conflicts of interest with the subject company. The analyst or
a member of the analyst's household has a long position in the common and preferred stock JPMorgan Chase & Co (JPM).
For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures
or call +1 (877) 291-2683.
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or
permit analysts to accept payment or reimbursement for travel expenses associated with these events.
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate
Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory
disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.creditsuisse.com/sites/disclaimers-ib/en/canada-research-policy.html.
The following disclosed European company/ies have estimates that comply with IFRS: (MMM.N, CAH.N, BMY.N, APD.N).
Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (UNH.N, HCA.N, AXTA.N, MMM.N, SYF.N,
PLD.N, TWOU.OQ, DVN.N, BOX.N, EQM.N, CXO.N, SPWH.OQ, VNTV.N, NRZ.N, NSM.N, NORD.N, ORCL.N, MCD.N, AAPL.OQ, NLSN.N, STNG.N, SLB.N, JKS.N,
CB.N, SJM.N, SERV.N, HD.N, MDLZ.OQ, PMT.N, FB.OQ, ANET.N, UNP.N, GEL.N, ALSN.N, CAA.N, PDCE.OQ, CSTM.N, SCTY.OQ, IR.N, CSTE.OQ, ALL.N, KEY.N,
FANG.OQ, PFE.N, NBL.N, GOOGL.OQ, NXPI.OQ, AAL.OQ, SFM.OQ, BAC.N, GS.N, BBT.N, ESRX.OQ, TWX.N, BMY.N, CP.N, DAL.N, LLY.N, RUN.OQ, TEP.N,
CELG.OQ, JPM.N, CBS.N) within the past 3 years.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
73
Important MSCI Disclosures
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and any other
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the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of
this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the
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The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s.
GICS is a service mark of MSCI and S&P and has been licensed for use by Credit Suisse.
Important Credit Suisse HOLT Disclosures
With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately
reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report.
The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and
warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database.
Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation
model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more
closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing
multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline
valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur.
Additional information about the Credit Suisse HOLT methodology is available on request.
The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model
establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to
produce alternative warranted prices, any of which could occur.
CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered
service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1
(877) 291-2683.
74
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- Credit Suisse

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