credit suisse’s top u.s. investment ideas
TRANSCRIPT
Top Picks
Credit Suisse’s Top U.S. Investment Ideas
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
5 November, 2013
Americas/United States
Equity Research
Product Marketing
Product Marketing Theme
Research Analysts
Credit Suisse US Equity Research 877 291 2683
Credit Suisse Global Product Marketing 212 538 4442
Arbin Sherchan, CFA 212 325 8967
Lori Calvasina 212 538 6396
Jim Kelly 212 538 5414
DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON TRADE ALERTS, ANALYST MODEL PORTFOLIOS 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.
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Table of Contents
Section Page
Methodology 2
Additions to Top Picks Since Last Publication 3
Removal from Top Picks Since Last Publication 5
Upgrades and Downgrades in Rank Since Last Publication 7
#1 Picks Overall 8
Basic Materials 13
Consumer Discretionary 16
Consumer Staples 22
Energy & Utilities 25
Financials 34
Health Care 42
Industrials 50
Media / Internet / Telecom 58
Services 62
Technology 63
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“One-stop shop” for the research team’s highest conviction ideas.
Each analyst identified and ranked up to 3 top stock picks based on a 6-12 month time
horizon.
Analysts who did not list a name under $3 billion in market cap were given the
opportunity to add a “bonus small-cap pick”.
In an effort to limit the list to only high-conviction ideas, analysts were allowed to submit
fewer than 3 stocks.
For each name, we include a short summary of our analyst’s thesis as a starting point for
further analysis.
These should not be viewed as portfolios; they are simply a current snapshot of the
analysts’ top picks in their coverage universes.
Results
The exercise resulted in a list of 145 top stock ideas, representing ~16% of the over 900
names covered by US analysts.
Note we publish this report in tandem with the Top Picks in Small & SMID report by Lori Calvasina.
Methodology
3
Additions to Top Picks Since Last Publication Click here for previous edition, 10/1/13
ADDITIONS (20) Analyst Coverage Universe Comments
BASIC MATERIALS
CE Celanese Corporation John McNulty Chemicals CE is new #2 Top Pick.
FOE Ferro John McNulty Chemicals FOE is new #3 Top Pick.
NUE Nucor Corporation Nathan Littlewood Metals & Mining NUE is new #1 Top Pick.
STLD Steel Dynamics, Inc Nathan Littlewood Metals & Mining STLD is new #2 Top Pick.
CONSUMER DISCRETIONARY
BYD Boyd Gaming Joel Simkins Gaming & Lodging BYD is new #3 Top Pick.
MAR Marriott International Joel Simkins Gaming & Lodging MAR is new #2 Top Pick.
CAB Cabelas Seth Sigman SMID Cap Consumer Discretionary CAB is new #3 Top Pick.
CONSUMER STAPLES
CVS CVS Caremark Corporation Edward Kelly Retail: Food & Drug CVS is new #3 Top Pick.
ENERGY & UTILITIES
JKS Jinko Solar Brandon Heiken Clean Tech JKS is new #2 Top Pick.
FINANCIALS
EV Eaton Vance Craig Siegenthaler Asset Managers EV is new #2 Top Pick.
HEALTH CARE
ABBV AbbVie Inc. Vamil Divan Pharmaceuticals ABBV is new #2 Top Pick.
BMY Bristol Myers Squibb Co. Vamil Divan Pharmaceuticals BMY is new #1 Top Pick.
INDUSTRIALS
PH Parker Hannifin Corporation Jamie Cook Machinery PH is new #2 Top Pick.
MEDIA/INTERNET/TELECOM
NXST Nexstar Broadcasting Group Michael Senno Cable & Satellite NXST is new #Bonus Small Cap Pick
Top Pick.
4
Additions to Top Picks Since Last Publication
ADDITIONS (20) Analyst Coverage Universe Comments
TECHNOLOGY
AVGO Avago Technologies Ltd. John Pitzer Semiconductors AVGO is new #1 Top Pick.
NXPI NXP Semiconductors N.V. John Pitzer Semiconductors NXPI is new #2 Top Pick.
KLAC KLA-Tencor Corp. John Pitzer Semiconductor Equipment KLAC is new #2 Top Pick.
TER Teradyne Inc. John Pitzer Semiconductor Equipment TER is new #3 Top Pick.
ULTI The Ultimate Software Group, Inc. Michael Nemeroff SMID Cap Software ULTI is new #2 Top Pick.
CTXS Citrix Systems Inc. Philip Winslow Software CTXS is new #1 Top Pick.
5
Removals from Top Picks Since Last Publication Click here for previous edition, 10/1/13
REMOVALS (20) Analyst Coverage Universe Comments
BASIC MATERIALS
DOW Dow Chemical Company John McNulty Chemicals We see better opportunities in our Top 3 picks.
ROC Rockwood Holdings Inc. John McNulty Chemicals We see better opportunities in our Top 3 picks.
RS Reliance Steel & Aluminum Nathan Littlewood Metals & Mining Downgraded to Neutral.
CONSUMER DISCRETIONARY
PENN Penn National Gaming Joel Simkins Gaming & Lodging We see more upside potential elsewhere.
SIX.N Six Flags Entertainment Corp. Joel Simkins Gaming & Lodging We see more upside potential elsewhere.
CNK Cinemark Holdings, Inc Seth Sigman SMID Cap Consumer Discretionary We see more upside potential elsewhere.
ENERGY & UTILITIES
SZYM Solazyme Edward Westlake Clean Tech
The market may still adopt its wait and see
approach for SZYM’s key Moema plant starting in
4Q13.
LNG Cheniere Energy, Inc. John Edwards MLP's We are Restricted on the stock.
FINANCIALS
IVZ Invesco Craig Siegenthaler Asset Managers We see more upside potential elsewhere.
HEALTH CARE
GHDX Genomic Health, Inc Vamil Divan Life Sciences & Tools We see more upside potential elsewhere.
VOLC Volcano Corporation Bruce Nudell Medical Supplies & Devices Downgraded to Neutral.
INDUSTRIALS
CAT Caterpillar Inc. Jamie Cook Machinery We see more upside potential elsewhere.
CMI Cummins Inc. Jamie Cook Machinery We see more upside potential elsewhere.
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Removals from Top Picks Since Last Publication
REMOVALS (20) Analyst Coverage Universe Comments
MEDIA/INTERNET/TELECOM
CHTR Charter Michael Senno Cable & Satellite We see more upside potential elsewhere.
TECHNOLOGY
MU Micron Technology Inc. John Pitzer Semiconductors We see more upside potential elsewhere.
XLNX Xilinx John Pitzer Semiconductors We see more upside potential elsewhere.
ASML ASML Holding N.V. John Pitzer Semiconductor Equipment We see more upside potential elsewhere.
PFPT Proofpoint Philip Winslow Software We see more upside potential elsewhere.
CRM Salesforce.com Inc. Philip Winslow Software We see more upside potential elsewhere.
JIVE Jive Software, Inc. Michael Nemeroff SMID Cap Software We see more upside potential elsewhere.
7
Upgrades and Downgrades in Rank Since Last Publication Click here for previous edition, 10/1/13
UPGRADES (2) Analyst Coverage Universe Comments
CONSUMER DISCRETIONARY
MAS Masco Dan Oppenheim Homebuilding & Building Products MAS moved to #1 (from #3)
ENERGY & UTILITIES
WMB Williams Companies, Inc John Edwards MLP's WMB moved to #2 (from #3)
DOWNGRADES (5) Analyst Coverage Universe Comments
CONSUMER DISCRETIONARY
SPF Standard Pacific Corp. Michael Dahl Homebuilding & Building Products SPF moved to #3 (from #1)
ENERGY & UTILITIES
BIOA BioAmber Inc. Patrick Jobin Clean Tech BIOA moved to #3 (from #2)
TECHNOLOGY
SNDK SanDisk Corp. John Pitzer Semiconductors SNDK moved to #3 (from #2)
ORCL Oracle Corporation Philip Winslow Software ORCL moved to #2 (from #1)
VMW VMware Inc. Philip Winslow Software VMW moved to #3 (from #2)
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Basic Materials Analyst Coverage Universe Mkt Cap Price TP Upside NTM
P/E DY 1M YTD
MON Monsanto Company Christopher Parkinson Ag Sciences $55.1B $104.88 $121 15% 19.3x 0.8% 10.8%
SEE Sealed Air Corp. John McNulty Chemicals $6.4B $30.18 $36 19% 19.8x 1.7% 11.3% 72.4%
NUE Nucor Corporation Nathan Littlewood Metals & Mining $16.5B $51.77 $55 6% 22.2x 2.8% 6.0% 19.9%
Consumer Discretionary Analyst Coverage Universe Mkt Cap Price TP Upside NTM
P/E DY 1M YTD
PVH Phillips-Van Heusen Christian Buss Apparel & Footwear $10.2B $124.57 $139 12% 15.8x 0.1% 6.0% 12.2%
MGM MGM Resorts International Joel Simkins Gaming & Lodging $9.3B $19.04 $25 31% NM -8.0% 63.6%
MAS Masco Dan Oppenheim Homebuilding & Building
Products $7.3B $21.13 $25 18% 19.2x 1.5% -0.4% 26.8%
DDS Dillard's Inc. Michael Exstein Retail: Broadlines & Department
Store $3.8B $81.98 $93 13% 10.9x 0.3% 4.0% -2.1%
HD Home Depot Gary Balter Retail: Hardlines $111.6B $77.89 $85 9% 19.3x 2.1% 25.9%
FL Foot Locker, Inc. Seth Sigman SMID Cap Consumer
Discretionary $5.2B $34.7 $43 24% 11.4x 2.4% 8.0%
Consumer Staples Analyst Coverage Universe Mkt Cap Price TP Upside NTM
P/E DY 1M YTD
MJN Mead Johnson Nutrition Robert Moskow Food / Agribusiness $16.5B $81.66 $90 10% 22.4x 1.8% 10.0% 23.9%
CL Colgate-Palmolive Michael Steib Household, Personal Care
Products & Beverages $59.9B $64.73 $72 11% 20.9x 2.2% 8.9% 23.8%
SWY Safeway Inc. Edward Kelly Retail: Food & Drug $8.6B $34.9 $45 29% 20.3x 2.0% 8.7% 92.9%
#1 Picks Overall
Source: Credit Suisse; Data as of 31-Oct-2013
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Financials Analyst Coverage Universe Mkt Cap Price TP Upside NTM
P/E DY 1M YTD
AMG Affiliated Managers Group Craig Siegenthaler Asset Managers $10.4B $197.44 $210 6% 18.4x 6.2% 51.7%
APO Apollo Global Mgmt Howard Chen Brokers, Exchanges & Trust
Banks $12B $32.26 $45 39% 9.1x 8.8% 8.4% 94.5%
MET MetLife, Inc. Thomas Gallagher Life Insurance $51.9B $47.31 $55 16% 8.2x 0.4% 43.6%
NCT Newcastle Investment Douglas Harter Mortgage REITs $1.7B $5.74 $6.5 13% 11.8x 8.6% 2.5% 41.1%
C Citigroup Inc. Moshe Orenbuch Multi-Line Banks / Consumer
Finance $147.9B $48.78 $65 33% 9.1x 0.8% 0.1% 23.3%
ACE ACE Limited Michael Zaremski P&C Insurance $32.5B $95.44 $106 11% 11.1x 2.1% 1.4% 19.6%
HBAN Huntington Bancshares Craig Siegenthaler Regional Banks $7.3B $8.8 $10.25 16% 11.9x 2.5% 5.5% 37.7%
FBP First BanCorp Matthew Clark SMID Cap Banks $1.1B $5.55 $9 62% 11.4x -2.6% 21.2%
#1 Picks Overall (continued)
Energy & Utilities Analyst Coverage Universe Mkt Cap Price TP Upside NTM
P/E DY 1M YTD
SUNE SunEdison Inc. Patrick Jobin Clean Tech $2.4B $9.3 $12 29% 24.3x 11.4% 189.7%
TSO Tesoro Corp. Edward Westlake Independent Refiners $6.6B $48.89 $60 23% 11.2x 1.7% 12.9% 11.0%
MRO Marathon Oil Corp Edward Westlake Integrated Oil & Gas $25B $35.26 $45 28% 10.8x 1.9% 1.9% 15.0%
MWE MarkWest Energy Partners John Edwards MLPs $11.7B $74.28 $85 14% 29.0x 5.0% 1.3% 45.6%
RDC Rowan Companies Gregory Lewis Oil & Gas Equipment & Services $4.5B $36.08 $45 25% 10.7x -2.4% 15.4%
APC Anadarko Petroleum Arun Jayaram Oil & Gas Exploration &
Production $47.9B $95.29 $122 28% 17.3x 0.6% 28.2%
BHI Baker Hughes Inc. James Wicklund Oil Services & Equipment $25.7B $58.09 $64 10% 14.7x 1.0% 17.0% 42.2%
PDCE PDC Energy Mark Lear SMID Cap Exploration &
Production $2.4B $67.81 $87 28% 29.9x 6.0% 104.2%
AEP American Electric Power Dan Eggers Utilities $22.8B $46.84 $53 13% 14.2x 4.3% 6.7% 9.7%
Source: Credit Suisse; Data as of 31-Oct-2013
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#1 Picks Overall (continued) Health Care Analyst Coverage Universe Mkt Cap Price TP Upside
NTM
P/E DY 1M YTD
GILD Gilead Sciences Inc. Ravi Mehrotra Biotechnology $108.9B $70.99 $80 13% 25.5x 13.7% 93.3%
CTRX Catamaran Corp Glen Santangelo Health Care Distribution & IT $9.7B $46.96 $60 28% 20.5x 2.4% -0.3%
HCA HCA Holdings Inc. Ralph Giacobbe Health Care Facilities & Services $21.1B $47.14 $55 17% 12.5x 4.0% 56.2%
ILMN Illumina, Inc. Vamil Divan Life Sciences & Tools $11.7B $93.51 $95 2% 42.3x 15.9% 68.2%
CI Cigna Corp. Ralph Giacobbe Managed Care $21.3B $76.98 $90 17% 10.5x 0.1% -1.8% 44.0%
SYK Stryker Corporation Bruce Nudell Medical Supplies & Devices $28B $73.86 $77 4% 16.0x 1.5% 9.0% 34.7%
BMY Bristol Myers Squibb Vamil Divan Pharmaceuticals $86.5B $52.52 $55 5% 26.8x 2.7% 11.9% 61.2%
REGN Regeneron
Pharmaceutical Jason Kantor SMID Cap Biotechnology $28.4B $287.6 $275 -4% 61.0x -8.3% 68.1%
Industrials Analyst Coverage Universe Mkt Cap Price TP Upside NTM
P/E DY 1M YTD
BA Boeing Robert Spingarn Aerospace & Defense $98.1B $130.5 $150 15% 18.0x 1.3% 10.7% 73.2%
KSU Kansas City Southern Allison Landry Airfreight & Ground Transport $13.4B $121.52 $129 6% 23.7x 0.6% 9.4% 45.6%
IR Ingersoll-Rand Plc Julian Mitchell Electrical Equipment & Multi-
Industry $19.5B $67.53 $73 8% 15.4x 1.8% 3.6% 40.8%
KBR KBR Inc. Jamie Cook Engineering & Construction $5.1B $34.54 $40 16% 13.5x 1.6% 15.4%
WCC Wesco International Hamzah Mazari Environmental Services $3.8B $85.46 $90 5% 14.2x 9.0% 26.7%
SB Safe Bulkers Inc Gregory Lewis Leasing & Logistics $0.6B $7.46 $7 -6% 10.9x 2.7% 5.1% 122.0%
TEX Terex Corporation Jamie Cook Machinery $3.9B $34.95 $45 29% 11.5x 1.6% 24.3%
CRS Carpenter Technology Julie Yates SMID Cap Aerospace & Defense $3.2B $59.33 $72 21% 16.4x 1.2% -1.3% 14.9%
Media/Internet/Telecom Analyst Coverage Universe Mkt Cap Price TP Upside NTM
P/E DY 1M YTD
CMCSA Comcast Michael Senno Cable & Satellite $124.3B $47.58 $54 13% 17.3x 1.9% 4.7% 27.3%
GOOG Google, Inc. Stephen Ju Internet $344.3B $1030.58 $1200 16% 19.6x 16.1% 45.3%
FOXA 21st Century Fox Michael Senno Media $58.6B $34.08 $38 12% 21.4x 0.8% 1.1% 51.1%
TMUS T-Mobile US Inc Joseph Mastrogiovanni Telecommunication Services $20.2B $27.73 $30 8% 39.6x 4.2% 112.0%
Source: Credit Suisse; Data as of 31-Oct-2013
11
Services Analyst Coverage Universe Mkt Cap Price TP Upside NTM
P/E DY 1M YTD
VNTV Vantiv, Inc. Georgios Mihalos IT Services & Consulting $5.3B $27.5 $31 13% 15.5x -2.1% 34.7%
Technology Analyst Coverage Universe Mkt Cap Price TP Upside NTM
P/E DY 1M YTD
NOK1
V Nokia Kulbinder Garcha
IT Hardware / Telecom
Equipment $21.1B $5.57 $6.5 17% NM 13.2% 90.4%
LRCX Lam Research Corp. John Pitzer Semiconductor Equipment $8.8B $54.23 $60 11% 13.1x 5.6% 50.1%
AVGO Avago Technologies Ltd. John Pitzer Semiconductors $11.2B $45.43 $45 -1% 13.6x 4.7% 43.5%
CTXS Citrix Systems Inc. Philip Winslow Software $10.6B $56.78 $85 50% 16.1x -19.8% -13.6%
SNCR Synchronoss Technologies Michael Nemeroff SMID Cap Software $1.4B $34.62 $46 33% 21.2x -9.7% 64.2%
#1 Picks Overall (continued)
Source: Credit Suisse; Data as of 31-Oct-2013
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
13
Chris Parkinson [email protected]
(212) 538-6286
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 MON
Monsanto
Company
$55.1B 19.3x 0.8% 10.8%
MON remains positioned to benefit from opportunities to enhance profitability on the back of
further adaptation of stacked traits in the U.S. market in addition to the projected launch of
higher margin products in the next two years. Increased biotech acres in S. America with
stacked traits and the potential for further expansion into E. Europe via MON's hybrid seed
portfolio should drive increased revenue and higher margins.
(OUTPERFORM
, CP $104.88,
TP $121.00)
2 AGU
Agrium Inc.
$12.5B 10.5x 0.5% -0.2% -14.6%
We remain optimistic regarding the retail segment's potential to optimize its store footprint
and further benefit from operating leverage on the back of strong N. American agriculture
fundamentals. 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.
(OUTPERFORM
, CP $85.32, TP
$110.00)
Basic Materials Ag Sciences
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
14
John McNulty [email protected]
(212) 325-4385
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 SEE
Sealed Air Corp.
$6.4B 19.8x 1.7% 11.3% 72.4%
We believe that following the recent (October 2012) management change at the company
that SEE will significantly improve its profitability and cash flows while also deleveraging its
sizable debt load with both of these things driving significant shareholder value. Under the
new management team we expect the company to more effectively price their innovative
packaging solutions to more effectively reflect the value they provide (evidenced in their
large global market shares and industry leading customer partnerships), which is the only
thing that drives our EPS estimate in 2014 that is significantly above consensus. In the
event that SEE executes on its recently announced cost cutting plan and/or improves the
struggling “Diversey” assets, there would be significant upside to our estimates.
(OUTPERFORM
, CP $30.18, TP
$36.00)
2 CE
Celanese
Corporation
$8.8B 11.1x 1.2% 4.7% 25.8%
We have further confidence in CEO Mark Rohr's strategy of setting a culture of consistency
and delivery that should bode well going forward. Looking ahead, CE's $100m of self-help
activities should drive solid earnings growth with a number of activities already under way
such as the Narrows, VA conversion from coal boilers to natural gas boilers. CE also has
enough leverage to an economic recovery (either in Europe or other markets) for it to
Outperform/beat estimates in 2014. We believe that CE deserves a higher multiple based on
improved consistency (and therefore less risk) of their earnings and growth as well as an
increased focus on returning cash to shareholders.
(OUTPERFORM
, CP $56.01, TP
$65.00)
3 FOE
Ferro
$1.1B 18.7x 33.5% 206.9%
With three consecutive quarters of consistent execution on their very aggressive cost cutting
program (evidenced in their 3Q beat) we have significant conviction in mgmt.'s ability to
execute on the entire $100 mil program that should drive robust earnings and cash flow
growth. With that and the likelihood that FOE enjoys at least a modest recovery in their end
markets (housing related and autos), we believe there is solid upside to our estimates.
(OUTPERFORM
, CP $12.83, TP
$15.00)
Basic Materials Chemicals
Source: Credit Suisse; Data as of 31-Oct-2013
Note: CE is new #1 Top Pick. FOE is new #2 Top Pick. Removed ROC (we see better opportunities in our Top 3 picks) and DOW (we see better opportunities in our Top 3 picks).
15
Nathan Littlewood [email protected]
(416) 352-4585
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 NUE
Nucor
Corporation
$16.5B 22.2x 2.8% 6.0% 19.9%
We view Nucor as a long term value creator with a "best in class" raw materials
diversification strategy, growth prospects, cost position and balance sheet quality. These
fundamental strengths position NUE to grow earnings independent of an improvement in the
macro environment, setting it apart from peers. In 2014, we conservatively see $340mn in
incremental EBITDA contribution from near-term organic growth projects; we also believe
that it is not unreasonable to expect a Steel Mills margin recovery to generate around
$400mn in additional growth. This implies a margin increase of $28-48/t on the 20mtpa Steel
Mills business, which we believe reasonable given that these margins are well below 'pre-
crisis' figures but marginally higher than 2010-2013 levels.
(OUTPERFORM
, CP $51.77, TP
$55.00)
2 STLD
Steel Dynamics,
Inc
$4B 15.8x 2.4% 5.8% 30.9%
We like Steel Dynamics for its solid business model, ability to deliver earnings growth which
is not contingent upon metal price spreads (via projects), and its valuation discount relative
to the peer group. STLD is currently trading on 2014 EV/EBITDA of 7.4x/6.6x
(CSe/Consensus) compared to a peer group at 7.9x/7.1x – cheap, in our view, given the
company's solid fundamentals. We view STLD as a "mini-Nucor" with strong prospects for
earnings upside driven by its good cost position and integrated raw material base; its
operational strengths are also supported by its clean balance sheet with low debt levels &
minimal pension liabilities. While STLD's near term catalysts are not quite as enticing as
Nucor's, we believe this is offset by its cost position and discounted valuation.
(OUTPERFORM
, CP $17.97, TP
$20.00)
Basic Materials Metals & Mining
Source: Credit Suisse; Data as of 31-Oct-2013
Note: NUE is new #1 Top Pick. STLD is new #2 Top Pick. Removed RS (downgraded to Neutral)
16
Christian Buss [email protected]
(212) 325-9667
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 PVH
Phillips-Van
Heusen
$10.2B 15.8x 0.1% 6.0% 12.2% Compelling combination of: 1) sustained U.S. growth; 2) international expansion; and 3)
return of cash to shareholders.
(OUTPERFORM
, CP $124.57,
TP $139.00)
2 TIF
Tiffany & Co
$10.1B 19.3x 3.7% 38.1% See benefits from 1) global growth in high end jewelry; 2) margin expansion of ~250bps; 3)
downside support as acquisition candidate.
(OUTPERFORM
, CP $79.17, TP
$89.00)
3 URBN
Urban Outfitters
$5.6B 17.4x 2.6% -3.8%
We view URBN as a strong long-term story given opportunities for: 1) improved
merchandising, 2) pricing adjustments, 3) outsized e-commerce growth, 4) better inventory
management, 5) a more favorable sourcing environment, and 6) leverage of e-commerce
investments.
(OUTPERFORM
, CP $37.88, TP
$52.00)
Consumer Discretionary Apparel & Footwear
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
17
Joel Simkins [email protected]
(212) 325-5380
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 MGM
MGM Resorts
International
$9.3B NM -8.0% 63.6%
Strong velocity of progression in Cotai where MGM is moving ahead with construction and
could open in early 2016. Given Cotai as well as high probabilities around MD and MA in the
regional markets, MGM is assembling an attractive mid-decade growth pipeline that will
bolster a recovery in the core LV business. Further out, we expect Macau dividends,
recapitalization of Crystals, and other refinancing activities should further improve MGM’s
balance sheet. In Vegas, a fresher set of assets, several new attractions (Hakkasan) and
other improvements coming (Delano) we think MGM remains well-positioned versus peers.
(OUTPERFORM
, CP $19.04, TP
$25.00)
2 MAR
Marriott
International
$13.5B 20.0x 1.2% 6.1% 21.0%
Because of its compelling total return profile, leading brands / rewards system and upside to
North American incentive fees, MAR is one of the most compelling name in the gaming,
leisure and lodging group.
We view the US lodging cycle as firmly on track and still in the middle-innings. Despite the
recent noise in DC, which could have a short-lived impact on trends we believe the industry
remains well-positioned to achieve mid-single digit RevPAR growth in 2014, while supply
growth still remains tame versus historical trends.
Our $50 target price is based on a multiple of 12x our 2015 EBITDA estimate discounted
back.
(OUTPERFORM
, CP $45.08, TP
$50.00)
3 BYD
Boyd Gaming
$1.1B 51.6x 39.6% -27.0% 59.0%
BYD remains one of our top picks and we remain constructive given 1) the recovery of the
LV locals gaming market 2) timeline for online gaming in NJ and 3) continued balance sheet
deleveraging opportunities. In our view, BYD represents a compelling way for investors to
play a number of themes including online gaming, a recovery in Las Vegas (its locals and
downtown properties participate), industry consolidation, and an eventual upturn in regional
gaming.
Our $18 target is based on a multiple of 8.5x our 2015 core operations and 7.5x Borgata
EBITDA, discounted back.
(OUTPERFORM
, CP $10.56, TP
$16.00)
Consumer Discretionary Gaming & Lodging
Source: Credit Suisse; Data as of 31-Oct-2013
Note: MAR is new #2 Top Pick. BYD is news #3 Top Pick. Removed PENN (we see more upside potential elsewhere) and SIX (we see more upside potential elsewhere).
18
Dan Oppenheim [email protected]
(212) 325-5726
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 MAS
Masco
$7.3B 19.2x 1.5% -0.4% 26.8%
We expect above-average growth for Masco given it's ~80% exposure to the recovering U.S.
housing market. We expect this recovery to drive higher sales across Masco's platforms,
with the greatest improvement in the cabinets and installation businesses. Higher sales in
these two segments are be key to growing Masco's overall business. While we note that
interest rate volatiltiy is a risk, we continue to expect home prices and sales to improve.
(OUTPERFORM
, CP $21.13, TP
$25.00)
2 WCIC
WCI
Communities
$0.5B 6.1x 5.4% NA
Higher ASP communites, and higher-income target demogrpahic helps insulate WCIC from
interest rate volatility.Our Outperform rating is based on (1) our expectation that WCI will
generate earnings growth near the top of the industry over the coming years, as a result of
significant community count growth from its long land supply coupled with industry-leading
margins, and (2) its discount valuation. In addition, the company benefits from its strong
balance sheet (we expect WCI to report a net cash position when it reports 2Q results on
August 20, 2013), allowing it to capitalize on land opportunities. We also see meaningful
value in the company's real estate brokerage business
(OUTPERFORM
, CP $18.04, TP
$22.00)
3 SPF
Standard Pacific
Corp.
$2.2B 12.3x -2.1% 7.9%
Higher ASP communites, and higher-income target demogrpahic helps insulate SPF from
interest rate volatility. $1.1 bln of land investment in '11 and '12 adds high-margin
communities and orders for '13, '14, and beyond. Large and attractive existing land base in
California (59% of inventory), where tight existing inventory will create pricing power and
drive further expansion to best-in-class margins.
(OUTPERFORM
, CP $7.93, TP
$9.50)
Consumer Discretionary Homebuilding & Building Products
Source: Credit Suisse; Data as of 31-Oct-2013
Note: MAS moved to #1 (from #3). SPF moved to #3 (from #1)..
19
Michael Exstein [email protected]
(212) 325-4147
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 DDS
Dillard's Inc.
$3.8B 10.9x 0.3% 4.0% -2.1%
DDS has executed an impressive turnaround with a sustainable strategy in place. The
retailer has opportunity for significant improvements in sales productivity, which remains
below the industry average. In terms of capital allocation, we believe the retailer will focus
on share buybacks, in particular if the industry continues to experience cyclical pressure to
earnings growth.
(OUTPERFORM
, CP $81.98, TP
$93.00)
2 M
Macy's Inc.
$17.3B 11.5x 2.3% 4.9% 18.2%
Combination of consistent strategy execution, favorable position to benefit from competitors
miscues in the space and disciplined financial management are our continuing reasons to
recommend these shares. The retailer is well positioned for any cyclical downturn,
particularly relative to its weakening competitors whose strategies are not resonating as well
with the customer.
(OUTPERFORM
, CP $46.11, TP
$54.00)
3 COST
Costco
Wholesale
Corporation
$51.6B 22.6x 1.1% 2.8% 19.5%
Costco remains a unique company in the large cap space given its solid square footage
growth, limited vulnerability to ecommerce cannibalization, and the opportunity for margin
expansion. We believe Costco will continue to outperform its peers as it is an exception to
the trend across many retail formats to increase their consumables businesses as a
percentage of their total businesses; instead, Costco has been focused on differentiating
within its general merchandise businesses, and as a result has managed to growth traffic
and comparable store sales.
(OUTPERFORM
, CP $118.00,
TP $125.00)
Consumer Discretionary Retail: Broadlines & Department Stores
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
20
Gary Balter [email protected]
(212) 538-4228
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 HD
Home Depot
$111.6B 19.3x 2.1% 25.9%
HD has its act together. EBIT margins of 12.5%+ by 2015, with buybacks and better store
productivity, means EPS of $5.30+ by 2015, implying double-digit annualized gains.
Segment offers near oligopoly pricing, reduced competitive supply, and relative protection
from the Internet.
(OUTPERFORM
, CP $77.89, TP
$85.00)
2 ULTA
Ulta Salon,
Cosmetics &
Fragrance, Inc.
$8.2B 32.4x 6.1% 31.1%
We view ULTA as one of the best positioned growth stories in our space. With rapid square
footage growth, healthy secular demand, a strong and still improving store format amid
accelerating Prestige brand wins, top-line and EBIT margin expansion prospects are bright.
(OUTPERFORM
, CP $128.85,
TP $125.00)
3 LAD
Lithia Motors,
Inc.
$1.6B 15.3x -13.9% 68.0%
One of best positioned auto dealers with solid top-line growth, protected gross profits and
stellar track record of expense discipline. Among the best operating leverage plays in one of
our favorite segments. Expect above-average EPS growth as new vehicle SAAR normalizes
over next few years.
(OUTPERFORM
, CP $62.85, TP
$70.00)
Consumer Discretionary Retail: Hardlines
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
21
Seth Sigman [email protected]
(212) 538-8043
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 FL
Foot Locker, Inc.
$5.2B 11.4x 2.4% 8.0%
We believe FL offers an attractive risk/reward at its current level, with a solid roadmap to
mid-single digit comps/mid-teens EPS growth. The key drivers to this story include: (a)
healthy demand trends (strong basketball and improving running); (b) benefits from vendor
segmentation, which favors the athletic specialty channel for new product; (c) efforts to
increase the productivity of existing stores through remodels; (d) growth opportunities such
as kids and international. In our view, that is not reflected in this stock as it trades at just
10.3x our 2014 EPS estimate and 9.7x ex- our year-end net cash projection.
(OUTPERFORM
, CP $34.70, TP
$43.00)
2 TTS
Tile Shop
Holdings
$1.1B 37.8x -22.3% 32.7%
We view TTS as a rare retail growth story, with potential to deliver high 20%'s annual EPS
growth, supported by: a) positive secular trends, b) accelerating share gains, and c)
improving operating leverage as the new store base matures. We believe TTS' recent sell off
provides an opportunity. What gives us confidence in the story is the value TTS provides
consumers through high service levels, industry-leading assortment, superior visual
merchandising and attractive pricing. That has proven to be a winning recipe in retailing, as it
helps protect from e-commerce, allows TTS to effectively compete vs. big box competitors
and other local players, and supports structurally higher margins.
(OUTPERFORM
, CP $22.33, TP
$31.00)
3 CAB
Cabelas
$4.2B 16.0x -5.1% 42.1%
We view CAB as one of the most interesting retail growth stories over the next few years,
with the potential for mid-teens square footage growth and 18-20% annual EPS growth. That
is driven by a) favorable industry trends, b) share gains in one of retails most fragmented
sectors, and c) benefits from rolling out higher performing/ smaller next generation stores
(40%+ more productive and profitable than legacy stores). CAB faces a difficult comparison
in Q4 and Q1 as it anniversaries a significant surge in firearm sales last year, which could
keep this stock volatile, but we would be using that as an opportunity.
(OUTPERFORM
, CP $59.32, TP
$72.00)
Consumer Discretionary SMID Cap Consumer Discretionary
Source: Credit Suisse; Data as of 31-Oct-2013
Note: CAB is new #3 Top Pick. Removed CNK (we see more upside potential elsewhere).
22
Rob Moskow [email protected]
(212) 538-3095
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 MJN
Mead Johnson
Nutrition Co.
$16.5B 22.4x 1.8% 10.0% 23.9%
Multiple catalysts in back-half of 2013 will fuel 13% EPS growth, including market share
gains at the expense of Danone in China following a product recall, resumption of cross-
border shipments from Hong Kong to China in October, and an easy comparison to prior
year. In addition, Mead has an excellent long-term growth profile due to the emerging
market platform (65% of sales) and the strong global equity of the Enfa brand.
(OUTPERFORM
, CP $81.66, TP
$90.00)
2 HSY
The Hershey
Company
$22.4B 24.3x 2.5% 7.8% 37.4%
Investments in emerging markets, inelasticity of demand in the U.S. chocolate category, and
downward trend in commodities improve the company's growth rate and flexibility for
reinvestment.
(OUTPERFORM
, CP $99.24, TP
$109.00)
3 MDLZ
Mondelez
$59.9B 19.4x 2.2% 9.8% 32.1%
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 pressure from activist investor Trian will lead to better execution
by current management in the back half of 2013 and perhaps a shake-up of the board of
directors in 2014. Trian has a good track record in the consumer staples industry of creating
value for shareholders by persuading management teams to sell assets and improve
execution.
(OUTPERFORM
, CP $33.64, TP
$36.00)
Consumer Staples Food / Agribusiness
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
23
Michael Steib [email protected]
(212) 325-5157
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 CL
Colgate-
Palmolive
$59.9B 20.9x 2.2% 8.9% 23.8%
CL is our top pick within the HPC sector: (1) the company is in a sweet-spot from a category
and portfolio mix perspective at the moment, which should allow it to generate industry-
leading top-line and earnings growth of the highest quality; (2) downside risk to earnings
estimates is limited due to strong pricing power, relatively low-price elasticity in its categories
and ongoing efficiency programs; and (3) valuation, when taking into account midterm
earnings growth, is attractive when compared with global CPG stocks with similar growth
profiles.
(OUTPERFORM
, CP $64.73, TP
$72.00)
2 KO
The Coca-Cola
Company
$174.7B 17.6x 3.0% 5.7% 9.2%
KO is our top Beverages pick for three reasons: (1) Stock has been a big laggard lately as it
has not participated in the big rally most global CPG stocks have enjoyed in the past 12
months and its historical 10-15% valuation premium over peer group has disappeared
entirely. (2) We see big upside to the cost savings target in the US. We built a proprietary
model in which we map the whole Coke system value chain in the US. Based on this model,
we think that efficiency gains in the US could amount up to $1.5bn, or almost 3x the currently
communicated number, used to drive earnings or be reinvested to drive volume growth. (3)
We looked in detail into KO’s Asian business which is seen as a problem by the market but
where we think growth should gradually pick up again. We think the company has multiple
levers to improve their performance in Asia and we expect volume growth to sequentially
reaccelerate over the next 12-18 months. We will probably hear the company become more
vocal regarding their Asia plans going forward.
(OUTPERFORM
, CP $39.57, TP
$48.00)
3 CHD
Church & Dwight
Co., Inc.
$9B 21.5x 1.8% 7.7% 21.6%
We believe growth will accelerate in the second half of 2013 as the company reinvests cost
savings to step up marketing spend behind new products and the Avid gummy vitamin
acquisition. With an increasingly benign input cost environment and substantial cost cutting,
we expect continued margin improvement and we think CHD has left themselves a degree of
flexibility to surprise positively. While the company's growth potential is somewhat limited by
its category and geographic exposure, CHD continues to grow ahead of its underlying
categories, primarily as a result of strong innovation momentum and mix improvement. CHD
has established a track record for shareholder value creation with superior growth, best-in-
class margins and cash flow conversion and consistently improving ROIC.
(OUTPERFORM
, CP $65.15, TP
$68.00)
Consumer Staples Household, Personal Care Products & Beverage
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
24
Ed Kelly [email protected]
(212) 325-3241
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 SWY
Safeway Inc.
$8.6B 20.3x 2.0% 8.7% 92.9%
The Safeway story continues to provide investors with new avenues for potential value
creation. The latest update to this dynamic story is a Reuters report that Cerberus is
exploring a deal for all or part of Safeway’s U.S. supermarket business. Our proprietary work
suggests that a buyout of the entire company would make compelling strategic sense for
Cerberus and that it could pay over $45 for Safeway.
(OUTPERFORM
, CP $34.90, TP
$45.00)
2 DLTR
Dollar Tree
$13B 17.8x -0.9% 44.0%
We believe the company's high quality management team will continue to deliver consistent
mid-to-high teens earnings growth. The concept is highly differentiated and well positioned
for sustained share gains.
(OUTPERFORM
, CP $58.40, TP
$60.00)
3 CVS
CVS Caremark
Corporation
$76.5B 14.3x 1.7% 9.0% 28.8%
The market’s focus on WAG’s upside from global procurement, RAD’s blossoming
turnaround, and private exchange risk to PBMs has resulted in fairly meaningful
underperformance at CVS year-to-date. CVS’s valuation discount to WAG is now the largest
it’s been in three years. CVS remains an attractive investment idea in our view, given
upcoming industry catalysts (the next generic wave and increased utilization/share gains
associated with ACA), the potential to find its own generic procurement savings, its winning
long-term model that focuses on traffic gains, strong cash flows, and attractive valuation.
(OUTPERFORM
, CP $62.26, TP
$67.00)
Consumer Staples Retail: Food & Drug
Source: Credit Suisse; Data as of 31-Oct-2013
Note: CVS is new #3 Top Pick.
25
Patrick Jobin / Brandon
Heiken / Ed Westlake
(212) 325-0843 / (415) 249 7930 / (212) 325-6751
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 SUNE
SunEdison Inc.
$2.4B 24.3x 11.4% 189.7%
SunEdison's solar project business is at an inflection point of growth (started 4Q2013) as the
company delivers on their project pipeline and expands into smaller-scale distributed solar
generation projects. The company is well positioned with a low-cost solar manufacturing
process (bottom 1/3 of cost stack), a low-cost poly JV with Samsung, and a road-map to
further cost reductions. While the inflection point in project deliveries will be the primary
catalyst, we expect the previously-announced spin-off of the semiconductor business will
guide the market to realize a SOTP valuation in 1Q. Furthermore, with the recent secondary
offering and potential proceeds from the semiconductor business, the company can further
delever and accelerate growth into 2014.
(OUTPERFORM
, CP $9.30, TP
$12.00)
2 JKS
Jinko Solar
$0.6B 7.1x -6.7% 262.6%
Jinko Solar is a vertically integrated, low cost solar panel producer. The company sells solar
panels and develops projects. We have an Outperform rating on JKS based on recent policy
developments in China that will help project development and more conviction on stable
pricing through 2014.
(OUTPERFORM
, CP $22.52, TP
$32.00)
3 BIOA
BioAmber Inc.
$0.1B NM 20.0% NA
BioAmber's yeast technology converts renewable sugars to succinic acid, 1,4-butanediol and
Tetrahydrofuran. The technology is significantly derisked as they have operated a large
scale 350,000 liter fermenter in France since 2010 and have already demonstrated
commercial yields and productivity metrics. BioAmber can produce succinic acid at half the
price of the petroleum route (assuming corn at $6.50/bu and oil at $95/bbl). The company is
fully funded to execute construction on first plant in Sarnia, Ontario.
(OUTPERFORM
, CP $7.20, TP
$15.00)
Energy & Utilities Clean Tech
Source: Credit Suisse; Data as of 31-Oct-2013
Note: JKS is new #2 Top Pick. BIOA moved to #3 (from #2). Removed SZYM (the market may still adopt its wait and see approach for SZYM’s key Moema plant starting in 4Q13).
26
Ed Westlake [email protected]
(212) 325-6751
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 TSO
Tesoro Corp.
$6.6B 11.2x 1.7% 12.9% 11.0%
Although West Coast cracks have been under pressure recently (Richmond refinery returned
into service and normal seasonality), we believe the best is yet to come for TSO. The
contribution from Carson, from synergies (which the company believes could be realized
faster than prior guidance), from self-help projects should more than offset the loss of
EBITDA as Mid-Con margins narrow and as Bakken/WCS crude discounts narrow (albeit
stay relatively healthy). TSO is also going to receive cash from dropdowns into TLLP and the
Hawaii sale. This sets the stage for rising distributions to shareholders (both dividends and
buyback). TSO shares have underperformed since the end of July (underperformance vs
peers range from 7-16%). This is creating an interesting value entry point, though the best
time to own a refiner is typically Oct/Nov.
(OUTPERFORM
, CP $48.89, TP
$60.00)
Energy & Utilities Independent Refining
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
27
Ed Westlake [email protected]
(212) 325-6751
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 MRO
Marathon Oil
Corp
$25B 10.8x 1.9% 1.9% 15.0%
MRO is demonstrating capital discipline while delivering margin enhancing production
growth. Further upside is available from improving execution in the Eagle Ford (+$4/share)
and exploration in the pre-salt Gabon (up to $8/share). MRO is under-earning today on 40%
of its portfolio, has a high share of long lived assets, and is growing new sources of high
margin barrels.
(OUTPERFORM
, CP $35.26, TP
$45.00)
Energy & Utilities Integrated Oil & Gas
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
28
John Edwards [email protected]
(713) 890-1594
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 MWE
MarkWest
Energy Partners,
LP
$11.7B 29.0x 5.0% 1.3% 45.6%
MWE’s focus over the last few years has been primarily in the Northeast United States,
where it has a first mover advantage in developing natural gas gathering, processing, and
fractionation facilities in the Marcellus shale, which has some of the best producer
economics in North America and where some producers are expecting 25% annual
production increases for years. The Marcellus is expected to grow production by 85% from
4Q12 to 4Q16 so we believe that there are additional projects to come on top of what is
already strong visibility to the growth story. MWE is extending its footprint to the Utica shale
nearby which is in the early stages of what is expected to be strong production growth. While
weaker NGL prices are likely to slow MWE’s recent distribution growth from the mid/high
teens, we believe that MWE’s more than $3B of capex in fixed fee assets is likely to result
above average distribution growth over the next few years. MWE has the added advantage
of not being burdened by incentive distribution rights, giving it the fourth-lowest cost of
capital in the MLP sector.
(OUTPERFORM
, CP $74.28, TP
$85.00)
2 WMB
Williams
Companies, Inc
$24.4B 33.7x 4.7% -2.4% 9.1%
With the Geismar incident behind us (expected to come online in April’14) the focus turns
back to project execution. Strong performance by WMB and WPZ in their fee-based
businesses and an increasing cap ex program gives us renewed confidence in WMB's ability
to sustain 20% annual dividend growth through 2015.
(OUTPERFORM
, CP $35.71, TP
$48.00)
Energy & Utilities MLP's
Source: Credit Suisse; Data as of 31-Oct-2013
Note: WMT moved to #2 (from #3). Removed LNG (we are Restricted on the stock).
29
Greg Lewis [email protected]
(212) 325-6418
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 RDC
Rowan
Companies
$4.5B 10.7x -2.4% 15.4%
RDC has a best in class high spec/premium jackup fleet and should benefit from continued
increases in dayrates and contract durations throughout 2013. Additionally, we believe
RDC's discount has been a result of its absence from the deepwater. With four newbuild
drillships scheduled for delivery over the next two years we expect the valuation gap to
close.
(OUTPERFORM
, CP $36.08, TP
$45.00)
2 GLF
GulfMark
Offshore
$1.4B 12.6x 2.0% -2.3% 44.5%
Increased demand for boats continues to be driven by increased CAPEX spend in the
offshore E&P sector. We expect utilization and rates to strengthen in 2013 with the delivery
of 54 jackups and 22 floating rigs. We view GLF as well positioned given fixed rate coverage
in the North Sea and leveraged to an improving US Gulf market. At 7x our 2014 EBITDA
estimate we believe the risk is skewed to the upside.
(OUTPERFORM
, CP $49.78, TP
$60.00)
Energy & Utilities Oil & Gas Equipment & Services
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
30
Arun Jayaram [email protected]
(212) 538-8428
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 APC
Anadarko
Petroleum Corp.
$47.9B 17.3x 0.6% 28.2%
APC has a dominant position in one of the top Franchise assets in domestic E&P at
Wattenberg, yet the shares trade at a 20%+ discount to our NAV of $122 per share, mainly
as a result of the Tronox overhang. We believe the likely imminent resolution of the Tronox
litigation will kick start a renounce of share price in 2013. In addition, management has
outlined aggressive steps to close the stock's valuation gap, including a further sale of its
WES stake, an exit from Brazil, and a catalyst-rich offshore drilling program.
(OUTPERFORM
, CP $95.29, TP
$122.00)
2 PXD
Pioneer Natural
Resources
$28.4B 39.2x 4.8% 92.1%
PXD has assembled the industry’s most prospective acreage position for the horizontal
Wolfcamp. We believe that the Sinochem JV transaction at ~$20,000/acre highlights the
significant potential of this play as the better-than-expected acreage transaction appears to
validate the potential of extended laterals on economics. Meanwhile, PXD retains its full
position in North Midland, which appears to be even more prospective for the Wolfcamp
Shale.
(OUTPERFORM
, CP $204.78,
TP $209.00)
3 NBL
Noble Energy
$27.2B 18.4x 10.5% 47.3%
NBL's shares languished for much of 2012, largely due to myopic near-term growth concerns
related to infrastructure issues at the DJ Basin and geopolitical risks in the Mideast.
However, these concerns are being effectively addressed by management. From a longer-
term perspective, we see a unique risk-reward opportunity at NBL given unparalleled visibility
from its five core areas, particularly in the DJ Basin. NBL's several swings at high impact
exploration also add to the list of catalysts to reignite excitement among investors. We
believe the recent analyst day should reinvigorate the investor base primarily through
accelerated growth assumptions in the Wattenberg.
(OUTPERFORM
, CP $74.93, TP
$85.00)
Energy & Utilities Oil & Gas Exploration & Production
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
31
James Wicklund [email protected]
(214) 979-4111
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 BHI
Baker Hughes
Inc.
$25.7B 14.7x 1.0% 17.0% 42.2%
BHI is the best way to play an improvement in U.S. pressure pumping. Approximately 48% of BHI’s North
American revenue is derived from pressure pumping and yet it is earning zero-to-low-single digit margins
currently. By revamping its customer mix, reengineering equipment, improving logistics, and realigning its
executive compensation structure, we think BHI’s NAM margins have room to expand meaningfully. 3Q13
NAM margins will improve QoQ due to better utilization and Canada (we model 9.6% in Q3 and 10.3% in
Q4) but the real step change is maybe a quarter away. By YE’13, 75% of BHI’s PP fleet in NAM will be
converted to Rhino™ Bi-Fuel or “Dry-on-the-Fly” blenders – the latter of which will saved BHI $80mm/year.
Pumping pricing is down 1%-2% per quarter (no real change since August), whereas Artificial Lift,
Completion Tools, Drilling & Chemicals are all humming in NAM with margins in the “mid-20%s”.
(OUTPERFORM
, CP $58.09, TP
$64.00)
2 CAM
Cameron
International
Corp.
$13B 14.8x -9.3% -2.8%
After lagging the OSX by ~1900+ bps year-to-date, CAM is the equipment manufacture that deserves a
second look for the next 12 months. Investors do not believe CAM’s 2H13 guidance (Q4 implied is $1.12-
$1.22), yet the company continues to reiterate its confidence in the backlog, visibility on pricing, and
increasing aftermarket service work working its way further the P&L in 2H13. $3.0bn in Subsea orders is
not out of the question for 2013 with $1.7bn in 1H13 and CVX’s Rosebank adding $540mm in early-3Q13.
Framo’s integration is going well and will likely lead to CAM (or OneSubsea™) winning more subsea
equipment in 2H13 and early-2014.
(OUTPERFORM
, CP $54.86, TP
$73.00)
3 HAL
Halliburton
$45B 13.4x 8.0% 52.9%
HAL offers leverage to an improving North American drilling market in 2013 and 2014. With pressure
pumping pricing declines starting to end and the seasonal recovery in U.S. rig count beginning, margins
will begin to improve. With continued demand for NGLs and steady offshore rig count growth in the Gulf of
Mexico, HAL will be one of the biggest beneficiary of increased domestic and international well service
intensity.
(OUTPERFORM
, CP $53.03, TP
$63.00)
4 FET
Forum Energy
Technologies,
Inc.
$2.7B 15.9x 2.4% 18.2%
Bonus Small Cap Pick
FET is a diversified SMID-cap oilfield service equipment manufacturer. Increasing international drilling
activity is leading to large international drilling orders to out in Q3/Q4 and the Downhole Tools business
now has enough manufacturing capacity now to take on large orders from the biggest OFS companies and
that should begin to show through in Q3 but more so in Q4 and 2014. Downhole Tools is a 30%+ EBIT
margin business. Company-wide EBITDA margins of 20%+ are expected again by YE'13 and should stay
above 20% thereafter.
(OUTPERFORM
, CP $29.26, TP
$33.00)
Energy & Utilities Oil Services & Equipment
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
32
Mark Lear [email protected]
(212) 538-0239
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 PDCE
PDC Energy
$2.4B 29.9x 6.0% 104.2%
Best way to play Niobrara & Utica. In Niobrara, 12+ years of inventory with improving
recoveries and additional upside in Codell and Niobrara C. Upcoming catalyst includes a 16-
well waste management pad that is testing the stacked lateral potential in its Niobrara
position. In Utica, has announced positive well result, which along with other operators' well
results indicate that it is significant resource play.
(OUTPERFORM
, CP $67.81, TP
$87.00)
2 GPOR
Gulfport Energy
$4.6B 23.3x -9.7% 53.6%
With a series of strong well results out of the Utica, GPOR has identified the sweet spot of
the play and has quickly taken the driver’s seat in leading the exploration activity in the
basin. GPOR remains one of the few ways to gain exposure to the core southern fairway of
the Utica shale, with 65% of the company’s 136k net acre Utica position in the wet and dry
gas windows of the play. In the wet gas window, where production data has confirmed the
anticipated flat production profile, estimated recoveries of 18.6-23.4 Bcfe indicate GPOR is
sitting on some of the best projects in U.S. E&P. While the focus remains on the Utica
(+145k net acres), the company also holds interests in Grizzly Oil Sands ULC, and
Diamondback Energy (FANG) that holds over 50k net acres in the Midland Basin in West
Texas.
(OUTPERFORM
, CP $58.69, TP
$79.00)
3 FANG
Diamondback
Energy, Inc.
$2.4B 18.3x 19.5% 170.1%
FANG has built a concentrated position in the core of the western Wolfberry fairway in the
Midland Basin of West Texas, an area where the recent application of horizontal drilling is
unlocking the resource potential of the play. The company currently has pro forma over 65k
net acres in the Midland basin, with recent acreage and mineral rights acquisitions, and
represents one of the few ways to get pure Permian exposure in the SMID-cap E&P group.
With strong initial well performance out of the Wolfcamp B, FANG has decided to accelerate
its horizontal development program from three operated horizontal rigs currently to four by
4Q13 with plans to add 1-2 more rigs in 2014. While FANG will remain focused on the
Wolfcamp B to generate near-term production and cash flow growth, it will remain fast on the
heels of its larger peers as they explore the stacked pay potential in the northern Midland
Basin. The company recently completed its second horizontal well in Andrews County, which
is targeting the Clearfork.
(OUTPERFORM
, CP $51.65, TP
$62.00)
Energy & Utilities SMID Cap Oil & Gas Exploration & Production
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
33
Dan Eggers / Kevin Cole [email protected]
(212) 538-8430 / (212) 325-8422
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 AEP
American
Electric Power
Co. Inc.
$22.8B 14.2x 4.3% 6.7% 9.7%
AEP is looking more like a normal Regulated Utility (which we view as a good thing). We like
AEP’s combination of (a) 4-6% EPS growth driven by transmission investment, (b) 4.0%
dividend yield (that will grow nicely as payout goes from 50-60% to 60-70%), and (c) ~1.0x
discount to Regulated peers that should help the stock outperform.
(OUTPERFORM
, CP $46.84, TP
$53.00)
2 DUK
Duke Energy
$50.6B 15.8x 4.4% 6.7% 12.4%
Duke represents a higher quality regulated utility with 4-6% EPS growth driven by
constructive regulatory settlements in key states, benefits of existing Wholesale power
contracts adding ~2% per year to the growth rate, and the benefits of merger synergies that
support growth and limit the need for rate cases. Trading at a modest discount to large cap
regulated utilities while also paying an attractive 4.6% dividend yield provides an attractive
investment opportunity.
(OUTPERFORM
, CP $71.73, TP
$79.00)
3 CMS
CMS Energy
$7.3B 15.8x 3.9% 3.8% 12.6%
CMS’s premium regulation offers durable 5-7% annual EPS growth, plus healthy 3.5%
dividend yield and a limited ability to produce negative earnings surprises over the
foreseeable future. CMS’s recent electric rate case settlement marked another positive step
in the MI regulatory environment with CMS’s 1st electric settlement, while also removing any
near-term ROE risk.
(OUTPERFORM
, CP $27.46, TP
$32.00)
Energy & Utilities Utilities
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
34
Craig Siegenthaler [email protected]
(212) 325-3104
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 AMG
Affiliated
Managers Group
$10.4B 18.4x 6.2% 51.7%
We expect AMG’s industry high organic growth rate (net flows) and accretive acquisitions (~2
per year) to drive positive EPS revisions and continued valuation expansion as investors
become more comfortable with AMG’s growth rate. AMG is best positioned for the rotation
back into equities, with ~90% of its AuM in active equities and alternatives. AMG’s strong net
flows have benefited from its expansion internationally, as it has leveraged its high fund
performance to attract investors outside the US.
(OUTPERFORM
, CP $197.44,
TP $210.00)
2 EV
Eaton Vance
$5B 16.4x 2.2% 8.1% 31.3%
EV is one of the few large/mid cap asset managers experiencing strong organic growth - we
expect EV to post 10% LT organic growth in 2014 vs. 0-1% for peers, owing to its Floating
Rate and Implementation Services strategies. We believe continued low rates combined with
expectations of higher ST rates in two to three years will keep the floating rate asset class in
high demand from investors (both retail and institutional), who find the higher/variable rate
yields attractive. We believe EV will be able to continue to grow its Floating Rate business,
as we believe it’s unlikely that this business will hit supply constraints before mid-2014. We
also think that there is a 50% probability that EV could obtain SEC approval in ’14 for its
NAV-based actively managed ETF venture (ETMF) which would lift its organic revenue
growth outlook. EV has also demonstrated being a great distributor, as shown by its ability to
sell underperforming funds (EV’s 5-Year average organic growth for 1-star Morningstar rating
funds is 7% vs. the industry at -7%).
(OUTPERFORM
, CP $41.81, TP
$46.00)
Financials Asset Managers
Source: Credit Suisse; Data as of 31-Oct-2013
Note: EV is new #2 Top Pick. Removed IVZ (we see more upside potential elsewhere).
35
Howard Chen [email protected]
(212) 538-4552
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 APO
Apollo Global
Management
LLC
$12B 9.1x 8.8% 8.4% 94.5%
We view APO as an attractive means of gaining exposure to secular growth in alternative
investments. We recommend APO shares for the quality and consistency of the firm's carried
interest realizations, supported in large part by the firm's orientation toward more in the way
of cash-generating credit investments. Coupled with robust AUM growth, this is driving
strong underlying cash earnings. We believe investors are under-appreciating the company's
ability to harvest gains from its portfolio and return cash to shareholders.
(OUTPERFORM
, CP $32.26, TP
$45.00)
2 BX
Blackstone
Group
$30.1B 7.9x 5.8% 3.7% 68.6%
Blackstone is as a well-diversified, leading alternative asset management firm given the
scale of its franchise and presence across markets and asset classes. Our Outperform rating
reflects the firm’s strong positioning over the course of the alternative investment cycle
(proven fund raising capabilities, ample capital to deploy, top tier fund returns across asset
classes), enabling Blackstone to both make new investments and realize gains within its
existing portfolio. We believe the time for investors to build positions in BX shares is ahead of
a broader upturn in realization activity for the firm.
(OUTPERFORM
, CP $26.28, TP
$30.00)
3 GS
Goldman Sachs
Group, Inc.
$72.2B 10.2x 1.4% 1.4% 26.1%
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.
(OUTPERFORM
, CP $160.86,
TP $185.00)
Financials Brokers, Exchanges & Trust Banks
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
36
Tom Gallagher [email protected]
(212) 538-2010
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 MET
MetLife, Inc.
$51.9B 8.2x 0.4% 43.6%
Essentially, MET shares have been suffering in part from the most onerous regulatory
requirements from regulation by the FED. We aren't of the view that those requirements are
about to get meaningfully better for MET, but rather that requirements for others will likely
become more restrictive over the next few years. In a relative valuation construct, we think
MET's shares are now priced for a near worst case outcome, leaving substantially favorable
risk/reward.
(OUTPERFORM
, CP $47.31, TP
$55.00)
2 AFL
Aflac Inc
$30.2B 10.1x 2.2% 2.8% 22.3%
Concerns over remaining Euro exposure overblown with de-risking process substantially
completed and with margin concerns alleviated at investor day; we expect meaningful share
repurchases set to begin in 2013. 20%+ ROE inconsistent with stock trading at 1.4x BV and
sub 6x 2013 earnings.
(OUTPERFORM
, CP $64.98, TP
$66.00)
3 HIG
Hartford
Financial
Services
$15.1B 9.2x 0.5% 8.5% 50.2% Above expectation proceeds from asset sales result in large amount of excess capital and
dry powder for accretive shareholder action, VA risk reduction and deleveraging.
(OUTPERFORM
, CP $33.70, TP
$35.00)
Financials Life Insurance
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
37
Doug Harter [email protected]
(212) 538-5983
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 NCT
Newcastle
Investment Corp
$1.7B 11.8x 8.6% 2.5% 41.1%
NCT is migrating its capital into senior living properties and away from commercial real
estate debt. We see good visibility for NCT to execute this rotation as the current senior
living pipeline is $1.4-2.0 billion. The ability to collapse CDOs and free up capital faster
should will also be cash flow accretive. We see upside to the $7-8 range as NCT is able to
execute on senior living deals.
(OUTPERFORM
, CP $5.74, TP
$6.50)
2 WAC
Walter
Investment
Management
$1.4B 5.3x -8.6% -12.2%
The growth outlook for the specialty servicers remains robust with WAC reporting a $320
billion near-term pipeline of MSR opportunities. This combined with servicing portfolios
having improved profitability as recently acquired portfolios mature and reach their incentive
peaks gives us a high degree of confidence in the sustainability of earnings as WAC
transitions into a higher interest rate environment. We also expect WAC to create a capital
vehicle to purchase MSRs which would free up capital to pursue additional growth
opportunities. WAC is trading at 5.3x our 2014 EPS estimate versus the peer group at 7.9x;
we think discount to peers can narrow.
(OUTPERFORM
, CP $37.77, TP
$56.00)
3 PMT
PennyMac
Mortgage
Investment Trust
$1.6B 6.9x 9.9% 0.3% -8.8%
PMT has been active in acquiring NPLs during the third quarter which should continue to
support near-term earnings. Longer term the growth of the jumbo non-Agency securitization
market and MSRs will allow for a continuation of low to mid-teens ROEs. The combination of
an 11% dividend yield plus capital appreciation makes for attractive total return potential.
(OUTPERFORM
, CP $23.07, TP
$27.00)
Financials Mortgage REITs
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
38
Moshe Orenbuch [email protected]
(212) 538-6795
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 C
Citigroup Inc.
$147.9B 9.1x 0.8% 0.1% 23.3%
With risk materially reduced, balance sheet strengthened and profitability improving,
risk/reward is compelling. Valuation is attractive with disconnect between shares trading at
0.9x TBV and our forecasts of 9.5% ROTE in 2013 and ability to generate a double-digit
ROTE for core Citicorp.
(OUTPERFORM
, CP $48.78, TP
$65.00)
2 V
Visa Inc.
$154.9B 21.7x 0.8% 2.5% 29.7%
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.
(OUTPERFORM
, CP $196.67,
TP $210.00)
3 DFS
Discover
Financial
Services
$25B 9.8x 1.8% 2.3% 34.6%
We believe that Discover represents the best combination of strong operating fundamentals
and valuation among the large card issuers. The company is returning the vast majority of
earnings, and appears to be positioning the network to be a source of value to shareholders.
(OUTPERFORM
, CP $51.88, TP
$59.00)
Financials Multi-Line Banks / Consumer Finance
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
39
Mike Zaremski [email protected]
(212) 538-7933
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 ACE
ACE Limited
$32.5B 11.1x 2.1% 1.4% 19.6%
ACE stands to benefit from continuing pricing momentum within the U.S. property & casualty
market and we believe its global accident & health platform growth will prove to be return on
equity accretive. We continue to recommend outperform rated ACE given ACE’s
international revenue drivers versus U.S. peers, conservative reserving/underwriting
philosophy, strong balance sheet ($3.0bn+ excess capital cushion adds 170bps ROE upside
optionality) and less exposure to reinsurance LOB’s as a percentage of their book where
pricing is under pressure (property CAT). Furthermore, ACE would consider an acquisition in
U.S. small- and mid-case commercial where pricing is increasing at a higher level than large-
case commercial.
(OUTPERFORM
, CP $95.44, TP
$106.00)
2 TRV
Travelers Cos.
Inc.
$31.4B 9.9x 2.5% 2.2% 20.2%
Our positive thesis on Travelers is levered to the improving renewal rate environment as they
have overweight exposure to (1) small-mid sized business commercial lines, (2)
homeowners’ and (3) workers’ comp., where we foresee blended mid-to-high single digit
price increases. In addition, we estimate Travelers announced acquisition of The Dominion
of Canada General Insurance Company from E-L Financial Corporation Limited (publicly
traded, ticker ELF) for $1.1B in cash would add $0.18 cents of earnings power (+2% to our
2014 EPS estimates), increasing to +3% in 2015.
(OUTPERFORM
, CP $86.30, TP
$97.00)
3 ALL
Allstate
Corporation
$24.1B 10.4x 1.9% 3.7% 32.1%
Via a combination of a reduced expense run rate (pension and benefits changes) and lower
equity levels (stock repurchases in excess of earnings less the common dividend funded by
hybrid debt issuance with large equity credit components and capital “free up” via life co
sale) we forecast 100bps of ROE accretion by YE’15 to ~12% from ~11%. Furthermore, the
street underappreciates potential homeowners' insurance profit improvement, driven by
expected 6-9% rate increases thru 1H14, combined with policy terms & conditions changes
that should lower catastrophe costs.
(OUTPERFORM
, CP $53.06, TP
$63.00)
Financials P&C Insurance
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
40
Craig Siegenthaler [email protected]
(212) 325-3104
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 AMG
Affiliated
Managers Group
$10.4B 18.4x 6.2% 51.7%
We expect AMG’s industry high organic growth rate (net flows) and accretive acquisitions (~2
per year) to drive positive EPS revisions and continued valuation expansion as investors
become more comfortable with AMG’s growth rate. AMG is best positioned for the rotation
back into equities, with ~90% of its AuM in active equities and alternatives. AMG’s strong net
flows have benefited from its expansion internationally, as it has leveraged its high fund
performance to attract investors outside the US.
(OUTPERFORM
, CP $197.44,
TP $210.00)
2 EV
Eaton Vance
$5B 16.4x 2.2% 8.1% 31.3%
EV is one of the few large/mid cap asset managers experiencing strong organic growth - we
expect EV to post 10% LT organic growth in 2014 vs. 0-1% for peers, owing to its Floating
Rate and Implementation Services strategies. We believe continued low rates combined with
expectations of higher ST rates in two to three years will keep the floating rate asset class in
high demand from investors (both retail and institutional), who find the higher/variable rate
yields attractive. We believe EV will be able to continue to grow its Floating Rate business,
as we believe it’s unlikely that this business will hit supply constraints before mid-2014. We
also think that there is a 50% probability that EV could obtain SEC approval in ’14 for its
NAV-based actively managed ETF venture (ETMF) which would lift its organic revenue
growth outlook. EV has also demonstrated being a great distributor, as shown by its ability to
sell underperforming funds (EV’s 5-Year average organic growth for 1-star Morningstar rating
funds is 7% vs. the industry at -7%).
(OUTPERFORM
, CP $41.81, TP
$46.00)
Financials Regional Banks
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
41
Matthew Clark [email protected]
(212) 325-2497
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 FBP
First BanCorp
$1.1B 11.4x -2.6% 21.2% Ability to double operating EPS to $0.70 by 2016, equating to a 1.10% ROA (from 0.56%).
Attractive valuation with the shares trading at 0.70x TBV when adding back the DTA.
(OUTPERFORM
, CP $5.55, TP
$9.00)
2 EWBC
East West
Bancorp, Inc
$4.6B 14.1x 2.3% 2.2% 56.8%
Loan growth is accelerating and supported by the strategic push into Texas (MetroCorp.),
helping to mitigate margin pressure & accretable yield run-off. Chinese American bank that
has scarcity value with top-tier returns.
(OUTPERFORM
, CP $33.69, TP
$38.00)
3 WAL
Western Alliance
Bancorp
$1.8B 14.7x 10.4% 100.9%
We view WAL as a growth-oriented Southwest commercial lender that still has the ability to
improve profitability with its industry-leading revenue performance, good expense control and
without facing a residential mortgage headwind. We believe WAL’s double digit growth
prospects, top-tier ROTCEs and demonstrated ability to execute accretive M&A deals
warrant a premium valuation (10-15%).
(OUTPERFORM
, CP $21.15, TP
$24.00)
Financials SMID Cap Banks
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
42
Ravi Mehrotra / Lee Kalowski [email protected]
(212) 325-3487 / (212) 325-9683
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 GILD
Gilead Sciences
Inc.
$108.9B 25.5x 13.7% 93.3%
GILD's outperformance will be principally driven by influx from generalist investors, especially
as the Sofosbuvir/Ledipasvir opportunity in HCV is further quantitated. Sofosbuvir/Ledipasvir
is the clear winner and will likely be the dominant drug in HCV due to its high efficacy, good
safety, and better convenience.
(OUTPERFORM
, CP $70.99, TP
$80.00)
2 BIIB
Biogen Idec
$57.7B 22.2x -0.8% 66.5%
BIIB is in the enviable position of having a stable base-business with no near-term patent
expirations layered with recently launched Tecfidera ($4B+ in potential peak sales) for MS.
The launch is off to a good start so far. The combination of these factors should drive
meaningful upside from current levels.
(OUTPERFORM
, CP $244.19,
TP $290.00)
3 MDVN
Medivation
$4.5B 57.7x 1.5% 17.0%
The prostate cancer market is a substantial opportunity. The PREVAIL (pre-chemo) results is
a major upcoming catalyst – we see Xtandi having a favorable profile compared to key
competitor Zytiga. The market is giving MDVN only some credit for the pre-chemo market, a
larger opportunity than post-chemo on longer treatment duration (14 mos or more, vs 8 mos
post-chemo; treatment duration still seems underappreciated by investors). There have been
some lingering concerns in the market on competition in the pre-metastatic market, but this is
several years out (post-2018) and in a larger market.
(OUTPERFORM
, CP $59.86, TP
$77.00)
Health Care Biotechnology
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
43
Glen Santangelo [email protected]
(212) 538-5678
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 CTRX
Catamaran Corp
$9.7B 20.5x 2.4% -0.3%
We believe the company's growth profile, potential upside to synergy targets from the CHSI
deal, and the chance to expand into the large employer market should drive outperformance
in shares.
(OUTPERFORM
, CP $46.96, TP
$60.00)
2 ESRX
Express Scripts
Inc.
$50.4B 13.0x 0.2% 15.8% We believe a more benign selling season and more aggressive capital deployment will drive
estimates and multiples higher.
(OUTPERFORM
, CP $62.52, TP
$75.00)
3 CAH
Cardinal Health,
Inc.
$20B 15.3x 10.2% 42.4%
We expect positive results out of the core distirbution business, benefits from recent M&A
and greater than expected capital deployment to drive earnings growth above and beyond
expectations.
(OUTPERFORM
, CP $58.66, TP
$66.00)
4 MDRX
Allscripts
Healthcare
Solutions Inc.
$2.5B 25.1x -8.6% 46.8%
We believe MDRX's renewed financial strength, new product solutions and recent
acquisitions position the company well ahead of 2014 and 2015 when it should be able to
deliver meaningful operating leverage.
(OUTPERFORM
, CP $13.83, TP
$18.00)
Health Care Health Care Distribution & IT
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
44
Ralph Giacobbe [email protected]
(212) 538-5691
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 HCA
HCA Holdings
Inc.
$21.1B 12.5x 4.0% 56.2%
We remain positive on the HCA story and continue to see upside to shares as we expect
strong absolute and relative operating performance to continue into the back half of the year.
With comfort in base estimates for 2013, positive benefits of reform beginning next year, and
potential for shareholder friendly capital deployment (share repo or dividend), we see
multiple expansion from current levels.
(OUTPERFORM
, CP $47.14, TP
$55.00)
2 THC
Tenet
Healthcare
Corporation
$4.8B 16.5x 7.5% 45.3% We see the recent pullback in shares as an attractive opportunity given benefits from
healthcare reform and the pending Vanguard transaction.
(OUTPERFORM
, CP $47.19, TP
$52.00)
3 EXAM
ExamWorks
Group Inc.
$0.9B NM -1.1% 84.8%
Market leading consolidator in space with no competitor with scale. We see meaningful
opportunity from a shift in the industry towards use of a national provider, of which EXAM is
the only player.
(OUTPERFORM
, CP $25.85, TP
$32.00)
Health Care Health Care Facilities & Services
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
45
Vamil Divan [email protected]
(212) 538-5394
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 ILMN
Illumina, Inc.
$11.7B 42.3x 15.9% 68.2%
Return to sequential revenue growth, driven by the MiSeq launch and improving consumable
sales, provides near-term comfort. Longer-term, we are bullish on the company being able
to successfully drive their technologies into the lucrative clinical diagnostics arena.
(OUTPERFORM
, CP $93.51, TP
$95.00)
Health Care Life Sciences & Tools
Source: Credit Suisse; Data as of 31-Oct-2013
Note: Removed GHDX (we see more upside potential elsewhere).
46
Ralph Giacobbe [email protected]
(212) 538-5691
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 CI
Cigna Corp.
$21.3B 10.5x 0.1% -1.8% 44.0%
We like CI's diversified earnings stream that should help mitigate risk in any one area, and
see potential for it to further strengthen and grow in the ASO segment. Additionally, we
believe 2013 guidance will prove conservative and capital deployment should provide further
upside to our estimates. We believe CI should also be positioned more favorably than its
peers heading into the uncertainties of 2014 given its lower exposure to reform risk and
recent track record of execution.
(OUTPERFORM
, CP $76.98, TP
$90.00)
2 HNT
Health Net Inc.
$2.4B 11.4x -7.5% 25.1%
We like HNT given the company’s position in CA and potential upside from the combination
of Duals, Medicaid expansion and exchange opportunities. Moreover, HNT could monetize
scale inefficiencies and is exploring strategic alternatives for its above avg cost structure. We
see potential for HNT to announce an outsourcing agreement with a strategic partner to
manage much of the “back-office” ops as early as 2H13. Similar to Medicaid pure-plays we
see large top-line opportunities for HNT and like the company’s relative valuation given the
apparent gap.
(OUTPERFORM
, CP $30.40, TP
$38.00)
3 UNH
United Health
Group
$69.4B 12.1x 1.2% -5.9% 25.8%
We continue to believe UNH is well positioned with its underlying businesses and Optum
business heading into reform. The evolving and challenging backdrop should also allow for
market share opportunities going forward to larger and sophisticated players such as UNH.
(OUTPERFORM
, CP $68.26, TP
$77.00)
Health Care Managed Care
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
47
Bruce Nudell [email protected]
(212) 325-9122
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 SYK
Stryker
Corporation
$28B 16.0x 1.5% 9.0% 34.7%
We like SYK, given its diversified business model, strong FCF generation & undemanding
valuation. Based on 2Q results, we believe the company's turnaround efforts in Europe are
beginning to return growth toward market rates. Moreover, while we see the potential for
some share shift in knees due to new competitor launches, we do not expect catastrophic
change.
(OUTPERFORM
, CP $73.86, TP
$77.00)
2 STJ
St Jude Medical
$16.5B 14.6x 1.9% 4.7% 58.8%
Since Riata (STJ's recalled defib lead) failure reports began to circulate widely in 8/10,
concerns about Durata's reliability (STJ's current defib lead) have weighed on STJ's
valuation. While Durata concerns are likely to persist near-term, we came away from HRS
impressed by safety reports on Durata. We have always expected Durata to ultimately be
deemed reliable based on the design changes present in the lead relative to Riata, and on
the 5-year Durata data in STJ's active registries. Our concern about OPTIM's susceptibility to
hydrolysis was also allayed by STJ's assertion that they have mechanically examined older
explanted leads and their analysis that moderate amounts of hydrolysis can be withstood
without elevated risk of in-vivo failure. As a result, we expect valuation to improve and see a
price target of $48 (12X 2014 EPS slightly below STJ's 5-year average of 13X) as very
reasonable.
(OUTPERFORM
, CP $57.39, TP
$60.00)
Health Care Medical Supplies & Devices
Source: Credit Suisse; Data as of 31-Oct-2013
Note: Removed VOLC (downgraded to Neutral).
48
Vamil Divan [email protected]
(212) 538-5394
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 BMY
Bristol Myers
Squibb Co.
$86.5B 26.8x 2.7% 11.9% 61.2%
We rank BMY it as one of our most compelling names in our Pharmaceuticals coverage
universe given it appears best positioned to benefit from a multi-year immuno-oncology (I-O)
story that is still in the very early innings. Investment positives: (1) Bristol's attractive pipeline,
which is supported by its leading position in I-O and spearheaded by the nivolumab/Yervoy
combination; (2) reasons to maintain optimism on key marketed products such as Eliquis and
Bydureon that have best-in-class data but have not performed up to expectations thus far;
and (3) potential for significant operating leverage as key franchises mature.
(OUTPERFORM
, CP $52.52, TP
$55.00)
2 ABBV
AbbVie Inc.
$76.7B 15.4x 3.4% 5.4% 41.8%
Near-term and midterm prospects are tied to continued execution on Humira and HCV
pipeline evolution, both of which are high-quality platforms in which we have high levels of
confidence
Notable optionality embedded in pipeline, with read-outs in late 2013 and throughout 2014
(HCV, elagolix (women’s health), ABT-199 (oncology), ABT-126 (Alzheimer’s) and ABT-719
(acute kidney injury) Dividend growth outlook encouraging, while strong yield (3.4%)
provides downside support
(OUTPERFORM
, CP $48.45, TP
$54.00)
Health Care Pharmaceuticals
Source: Credit Suisse; Data as of 31-Oct-2013
Note: New research coverage. BMY is new #1 Top Pick. ABBV is new #2 Top Pick.
49
Jason Kantor [email protected]
(415) 249-7942
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 REGN
Regeneron
Pharmaceutical
$28.4B 61.0x -8.3% 68.1%
We see both near-term and long-term drivers for the stock. We believe the company will
continue to experience increased profitability, extended growth of the Eylea franchise, and
increased attention for a product in its pipeline with blockbuster potential (REGN727).
Additionally, looming regulations over compounding pharmacies could restrict off-label use of
a key competitor in the AMD space, creating the potential for further Eylea revenue growth.
(OUTPERFORM
, CP $287.60,
TP $275.00)
2 ECYT
Endocyte, Inc.
$0.4B 42.1x -25.8% 16.1%
We have selected ECYT as a Top Pick based on the robust calendar of key regulatory and
clinical events for vintafolide over the next 12 months, the large potential upside on positive
news, and our expectation that investors will begin to assign greater value to optionality of
these events in Q4:13.
(OUTPERFORM
, CP $10.43, TP
$24.00)
Health Care SMID Cap Biotechnology
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
50
Rob Spingarn [email protected]
(212) 538-1895
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 BA
Boeing
$98.1B 18.0x 1.3% 10.7% 73.2%
Cost improvements on the 787 are continuing, and it now appears that the 787 rate will go
above 10 per month, which will help cost dynamics further. It will also translate into FCF per
share, by our estimates, of over $12 in 2015, providing significant upside to Boeing's $1.5-2B
annual buyback (we expect this buyback could more than double). Also, order flow at Boeing
Commercial Airplanes remains robust.
(OUTPERFORM
, CP $130.50,
TP $150.00)
2 PCP
Precision
Castparts
$36.9B 18.9x 0.1% 10.1% 33.8%
Large-cap vehicle to play positive aero story. In particular, we like distinction vs. Boeing with
its desirable energy exposure (21% sales) and less defense exposure (11% vs. BA' 38%).
Also, the recently completed acquisition of TIE further integrates PCP upstream, adding
titanium sponge, melt and mill product capability, and should provide meaningful accretion in
FY'14 from productivity and process improvements, elimination of corporate expenses, new
market expansion and vertical integration opportunities (TIE synergies already appear to be
running ahead of expectations). Company also has significant M&A firepower (~$5B out to
FY'16 without having to employ additional balance sheet leverage).
(OUTPERFORM
, CP $253.45,
TP $287.00)
3 BEAV
BE Aerospace
Inc.
$8.5B 19.3x 6.8% 64.3%
Organic product development very under-appreciated story. Industry-high R&D enabled key
market share gains, and management expects further R&D to bring more gains & increased
backlog quality (read: higher margin products). Sees plenty of runway for additional
opportunity in the aircraft cabin.
(OUTPERFORM
, CP $81.16, TP
$93.00)
Industrials Aerospace & Defense
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
51
Allison Landry [email protected]
(212) 325-3716
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 KSU
Kansas City
Southern
$13.4B 23.7x 0.6% 9.4% 45.6%
Compelling structural, secular and cyclical growth story, driven by cross-border U.S./Mexico
business. Near-sourcing opportunities, truckload conversions at the border, and share gains
in finished vehicles market to drive industry leading revenue and EBIT growth over next 3-5
years.
(OUTPERFORM
, CP $121.52,
TP $129.00)
2 CP
Canadian Pacific
Railways
$26.1B 18.9x 0.9% 13.9% 40.8%
Although CP is largely a 'cost story', we believe that the company is also well positioned to
generate solid gains on the top line. Specifically, CP stands to benefit from 1) secular
tailwinds related to evolving supply chains/logistics within N. American energy mkts; 2)
improvement in core pricing gains; and 3) a new revenue stream that should arise from a
lower cost business model.
(OUTPERFORM
, CP $143.07,
TP $157.00)
3 UNP
Union Pacific
$69.7B 14.6x 2.1% -3.0% 20.4%
Legacy re-pricing to generate superior incremental margins in 2013 & beyond; following
renewals on ~$750M of its book in 2012, UNP still has close to $1B in re-pricing
opportunities in 2013-15+. Growth in relatively high-yielding and profitable drilling & shale-
related activities help offset weak utility coal.
(OUTPERFORM
, CP $151.40,
TP $178.00)
Industrials Airfreight & Ground Transport
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
52
Julian Mitchell [email protected]
(212) 325-6668
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 IR
Ingersoll-Rand
Plc
$19.5B 15.4x 1.8% 3.6% 40.8%
Our view is that at the current price, investors are paying very little for IR Security, which is unjustified.
Assuming pro-forma leverage of 3.0x Gross Debt/EBITDA, IR Security is worth $15 in equity value within
our SOTP. Increasing leverage at IR Security better aligns its capital structure with peers and lowers
WACC which unlocks value in our DCF. Low penetration and growing popularity of automated locks
provides a solid backdrop for organic growth and solid barriers to entry (Regulation/SKUs/Brand) should
protect margins as the business scales.
At RemainCo, high exposure to cyclically depressed end-markets (construction), potential market share
gains and pricing tailwinds from new product launches (HVAC, compressors), significant self-help
opportunity on costs/margins (with evidence of recent progress), falling input costs (copper), scope for
further portfolio change (Industrial), and attractive capital distribution (buyback/ dividend) keep us excited
about IR RemainCo.
(OUTPERFORM
, CP $67.53, TP
$73.00)
2 ADT
ADT Corporation
$9.1B 23.3x 1.4% 6.6% -6.7%
A $2B buyback ahead (~$1B before September 2013), a rich pipeline of accretive M&A possibilities, cheap
cost of capital, highly visible mid to high single digit organic growth (with limited sensitivity to macro
conditions), a motivated management team and undemanding valuation give us high conviction in our OP
rating. M&A, clarity on metrics that drive value in the business model, and execution are key incremental
catalysts for 2013.
(OUTPERFORM
, CP $43.37, TP
$55.00)
3 DDD
3D Systems
$6.4B 48.8x 12.7% 75.0% DDD is our preferred 3D print play given its strong position in on-demand parts, and the breadth of its
materials offering in both plastics and metals. We think its sales channel and service bureau approach will
also generate above-average growth.
(OUTPERFORM
, CP $62.24, TP
$65.00)
4 LXFR
Luxfer
$0.5B 11.3x 2.3% 11.0% 50.1%
Small Cap Bonus Pick
We are encouraged by progress on two key revenue opportunities: (i) Industrial catalysts – we could hear
news by the year-end of potential 300t orders from at least one major chemicals customer (ii) Magnesium
usage in commercial aircraft seats – we may hear news from the FAA by year-end regarding the approval
for the use of magnesium, and Luxfer is already supplying magnesium to major seat manufacturers for
prototyping. We expect that other opportunities such as diesel auto-catalysts and bio-absorbable stents
could become meaningful in 2015 / 2016.
We forecast Cylinder margins expand from 6.4% in 2012 to 8.6% in 2015, and are re-assured by
management’s updates on several areas: (i) LXFR is increasing its price and margin per cylinder by
adopting more of a systems approach; (ii) Increasing the share of composite cylinders relative to
aluminum; (iii) emergence of the ‘virtual pipeline’ for gas shipments, which comprises CNG stored in a
container, for areas without gas pipelines; (iv) Dynetek integration: this is proceeding well, with margins
now at break-even against prior losses, and the management personnel are now in place to drive further
profit gains.
(OUTPERFORM
, CP $18.42, TP
$21.00)
Industrials Electrical Equipment & Multi-Industry
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
53
Jamie Cook [email protected]
(212) 538-6098
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 KBR
KBR Inc.
$5.1B 13.5x 1.6% 15.4%
We think the resurgence of energy infrastructure spend in NA becomes an investable theme
in 2013, reflecting potential for a massive amount of spend across petrochem, GTL, LNG,
and gas pipelines. We think industry margins continue to improve this year, reflecting better
utilization and perhaps tighter capacity with NA now in the mix. KBR remains very well
positioned to win GTL, LNG, ammonia and petrochemical work in NA and we don't think
expectations on the stock can get much worse.
(OUTPERFORM
, CP $34.54, TP
$40.00)
2 FLR
Fluor
$12.1B 17.2x 0.8% 1.4% 26.4%
As one of the higher quality names in the E&C space, FLR is best positioned to benefit from
NA energy spend similar to the 2005-2008 cycle given exceptional customer relationships.
We also think the mining discount goes away as oil & gas comprises a larger portion of the
backlog. Mix of work towards areas like petrochem and GTL should be favorable to overall
margins as well.
(OUTPERFORM
, CP $74.22, TP
$90.00)
Industrials Engineering & Construction
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
54
Hamzah Mazari [email protected]
(212) 538-7983
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 WCC
Wesco
International
$3.8B 14.2x 9.0% 26.7%
WCC shares have historically moved ahead of a rebound in non-residential construction
spend (~33% sales) and the upside from a recovery is underappreciated (we estimate the
company has earnings power of $8 assuming a non-residential recovery). In addition,
accretion and operating synergies from the recently completed $1.1bn EECOL acquisition is
not fully baked into consensus estimates. We also believe WCC will de-lever the balance
sheet from 4.1x to below 3x leverage by end of 2013.
(OUTPERFORM
, CP $85.46, TP
$90.00)
2 PLL
Pall Corporation
$8.9B 22.5x 1.3% 4.3% 33.6%
Based on our analysis, we continue to believe PLL has an opportunity to improve operating
margins by 250-350bps based on material cost take-outs within the industrial business and
revenue growth at least mid-single digits over the next few years. It also has the ability to
significantly lever up to return cash to shareholders in the form of a buyback and pursue
acquisitions.
(OUTPERFORM
, CP $80.52, TP
$84.00)
3 GWW
WW Grainger
Inc.
$18.7B 19.6x 1.6% 32.9%
We believe GWW is a best in class diversified distributor whose multi-channel approach will
enable share again in a large fragmented industry. In addition, having 100% MRO exposure
and an international platform is likely to be beneficial to long term earnings power and
stability in a choppy environment.
(OUTPERFORM
, CP $268.97,
TP $280.00)
Industrials Environmental Services
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
55
Greg Lewis [email protected]
(212) 325-6418
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 SB
Safe Bulkers Inc
$0.6B 10.9x 2.7% 5.1% 122.0%
We believe the worst of the dry bulk cycle is behind us. We expect that rates will push higher
in 2014/2015 on the back of strong iron ore export growth and slowing fleet growth. SB is a
great way to play the turn around, get paid a 4% yield to wait for asset and stock prices to
really turn the corner.
(OUTPERFORM
, CP $7.46, TP
$7.00)
Industrials Leasing & Logistics
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
56
Jamie Cook [email protected]
(212) 538-6098
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 TEX
Terex
Corporation
$3.9B 11.5x 1.6% 24.3%
Top 3 player in niche construction markets (AWP, Cranes, Crushing/Screening). Thematic
way to play recovery in US housing and non-res construction along with NA energy
infrastructure spend (through AWP and Crane segments). Late cycle play – reported $1.86
in 2012 and we estimate EPS of ~$4.60 in 2015. Still our target price of $45 shows plenty of
upside. Renewed focus on FCF ~$500M in 2012 & 2013. Also a de-leveraging story on
accelerated interest expense paydown.
(OUTPERFORM
, CP $34.95, TP
$45.00)
2 PH
Parker Hannifin
Corporation
$17.4B 16.5x 1.6% 7.2% 37.2%
In addition to modestly improving Industrial end market exposure (Europe seeing green
shoots, NA HD truck and farm equip, and China bottoming), PH is an attractive self-help
story. The company is looking to do meaningful acquisitions ($1-3B) while share repo is
expected if acquisitions don't materialize. In FY'14, PH is restructuring internationally and
looks to close facilities overseas, driving margins of 15% in a flat market (vs. low double-digit
margins currently).
(OUTPERFORM
, CP $116.72,
TP $122.00)
Industrials Machinery
Source: Credit Suisse; Data as of 31-Oct-2013
Note: PH is new #2 Top Pick. Removed CAT (we see more upside potential elsewhere) and CMI (we see more upside potential elsewhere).
57
Julie Yates [email protected]
(212) 325-3706
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 CRS
Carpenter
Technology
Corp
$3.2B 16.4x 1.2% -1.3% 14.9%
CRS’s proactive capacity investments and growing exposure to commercial aerospace and
energy position it extremely well for consistent high-single-digit/low-double-digit organic
growth over the next three to four years. We expect CRS EPS to grow an average of 32% in
FY’14-FY’16, driven by double-digit growth in commercial aerospace and energy coupled
with higher incremental margins as a result of improving mix, asset utilization, and Latrobe
synergies.
(OUTPERFORM
, CP $59.33, TP
$72.00)
2 ESL
Esterline
Technologies
$2.5B 13.0x 0.1% 26.0%
The recently announced CEO change is a positive for ESL and we think Mr. Reusser (new
CEO as of Oct. 28 2013) will accelerate the margin improvement story. His deep industry
experience is a good fit for ESL. Additionally, we think the presence of an activist is a
positive and we also see M&A optionality over the next 18-36 months.
(OUTPERFORM
, CP $80.16, TP
$93.00)
Industrials SMID Cap Aerospace & Defense
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
58
Michael Senno [email protected]
(212) 325-1353
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 CMCSA
Comcast
$124.3B 17.3x 1.9% 4.7% 27.3%
We view the early buyout of GE's stake in NBCU as a positive for the stock since it provides
CMCSA with additional capacity for shareholder returns and a natural hedge to the cable
video business. CMCSA has best in class cable operations and NBCU adds a strong growth
(est. ~8% EBITDA CAGR) component.
(OUTPERFORM
, CP $47.58, TP
$54.00)
Media / Internet / Telecom Cable & Satellite
Source: Credit Suisse; Data as of 31-Oct-2013
Note: Removed CHTR (we see more upside potential elsewhere).
59
Stephen Ju [email protected]
(212) 325-8662
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 GOOG
Google, Inc.
$344.3B 19.6x 16.1% 45.3%
An attractive combination of growth and attractive valuation. We forecast 22% revenue
growth this year owing to sustained growth in desktop paid search augment by increasing
contribution from mobile and display.
(OUTPERFORM
, CP $1030.58,
TP $1200.00)
2 AMZN
Amazon com
Inc.
$166.6B NM 13.5% 45.0%
We expect margins to stabilize in 2H12 driven by gross margin upside from growing mix of
3P, AWS, and digital revenue and fulfillment leverage. This should drive accelerating growth
in 2013.
(OUTPERFORM
, CP $364.03,
TP $439.00)
3 PCLN
Priceline.com
$54.3B 22.2x -1.3% 69.6%
Share gainer in the online travel sector and likely winner in the crucial hotel reservation
segment. Minority share in its largest addressable market - Europe - and an open ended
growth story.
(OUTPERFORM
, CP $1053.83,
TP $1250.00)
Media / Internet / Telecom Internet
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
60
Michael Senno [email protected]
(212) 325-1353
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 FOXA
21st Century
Fox
$58.6B 21.4x 0.8% 1.1% 51.1%
We remain positive on FOXA in the context of our view on the media sector favoring
premium
sports exposure, international growth opportunities, declining ad exposure, and potential
upside to capital returns. We believe FOXA warrants a premium valuation given our estimate
for the fastest growth among peers, increased revenue visibility, and capital returns potential.
(OUTPERFORM
, CP $34.08, TP
$38.00)
2 DIS
Walt Disney
Company
$122.5B 17.1x 5.7% 37.8%
DIS's continued reinvestment in its business contributes to a growth profile above its large-
cap media peers. ESPN is positioned to fuel solid affiliate growth at Cable, Parks margins
should reach pre-recession levels over the next 1-2 years, and we believe the completed
Lucasfilm acquisition will drive additional long term growth.
(OUTPERFORM
, CP $68.59, TP
$73.00)
3 TWX
Time Warner,
Inc
$63.2B 16.3x 3.6% 43.7%
We have a positive view on content ownership, which aligns with the increased investment in
original programming at Networks and leading content library of Warner Brothers, and should
manifest itself in higher profit as new distribution options emerge. We are anticipating the
spin-off of Time Inc., in early 2014. We believe TWX will lever up the spin off and use the
proceeds to fund incremental return of capital programs at the TWX.
(OUTPERFORM
, CP $68.74, TP
$72.00)
4 NXST
Nexstar
Broadcasting
Group
$1.3B 13.7x 2.8% 0.5% 319.2%
Bonus Small Cap Pick
We are positive on NXST due to the following: 1) Continued growth in retransmission fees as
NXST renegotiates deals with distributors, particularly in 2014 with two key renewals and
retrans market rates recently reset due to the CBS-TWC deal.
2) Additional accretive M&A as the industry consolidates, resulting in immediate revenue and
cost synergies and incremental FCF, and providing important scale benefits such as retrans
negotiating leverage and operating leverage. 3) A stable core ad market as we expect the
auto category to continue driving growth as auto sales increase. 4) NOLs that we expect to
provide a cash tax shield through 2016.
(OUTPERFORM
, CP $44.39, TP
$52.00)
Media / Internet / Telecom Media
Source: Credit Suisse; Data as of 31-Oct-2013
Note: NXST is new Bonus Small Cap Pick.
61
Joseph Mastrogiovanni [email protected]
(212) 325-3757
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 TMUS
T-Mobile US Inc
$20.2B 39.6x 4.2% 112.0%
We believe T-Mobile’s multiple will expand as management continues to deliver solid
postpaid subscriber growth. Currently, T-Mobile trades at a discount to peers due to fears
that its 2Q13 turnaround will be short lived. However, we have seen that a combination of
attractive pricing, the launch of a new handset and promise of a faster network can have a
sustained positive impact on postpaid subscriber growth. Additionally, T-Mobile is the last
large scale potential acquisition target in the US, which should provide some optionality
value that the other carriers don’t have. We see this as an offset to the discount that could
be applied to T-Mobile for the impact of its equipment installment plans, which are expected
to inflate EBITDA over the next 24 months. We estimate that this impact will flatten out by
2015, as monthly installment payments equal or exceed upfront equipment revenue
recognition from new sales on installment plans.
(OUTPERFORM
, CP $27.73, TP
$30.00)
Media / Internet / Telecom Telecom Services
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
62
Georgios Mihalos [email protected]
(212) 325-1749
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 VNTV
Vantiv, Inc.
$5.3B 15.5x -2.1% 34.7%
VNTV is a top 5 merchant acquirer/processor and a leading provider of debit processing
services to financial institutions in the U.S. VNTV operates a single processing platform
providing it with inherent scale benefits (50%+ adj. EBITDA margins) and allowing it to price
aggressively in a highly competitive market. The company is levered to growth in debit and
non-discretionary spending. We currently are forecasting organic revenue growth of 10%+
through 2014 and mid-teens adj. EPS growth.
(OUTPERFORM
, CP $27.50, TP
$31.00)
2 ADP
Automatic Data
Processing Inc.
$36B 22.6x 2.5% 4.1% 31.5%
Defensive name to navigate choppy market. Essentially no debt (one of four US firms with
AAA rating), predictable recurring revenue, US focused (>90% of earnings), consistent
buybacks, and 3%+ dividend yield. While lower rates are a headwind, new sales and pays-
per-control remain solid.
(OUTPERFORM
, CP $74.97, TP
$78.00)
3 DST
DST Systems
$3.6B 17.1x 0.8% 10.9% 39.9%
Eclectic deep value play, with an estimated sum of the parts valuation of $75+. Trading at ~
5x 2012E EV/EBITDA, DST is the cheapest stock in our coverage universe. With a more
independent Board of Directors, the company is in the process of evaluating non-core
businesses and investments.
(OUTPERFORM
, CP $84.77, TP
$88.00)
Services IT Services & Consulting
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
63
Kulbinder Garcha [email protected]
(212) 325-4795
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 NOK1V
Nokia
$21.1B NM 13.2% 90.4%
The sale of handset business to MSFT helps Nokia unlock the value of its patents. We think
Nokia can expand their licensing TAM by going after some Asian handset vendors and
monetize non-essential patents they haven't licensed before. These patents have strategic
importance to tech vendors like Apple, Samsung, and Qualcomm and may attract a bid.
Given the stable cash flow generation going forward, Nokia’s capital return plan can be
another catalyst.
(OUTPERFORM
, CP $5.57, TP
$6.50)
2 QCOM
QUALCOMM
Inc.
$119.2B 13.9x 2.6% 12.0%
We believe QCT is set to dominate the baseband market long term as we expect revenue
share to expand to 44% long term from 39% in 2012 driven by its significant LTE lead.
Further, with such scale and dominance, our current QCT margin estimates at 20-21% could
continue to prove conservative. This, along with rising smartphone and revenue growth
should mean that we see bottom line Qualcomm growing 18% per annum.
(OUTPERFORM
, CP $69.47, TP
$85.00)
3 EMC
EMC Corp
$49.5B 11.5x -6.4% -4.9% Secular share gainer in the storage market with margin expansion ahead despite the mid-
range push which equates to sustainable mid-to-high teens EPS growth for several years.
(OUTPERFORM
, CP $24.07, TP
$30.00)
Technology IT Hardware / Telecom Equipment
Source: Credit Suisse; Data as of 31-Oct-2013
Note: No change to Top Picks since last publication.
64
John Pitzer [email protected]
(212) 538-4610
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 AVGO
Avago
Technologies
Ltd.
$11.2B 13.6x 4.7% 43.5%
Avago is an established supplier of analog-rich semiconductor products, many of them
incorporating proprietary technologies, and serves a diverse set of end markets, often as a
sole supplier. Since its LBO in 2005, the company has rationalized its product portfolio
through divestitures and streamlined its operations by outsourcing back-end and bulk CMOS
front-end processing, retaining front-end processing fabs for specialty materials and
proprietary technologies. Avago’s leverage to structural growth drivers including content
increases in the Industrials/autos end-mkts and accelerating demand for bandwidth, as well
as, product cycles (4G/LTE wireless ramps at Apple and Samsung) should allow the
company to outperform peers.
(OUTPERFORM
, CP $45.43, TP
$45.00)
2 NXPI
NXP
Semiconductors
N.V.
$10.5B 10.7x 11.4% 59.7%
We maintain our positive view on NXPI as we continue to expect the Company to exhibit
levered earnings growth and see the potential for long-term EPS power of $4.00+. We
expect earnings growth to be driven by (1) accelerating revenue growth, (2) structural
GM/OpM expansion and (3) balance sheet deleveraging.
(OUTPERFORM
, CP $42.12, TP
$60.00)
3 SNDK
SanDisk Corp.
$15.7B 11.9x 13.0% 59.6%
Our structural bull call on memory has played out well during the year, and we continue to
remain constructive on SNDK but prefer MU due to greater upside potential. We continue to
argue that memory demand/ supply dynamics are pristine and note that: (1) industry supply
growth of ~30-35%, the slowest growth in the modern NAND era and well below the 6-year
CAGR of 87%, (2) significant market consolidation with top 4 NAND/DRAM producers now
representing 85% market share and (3) structural increase in capital intensity – industry
needs to spend more to get less – all should lead to SUSTAINBLY HIGHER ASPs.
(OUTPERFORM
, CP $69.50, TP
$75.00)
Technology Semiconductors
Source: Credit Suisse; Data as of 31-Oct-2013
Note: AVGO is new #1 Top Pick. NXPI is new #2 Top Pick. SNDK moved to #3 (from #2). Removed MU (we see more upside potential elsewhere) and XLNX (we see more upside potential elsewhere).
65
John Pitzer [email protected]
(212) 538-4610
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 LRCX
Lam Research
Corp.
$8.8B 13.1x 5.6% 50.1%
We think that it will become more difficult for the memory companies to add bit supply as
device shrinks. We expect that margins will structurally improve for memory companies as
there is an increase in cost of adding marginal supply. We expect that eventually this will
lead to increase in memory capex as new capacity additions are needed for supply increase.
We expect that memory WFE will double from $7B in 2013 to $14B in 2015. LRCX has the
highest exposure to memory capex among the semicap companies and would benefit the
most. We see >50% upside to current stock price if memory capex recovers to $14B range.
(OUTPERFORM
, CP $54.23, TP
$60.00)
2 KLAC
KLA-Tencor
Corp.
$10.9B 16.8x 19.2% 7.6% 37.4%
Although we remain positive on KLAC over longer term, we prefer TER/LRCX/ASML due to
compelling product specific cycles that these companies are exposed too. We are also more
cautious on KLAC in near term due to its higher exposure to foundry segment which could
potentially see a decline in near term. We do expect that KLAC will benefit once 20nm
buildout starts in meaningful amount.
(OUTPERFORM
, CP $65.60, TP
$72.00)
3 TER
Teradyne Inc.
$3.3B 13.1x 7.5% 3.6%
We like TER in near term due to the potential of litepoint to have higher than expected
bookings. We think that TER has won business from Agilent at APPL for cellular test and we
think that this could potentially lead to litepoint revenues in excess of the guidance range.
We also think that the low end SoC test market could recover to historical levels of $1.6bb,
up from $1bb in 2012. We think that TER 2014 EPS could potentially upside closer to $2
which could lead to significant upside from current levels.
(OUTPERFORM
, CP $17.49, TP
$20.00)
Technology Semiconductor Equipment
Source: Credit Suisse; Data as of 31-Oct-2013
Note: KLAC is new #2 Top Pick. TER is new #3 Top Pick. Removed ASML (we see more upside potential elsewhere).
66
Phil Winslow [email protected]
(212) 325-6157
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 CTXS
Citrix Systems
Inc.
$10.6B 16.1x -19.8% -13.6%
We continue to (1) believe the pipeline for XenMobile is ramping meaningfully (which should
be boosted by the Artemis release in December heading into 2014), (2) view XenDesktop 7
as an important release that should lift demand in 2014 (after delaying transactions in 2013),
and (3) expect the partnership with Cisco Systems to boost NetScaler's enterprise sell-
through in 2014. We continue to expect the combination of these three factors to
reaccelerate Citrix's license growth into the mid- to high-teens, and we therefore maintain our
Outperform rating and our target price of $85 and now rate Citrix as our "Top Pick" in mid-
cap software.
Further, Citrix trades at a NTM enterprise value to unlevered free cash flow multiple of 10.3.
We forecast unlevered free cash flow to grow at five year forward CAGR of 17.6%.
(OUTPERFORM
, CP $56.78, TP
$85.00)
2 ORCL
Oracle
Corporation
$153B 10.9x 1.4% -0.5% 0.5%
Sustained healthy spending in enterprise applications and replacement cycle for large-scale
application deployments. Wall Street underappreciates how disruptive Oracle's integrated
appliance strategy (from Exadata to Exalogic) could be in server, networking, & storage
hardware markets.
(OUTPERFORM
, CP $33.50, TP
$40.00)
3 VMW
VMware Inc.
$35B 21.3x -1.4% -13.7%
Dominant, defensible position in datacenter virtualization market, particularly among large
enterprises. Amongst fastest growing segments in industry. Large installed base in
datacenter in private cloud environments positions VMW to monetize growth in
infrastructure-as-a-service (IaaS).
(OUTPERFORM
, CP $81.28, TP
$110.00)
Technology Software
Source: Credit Suisse; Data as of 31-Oct-2013
Note: CTXS is new #1 Top Pick. ORCL moved to #2 (from #1). VMW moved to #3 (FROM #2). Removed CRM (we see more upside potential elsewhere) and PFPT (we see more upside potential elsewhere).
67
Michael Nemeroff [email protected]
(212) 325-2052
# Tkr Company Cap NTM
P/E
DY 1M YTD Rationale
1 SNCR
Synchronoss
Technologies,
Inc.
$1.4B 21.2x -9.7% 64.2%
We believe that SNCR’s products are becoming increasingly important for wireless carriers
to exert leverage against handset OEMs by enabling cross-platform data synchronization
among devices that were specifically designed to not interoperate. Although SNCR has
significant customer concentration to some carriers (e.g., VZ and T), albeit declining, and
margin leverage is likely pushed out due to increased infrastructure / R&D investments, we
see several drivers that could generate accelerating growth above +25% yr/yr over the next
1-2 years.
(OUTPERFORM
, CP $34.62, TP
$46.00)
2 ULTI
The Ultimate
Software Group,
Inc.
$4.3B NM 3.7% 63.6%
ULTI's shares trade at a premium multiple, which we believe is warranted due to the
company's consistent execution and high degree of visibility, which we think investors should
covet, particularly in the recent volatile trading environment. We estimate ULTI will grow
revenue 25%+ year/year organically over the next 2-3 years due to: 1) strong competitive
position with best-of-breed solutions in payroll/HCM; 2) potential share gains in the mid-
market; 3) increasing TAM from international exposure as its products incorporate more
global functionality; and 4) cross-sell opportunities as evidenced by high attach rates for its
non-payroll products.
(OUTPERFORM
, CP $154.48,
TP $177.00)
3 CNQR
Concur
Technologies
Inc.
$5.9B NM -7.2% 54.9%
Leading provider of T&E spend management software as well as a large amount of past
investment spending now positively affecting Concur's organic growth rate. Incremental
growth opportunities in underpenetrated geographies and solid, consistent bookings give us
confidence that the company and shares meet / beat investor expectations through 2014.
(OUTPERFORM
, CP $104.60,
TP $118.00)
Technology SMID Cap Software
Source: Credit Suisse; Data as of 31-Oct-2013
Note: Removed JIVE (we see more upside potential elsewhere).
68
Disclosure Appendix
69
Companies Mentioned (Price as of 31-Oct-2013)
21st Century Fox (FOXA, $34.08)
3D Systems (DDD, $62.24)
AbbVie Inc. (ABBV, $48.45)
ACE Limited (ACE, $95.44)
ADT Corporation (ADT, $43.37)
Affiliated Managers Group (AMG, $197.44)
Aflac Inc (AFL, $64.98)
Agrium Inc. (AGU, $85.32)
Allscripts Healthcare Solutions Inc. (MDRX, $13.83)
Allstate Corporation (ALL, $53.06)
Amazon com Inc. (AMZN, $364.03)
American Electric Power Co. Inc. (AEP, $46.84)
Anadarko Petroleum Corp. (APC, $95.29)
Apollo Global Management LLC (APO, $32.26)
ASML Holding N.V. (ASML, $69.92)
Automatic Data Processing Inc. (ADP, $74.97)
Avago Technologies Ltd. (AVGO, $45.43)
Baker Hughes Inc. (BHI, $58.09)
BE Aerospace Inc. (BEAV, $81.16)
BioAmber Inc. (BIOA, $7.2)
Biogen Idec (BIIB, $244.19)
Blackstone Group (BX, $26.28)
Boeing (BA, $130.5)
Boyd Gaming (BYD, $10.56)
Bristol Myers Squibb Co. (BMY, $52.52)
Cabelas (CAB, $59.32)
Cameron International Corp. (CAM, $54.86)
Canadian Pacific Railways (CP, $143.07)
Cardinal Health, Inc. (CAH, $58.66)
Carpenter Technology Corp (CRS, $59.33)
Catamaran Corp (CTRX, $46.96)
Caterpillar Inc. (CAT, $83.36)
Celanese Corporation (CE, $56.01)
Charter (CHTR, $134.24)
Cheniere Energy, Inc. (LNG, $39.8)
Church & Dwight Co., Inc. (CHD, $65.15)
Cigna Corp. (CI, $76.98)
Cinemark Holdings, Inc (CNK, $32.81)
Citigroup Inc. (C, $48.78)
Citrix Systems Inc. (CTXS, $56.78)
CMS Energy (CMS, $27.46)
Colgate-Palmolive (CL, $64.73)
Comcast (CMCSA, $47.58)
Concur Technologies Inc. (CNQR, $104.6)
Costco Wholesale Corporation (COST, $118)
Cummins Inc. (CMI, $127.02)
CVS Caremark Corporation (CVS, $62.26)
Diamondback Energy, Inc. (FANG, $51.65)
Dillard's Inc. (DDS, $81.98)
Discover Financial Services (DFS, $51.88)
Dollar Tree (DLTR, $58.4)
Dow Chemical Company (DOW, $39.47)
DST Systems (DST, $84.77)
Duke Energy (DUK, $71.73)
East West Bancorp, Inc (EWBC, $33.69)
Eaton Vance (EV, $41.81)
EMC Corp (EMC, $24.07)
Endocyte, Inc. (ECYT, $10.43)
Esterline Technologies (ESL, $80.16)
ExamWorks Group Inc. (EXAM, $25.85)
Express Scripts Inc. (ESRX, $62.52)
Ferro (FOE, $12.83)
First BanCorp (FBP, $5.55)
Fluor (FLR, $74.22)
Foot Locker, Inc. (FL, $34.7)
Forum Energy Technologies, Inc. (FET, $29.26)
Genomic Health, Inc (GHDX, $29.92)
Gilead Sciences Inc. (GILD, $70.99)
Goldman Sachs Group, Inc. (GS, $160.86)
Google, Inc. (GOOG, $1030.58)
GulfMark Offshore (GLF, $49.78)
Gulfport Energy (GPOR, $58.69)
Halliburton (HAL, $53.03)
Hartford Financial Services (HIG, $33.7)
HCA Holdings Inc. (HCA, $47.14)
Health Net Inc. (HNT, $30.4)
Home Depot (HD, $77.89)
Huntington Bancshares Incorporated (HBAN, $8.8)
Illumina, Inc. (ILMN, $93.51)
Ingersoll-Rand Plc (IR, $67.53)
Invesco (IVZ, $33.75)
Jinko Solar (JKS, $22.52)
Jive Software, Inc. (JIVE, $10.89)
Kansas City Southern (KSU, $121.52)
KBR Inc. (KBR, $34.54)
KLA-Tencor Corp. (KLAC, $65.6)
Lam Research Corp. (LRCX, $54.23)
Lithia Motors, Inc. (LAD, $62.85)
Luxfer (LXFR, $18.42)
Macy's Inc. (M, $46.11)
Marathon Oil Corp (MRO, $35.26)
MarkWest Energy Partners, LP (MWE, $74.28)
Marriott International (MAR, $45.08)
Masco (MAS, $21.13)
Mead Johnson Nutrition Co. (MJN, $81.66)
70
Medivation (MDVN, $59.86)
MetLife, Inc. (MET, $47.31)
MGM Resorts International (MGM, $19.04)
Micron Technology Inc. (MU, $17.68)
Mondelez (MDLZ, $33.64)
Monsanto Company (MON, $104.88)
Newcastle Investment Corp (NCT, $5.74)
Nexstar Broadcasting Group (NXST, $44.39)
Noble Energy (NBL, $74.93)
Nokia (NOK1V.HE, $5.57)
Nucor Corporation (NUE, $51.77)
NXP Semiconductors N.V. (NXPI, $42.12)
Oracle Corporation (ORCL, Eur33.5)
Pall Corporation (PLL, $80.52)
Parker Hannifin Corporation (PH, $116.72)
PDC Energy (PDCE, $67.81)
Penn National Gaming (PENN, $58.51)
PennyMac Mortgage Investment Trust (PMT, $23.07)
Phillips-Van Heusen (PVH, $124.57)
Pioneer Natural Resources (PXD, $204.78)
Precision Castparts (PCP, $253.45)
Priceline.com (PCLN, $1053.83)
Proofpoint (PFPT, $31.64)
QUALCOMM Inc. (QCOM, $69.47)
Regeneron Pharmaceutical (REGN, $287.6)
Regions Financial Corporation (RF, $9.63)
Reliance Steel & Aluminum (RS, $73.29)
Rockwood Holdings Inc. (ROC, $63.25)
Rowan Companies (RDC, $36.08)
Safe Bulkers Inc (SB, $7.46)
Safeway Inc. (SWY, $34.9)
Salesforce.com Inc. (CRM, $53.36)
SanDisk Corp. (SNDK, $69.5)
Sealed Air Corp. (SEE, $30.18)
Six Flags Entertainment Corp. (SIX.N, $37.61)
Solazyme (SZYM, $10.46)
St Jude Medical (STJ, $57.39)
Standard Pacific Corp. (SPF, $7.93)
Steel Dynamics, Inc (STLD, $17.97)
Stryker Corporation (SYK, $73.86)
SunEdison Inc. (SUNE, $9.3)
Synchronoss Technologies, Inc. (SNCR, $34.62)
Tenet Healthcare Corporation (THC, $47.19)
Teradyne Inc. (TER, $17.49)
Terex Corporation (TEX, $34.95)
Tesoro Corp. (TSO, $48.89)
The Coca-Cola Company (KO, $39.57)
The Hershey Company (HSY, $99.24)
The Ultimate Software Group, Inc. (ULTI, $154.48)
Tiffany & Co (TIF, $79.17)
Tile Shop Holdings (TTS, $22.33)
Time Warner, Inc (TWX, $68.74)
T-Mobile US Inc (TMUS, $27.73)
Travelers Cos. Inc. (TRV, $86.3)
Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA, $128.85)
Union Pacific (UNP, $151.4)
United Health Group (UNH, $68.26)
Urban Outfitters (URBN, $37.88)
Vantiv, Inc. (VNTV, $27.5)
Visa Inc. (V, $196.67)
VMware Inc. (VMW, $81.28)
Volcano Corporation (VOLC, $19.17)
Walt Disney Company (DIS, $68.59)
Walter Investment Management (WAC, $37.77)
WCI Communities (WCIC, $18.04)
Wesco International (WCC, $85.46)
Western Alliance Bancorp (WAL, $21.15)
Williams Companies, Inc (WMB, $35.71)
WW Grainger Inc. (GWW, $268.97)
Xilinx (XLNX, $45.42)
71
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:
OP (O) : The stock’s total return is expected to OP the relevant benchmark*over the next 12 months.
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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 OPs 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 OPs representing the most attractive, Neutrals the less
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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*
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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.
72
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
OP/Buy* 42% (55% banking clients)
Neutral/Hold* 41% (49% banking clients)
Underperform/Sell* 15% (40% banking clients)
Restricted 3%
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73
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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.
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purchase price only.