financial pacific - better than expected adcetris label (third party)

ab

UBS Investment Research

US Morning Meeting Highlights

Global Equity Research

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Estimate/Price Target RevisionsDHT Holdings, Inc., DHT.N Rick Paterson p.7Cutting Estimates12-month rating: Neutral * (Unchanged) CBE , FY11E US$0.37=>US$0.26, FY12EUS$0.45=>US$0.33, PT Prior: US$4.30 => US$2.75, Market cap. US$0.18bn

Company UpdateCareFusion, CFN.N Rajeev Jashnani, CFA p.5Update from CFO12-month rating: Buy (Unchanged), FY11E US$1.65, FY12E US$1.87, PT US$26.00,Market cap. US$5.28bnMedtronic, MDT.N Rajeev Jashnani, CFA p.6F1Q12 preview12-month rating: Buy (Unchanged), FY12E US$3.50, FY13E US$3.79, PT US$40.00,Market cap. US$34.5bnSeattle Genetics, SGEN.O Matthew Roden, PhD p.4Better Than Expected Adcetris Label12-month rating: Neutral * (Unchanged) CBE , FY11E US$(1.69), FY12E US$(0.78),PT US$16.00, Market cap. US$1.31bn

Industry UpdateSemiconductors Stephen Chin p.9

Semiconductor Equipment Industry Update - Weak Taiwanese semicap orderscontinueSector Comment William A. Featherston p.12

North American E&P Weekly - Weekly SummaryOil Companies, Major William A. Featherston p.4

Energy Sector - What if Grey or Black Skies Lie Ahead?Heavy Construction Steven Fisher, CFA p.8

E&C Weekly Blueprint - Engineering & Construction UpdatePaper Products Gail S. Glazerman, CFA p.3

U.S. Paper & Forest Products - August US paper/board price updateEntertainment John Janedis, CFA p.3

Janedis’ Media Matters - Pressure Continues-More Than Just Macro?Internet Services Brian Pitz p.8

US Internet and Interactive Entertainment - Pitz & Fitz’s Internet / IE Weekly

Global Strategy/EconomicsQuantitative Austin H. Burkett, CFA p.9

Equity Analytics - Price Reactions to U.S. Share Repurchase AnnouncementsEquity Strategy Nicholas Smithie p.12

Global Emerging Markets Fund Flows - Still no respite

22 August 2011http://www.ubs.com/investmentresearch

This package has been prepared by UBS Securities LLC UBS 1ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 13*Under review (UR) and/or exception to core rating bands (CBE) - see page : 13UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may havea conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making theirinvestment decision.

http://www.ubs.com/investmentresearch

EconomicsEconomics Maury N. Harris p.10

US Daily Economic Comment - Bernanke to speak in coming weekEconomics Maury N. Harris p.11

US Economic Perspectives - August AngstAerospace David E. Strauss p.7

U.S. Aerospace & Defense Playbook - The Week Ahead

US Morning Meeting Highlights 22 August 2011

UBS 2

Basic MaterialsU.S. Paper & Forest Products Gail S. Glazerman, CFA............+1-212-713 3486

[email protected] US paper/board price update. Overall stable, continued modest updrift in graphic paper prices

Pulp & Paper Week reported August paper and board prices this weekend. August largelycontinued trends from the prior several months. They showed modest improvement in printingand writing paper pricing and stable pricing on packaging grades. However, there were somemixed messages in uncoated free sheet.. Containerboard commentary remains positiveThe newsletter suggested, consistent with our view, that broad-based pricing is unlikely giventhe current macro environment. However, they painted a fairly positive picture of current marketbalance. They report that some major producers are 2-3 weeks behind on shipments, a fewproducers are seeking modest $10-30/t price hikes in the West (apparently to account forfreight) and that export sales are fairly competitive with domestic mill nets. P&PW notes demandhas held in Aug.. Graphic papers – some ups and downs (but generally up)P&PW showed modest 0.5-1% price recovery for printing & writing grades. While P&PW raiseduncoated free cut size prices $7/t, they lowered offset grades by $10/t. They raised coated$5-10/t and uncoated groundwood by $5/t. Newsprint prices held at current levels for the 12thstraight month.. Favor packaging grades – but macro is the key driver for nowWe continue to favor the outlook for paper-based packaging grades over graphic papers. Whiledemand remains a major risk given the macro back drop we see much better supply/demandtrends in packaging. Within graphic we favor uncoated free. We generally expect stable pricingover the next few months.

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Consumer, CyclicalJanedis’ Media Matters John Janedis, CFA................... +1-212-713 1064

[email protected]

Jaime Morris, CFA, CPA............ +1-212-713 [email protected]

Emily D. Woodward....................+1-212-713 3182Associate [email protected]

Pressure Continues-More Than Just Macro?. What’s New?Media stocks remained under pressure last week, as concerns related to ad growth andmargins in a downturn stay in focus. From a fundamental perspective, we believe nat’l adv. hasbegun to slow somewhat recently, though not materially. However, we remain on the sidelinesfor the group post our late June downgrade as we see downside to estimates for the balance ofthe year and into 2012. While valuations seem more compelling given the 17% drop in stockprices over that time, the group is likely more expensive than it seems. Top picks: VIA/CBS.. Media M&A Conference Call TakeawaysWe hosted a conference call focused on M&A trends within the broadcast and newspaperssectors. From a multiple perspective, TV transactions are getting done in the 7x-8x range, radiocloser to 7x and newspapers in the 4x-5x range.. New York Times Linage +1% in August; WSJ Trending Down 1%Through the third wk of August, Linage at the NYT is +1% with nat’l auto -78%, dept. stores+29%, telco -9%, banks/financials -4%, and movies -21%. Classifieds are +11%, with h/w -27%,r/e -8%, and auto +55%. Linage at the WSJ is trending down 1% in Aug (+23% comp), vs. July+3% (+21%), June +2% (+17% comp), May +8% (+7% comp), and April flat (+22% comp).. ValuationLarge-cap media is trading at 6.3x our FTM EBITDA vs. 7.2x last week; mid-cap is trading at7.8x vs. 8.7x; advertising is trading at 5.2x vs. 5.6x; online recruitment is trading at 5.1x vs. 6.4x;and publishing is trading at 3.5x vs. 3.7x.

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UBS 3

mailto:[email protected]




EnergyEnergy Sector William A. Featherston.............+1-212-713 9701

[email protected]

Betty Jiang................................ +1-212-713 [email protected]

Daniel Drum.............................. +1-212-713 1151Associate [email protected]

Margaret O'Connor...................+1-212-713 2257Associate [email protected]

What if Grey or Black Skies Lie Ahead?. Impact of recessionary commodity prices to our estimatesThis note provides an estimate/downside risk analysis under 3 scenarios: Base case (currentUBS estimates); Grey Sky & Black Sky (see Exhibit 1 for GDP and commodity priceassumptions). We estimate our ‘12 E&P CFPS estimate would fall 19% & 42% & Majors EPSestimates would fall 28% and 60% from our base case estimates under Grey and Black skyscenarios, respectively.. Most and least preferred names under recessionary scenariosWe prefer XOM & CVX under the Grey and Black Sky scenarios given strong balance sheet,FCF, & cheap valuation. Under both Grey & Black Skies, we see value in SWN & RRC and notethese gassy resource plays see further support as potential takeout candidates. We alsohighlight APC, APA, MRO, and OXY among E&Ps, offering inexpensive valuation andreasonable FCF under a Grey Sky scenario. Meanwhile, we are cautious on CHK, KWK, PXD,SD & EOG in lower oil & gas price environments given their material FCF deficit.. What is different from the run up to 2008-9 recession?1) oil prices are near mid-cycle levels & gas is already near the trough while both were at spikylevels in mid-2008; 2) E&Ps have a negative 5% FCF yield today unlike the +4% in 2Q08; & 3)balance sheets are of similar strength but today’s hedge positions are at lower prices than mid-2008.. Valuation: still see downside risk to Grey Sky scenarioWe see 10% and 5% downside for E&Ps & Majors valuation to reflect a Grey Sky scenario and44% & 31% downside under the Black Sky scenario, respectively.

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HealthcareSeattle Genetics (SGEN.O) Matthew Roden, PhD...... +1-212-713 2491

[email protected]

Andrew Peters...................+1-212-713 3241Associate [email protected]

Leah Batkiewicz, PhD....... +1-212-713 4105Associate [email protected]

Price (18 Aug 2011).....................US$14.3512-month rating.......Neutral * (Unchanged)12m price target..........................US$16.00Market cap.................................US$1.31bn

Full-Year EPS2011E........................................... US$(1.69)2012E...........................................US$(0.78)

*Exception to core rating bands - seepage 13

Better Than Expected Adcetris Label. What’s New? Nod to transplant-ineligible patients unexpected surpriseThis afternoon, the FDA approved Adcetris ahead of the Aug. 30th PDUFA date, with a slightlybroader label than was expected given FDA’s Richard Pazdur’s comments at the ODAC. Thelabel includes patients who are ineligible for transplant and have failed two prior chemoregimens. Our forecasts include modest use in the transplant ineligible setting, and today’snews puts back on the table potential upside to our above-consensus estimates.. Transplant-ineligible patients key factor in Adcetris market opportunityWe view the ineligible population as roughly the same size as the post-transplant opportunity,and suggests a larger addressable market for Adcetris. We model $212M in 2012 US Adcetrisrevenues, with $50M coming from transplant ineligible patients. We had revised our model toinclude a more modest contribution from this population following the mixed ODAC panel, butnow believe our above-consensus estimates may be somewhat conservative.. Thoughts on the stock: reviewing model on broader label, pricing, costsWe note the broader label offers an upside surprise to expectations, but we await additionalclarity on anticipated Opex spend following agreement with the FDA on the appropriateconfirmatory trials, as well as Adcetris pricing and launch timing. We note significant sensitivityin our model on pricing changes (we assume $15k per cycle), and await further detail onMonday’s conference call.. Valuation: Neutral rating with $16 price targetWe derive our price target using a risk-adjusted, DCF-based analysis.

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CareFusion (CFN.N) Rajeev Jashnani, CFA..... [email protected]

Nishit Verma......................+1-212-713 2686Associate [email protected]

Price (18 Aug 2011).....................US$23.8612-month rating...............Buy (Unchanged)12m price target..........................US$26.00Market cap.................................US$5.28bn

Full-Year EPS2011E............................................. US$1.652012E............................................. US$1.87

Update from CFO. Catching up with managementWe had an opportunity to speak with CFO Jim Hinrichs & VP IR Carol Cox. Summary updateson key business items, cost savings & M&A are below w/ more detailed thoughts on page 2.Notably, regarding its hospital customers, CFN re-emphasized the challenging environment &noted that customers’ #1 priority is to better organize, collect & deploy information within theirorganizations.. Perspective on Infusion & DispensingOn pumps, we believe CFN may shift sales force comp from rev-based to mgn-based in aneffort to restore historical pricing; success in achieving this end will also be dependent oncompetitive dynamics. On Dispensing, cash flows are predictable given that ~75% of units areleased. In contrast, significant portion of revs are booked at the time of sale & could be volatile ifpurchasing slows later in the fiscal yr. However, despite a tough environment in F11, CFNposted its best year w/ ~10% bookings growth (units will be placed in F12). We believe growth islargely coming from facilities where CFN was previously not present.. Streamlining co enables international M&A strategyCFN has repeatedly noted significant inefficiencies in its legal / IT structures. We estimate thatCFN can drive op mgns from 18.1% in F12 to 20.3% in F14 largely on mix (low mgn pumps tohigh mgn disposables) while we believe cost savings from streamlining the organization will beused to absorb acquisitions. Our perception is that co will internally refine its M&A strategy inthe near-term w/ a focus on ex-US expansion. We have no specific reasons to doubt CFN’sability to reposition the company for better growth. That said, international expansion does carrysome operational risk.. Valuation-DCF-based price target of $26On CY2012 estimates, CFN trades at 12.2x EPS, 6.2x EV/EBITDA & 9% FCF yld.

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http://clientportal.ibb.ubs.com/portal/index.jsp?page=eqrschstockrschcompany&RicCode=MDT.N



Medtronic (MDT.N) Rajeev Jashnani, CFA..... [email protected]

Nishit Verma......................+1-212-713 2686Associate [email protected]

Price (18 Aug 2011).....................US$31.2512-month rating...............Buy (Unchanged)12m price target..........................US$40.00Market cap.................................US$34.5bn

Full-Year EPS2012E............................................. US$3.502013E............................................. US$3.79

F1Q12 preview. We expect initial comments from new CEONew CEO Omar Ishrak’s tenure began ~2 mo’s ago, as such, initial comments may be limited;that said, we believe more extensive comments are likely at the 8/25 shareholder mtg. In ourview, Ishrak needs to shape the co into an organization w/ better execution, which takes time.Given MDT’s valuation, multiple expansion seems likely over the long-term. That said, the stockmay be range-bound in the near term until mgmt articulates a cogent plan to create value &operational performance begins to stabilize in challenging core markets.. We est F1Q12 revs / EPS of $4.02B / $0.80, Street: $3.98B / $0.79We est 1% organic rev growth w/ $170M from FX (guidance: $170-190M). On EPS, we est 0%growth; Street at -1%. Key operational takeaways pertain to ICD & Spine franchises (combined:38% of revs). We assume -7% mkt growth for US ICD in C2Q11 w/ MDT sales of $420M (-10%)in their F1Q12. We est MDT ex-US ICD revs of $287M (2% cc); ex-US performance insightfulgiven competitive dynamics between MDT & STJ new products. For Spine, we est US / ex-USrevs of $613M (-3%) / $228M (4% cc). US Spine performance important to gauge Solera uptake& INFUSE-related fallout.. Adjusting FY sales outlook to reflect market conditions & acquisitionsBefore factoring in recent deals, we lowered cc rev growth from 3.0% to 2.1% (2.5% to 1.5%organic) on US CRM & Spine (biologics & core). Adding ~$65M from M&A yields 2.6% cc revgrowth. Street at +1.6% (does not reflect M&A); mgmt guided to 1-3% CC in May. Wemaintained F12 EPS at $3.50 (+4%) on op ex; Street: $3.45; guidance: $3.43-3.50.. Valuation – DCF-based price target of $40Our target implies a P/E of 10x on CY13 EPS. On CY12, MDT currently trades at 8.5x P/E, 6.3xEV/EBITDA & 13% FCF yld.

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http://clientportal.ibb.ubs.com/portal/index.jsp?page=eqrschstockrschcompany&RicCode=MDT.N






IndustrialU.S. Aerospace & Defense Playbook David E. Strauss....................... +1-212-713 6185

[email protected]

Darryl Genovesi..........................+1-212-713 4016Associate [email protected]

Ryan Thackston......................... +1-212-713 3321Associate [email protected]

The Week Ahead. What’s next for Aerospace and Defense?Quiet week for A&D with Congress on recess and no major industry data points. Next week, wehave IATA global traffic data Tues, which we expect to reflect low- to mid-single digit growthbased on reports out of the regions. We also have BBD earnings Wed and bizjets/helicoptersused inventory data on Thurs. Looking out, ESL reports its Q3 on Sept. 1, while GD will host aninvestor day in NYC on Sept. 8. DoD appears likely to begin FY12 on a CR with Congress outon recess through August and likely to wait for deficit reduction Super Committee and DoD rolesand missions review before re-marking FY12 budget under new discretionary caps.. Aero stocks pricing in flat to down EPS next yearCorrection has taken aero down 20%, more than the market, with group now at roughly 12x2012 consensus estimates that call for 18% growth on average (down from 31% in 2011). Aerotypically trades at mid-teens forward multiple, which we believe is appropriate assuming cycleholds up, implying that stocks now reflect expectations for flat to down EPS in 2012. Anythingbut a double dip recession and we think EPS growth is much better than this and the grouprecovers.. Defense budget cuts worse than indicatedOur analysis of the Deficit Reduction bill indicates the cuts to defense are larger and more frontend loaded than widely understood. We believe the DoD budget will be reduced by roughly$500B in a best case scenario with the base budget flat to down in FY12-13 and modernizationlikely 5-10% lower. If the Super Committee can't agree to additional cuts, we estimate defensewill be reduced by $1T with the FY13 budget likely 10% lower and modernization down evenmore.

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DHT Holdings, Inc. (DHT.N) Rick Paterson.................. +1-212-713 [email protected]

Price (18 Aug 2011).......................US$2.8412-month rating.......Neutral * (Unchanged)12m price target.....Prior: US$4.30 =>US$2.75Market cap.................................US$0.18bn

Full-Year EPS2011E......................... US$0.37 => US$0.262012E......................... US$0.45 => US$0.33

*Exception to core rating bands - seepage 13

Cutting Estimates. Estimates loweredDue to persistent softness in the oil tanker shipping market we are making further cuts to ourDHT estimates. 2011E EPS falls from $0.37 to $0.26, and our 2012 estimate declines from$0.45 to $0.33. Our quarterly dividend estimate remains $0.10.. Perfect storm getting worseShipping is typically a demand and supply fundamental story, and both are hurting the stockprices at present. The industry orderbook remains extremely elevated, at 22% of the fleet onorder for delivery. Low new orders, vessel delivery slippage, and accelerated scrapping won’t fixthat overhang anytime soon. However, the new problem is obviously the potential for globalmacro weakness, hitting the demand side of the shipping equation. Not good.. Our view on the stock: sit tight and clip the dividendWith a long road to recovery and heightened volatility and uncertainly, we do not recommend aninvestment in DHT. For those that already own it our advice is to sit tight, be patient, and clip thedividend.. ValuationWe use Net Asset Value to set a price target, and with vessel second hand values down againthis obviously pushes this lower, to $2.75 (prior $4.30) based on 1x NAV.

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E&C Weekly Blueprint Steven Fisher, CFA...................+1-212-713 [email protected]

Brandon Verblow........................ +1-212-713 9463Associate [email protected]

Engineering & Construction Update. Upcoming events: Petrofac, WorleyParsons, BHP results; NRC meetingPetrofac Q2 results (Aug. 22) and WorleyParsons results (Aug. 24) could have read-through toother E&Cs. BHP’s earnings call (Aug. 24) could offer an updated outlook on mining capex. AnNRC meeting on the Vogtle plant COL (Aug. 25) could reveal info about possible timing for COLapproval.. Highlight from this week: Blue/Grey/Black sky scenario analysisOn Aug. 16 UBS strategists published a report titled “What if Grey or Black Skies Lie Ahead?”which includes our preferred stock selections under three possible scenarios: blue skies (higherbeta-to-oil – FWLT, MDR, KBR); grey skies (diversified business, solid backlog, less non war-related gov’t work – FLR, KBR); black skies (public sector and smaller project exposure – ACM,URS, BWC).. Industry data: stock performance, Architecture Billings Index declinesThe E&C group avg stock performance over the past week was -4.7%, below the S&P 500 of -2.7%, and the E&C group avg P/E multiple on 2012 consensus is now 9.6x, below 10.2x lastweek and the current S&P 500 of 10.9x. The July Architecture Billings Index (ABI) declined to45.1, below June’s 46.3 and is below 50 for the 4th straight month (a score below 50 indicates adecline in demand for design services). The new projects inquiry index declined as well.. Sector view: Constructive on construction, despite near term turbulenceWe expect some macro-driven weakness this summer, but we still think the cyclical drivers (oilprices and backlogs) are supportive, and we like the LNG/ upstream themes. Buy ratings: KBR,MDR, FLR, FWLT, SHAW, ACM, TPC.

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TechnologyUS Internet and Interactive Entertainment Brian Pitz...................................+1-212-713 9310

[email protected]

Brian Fitzgerald........................ +1-212-713 [email protected]

Timothy O'Shea..........................+1-212-713 2140Associate [email protected]

Pitz & Fitz’s Internet / IE Weekly. Amazon Instant Video offers over 100K movies and TV ShowsAmazon announced that Amazon Instant Video now offers customers over 100K movies and TVshows. Amazon Instant Video now offers unlimited streaming of over 9,000 movies and TVshows to Amazon Prime members at no extra charge to the standard $79 annual Primemembership fee. Amazon’s separate video-on-demand streaming service charges $1.99 to buya new release TV show and $3.99 to rent a new-release movie for 24 hours. Amazon has over15K HD titles in its VOD collection.. Netflix to launch in Spain, Britain in early 2012According to Reuters, Netflix will launch in Spain in the first half of 2012. Citing a conversationbetween Pedro Perez, president of the local producers association FAPAE, Spain and ScreenDaily, Reuters said that the video streaming company has been in contact with various Spanishproducers. The company is also looking to expand its services to Britain and other markets likeJapan and South Korea. Netflix launched service in Canada last fall.. Foursquare users can now check in to official eventsAlthough Foursquare users have been unofficially checking into events for a long time, thecompany announced it will now officially support event check-ins for partner events. Thecompany has teamed with ESPN for sports events, MovieTicket.com for movie tickets, andSongkick for concerts to populate its database with official events. The partner events will offerusers additional check-in functionality, such as the ability to check into a specific movie theater.

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Semiconductor Equipment Industry Update Stephen Chin............................ +1-212-713 [email protected]

Mahavir Sanghavi.....................+1-212-713 4086Associate [email protected]

Weak Taiwanese semicap orders continue. 3Q11 semicap orders from Taiwan are tracking down -78% q/qOur own analysis of 9 Taiwanese semiconductor companies shows only $129M of total semicaporders were placed in the first 7 weeks of 3Q11 versus $1.1B and $2.0B in all of 2Q11 and1Q11. Total foundry semicap orders from Taiwan are tracking down -82% q/q and total DRAMsemicap orders are tracking down -52% q/q. We estimate global semicap orders likely bottom in4Q11-1Q12.. Checks found TSMC placed $18M order with Applied Materials last weekOur analysis shows TSMC’s total semicap orders so far in 3Q11 are only $84M versus $820Min 2Q11 and $1.6B in 1Q11 but are likely bottoming as they are lower than its recession levelordering patterns of $300M/qtr in the 2Q08-4Q08 period. We note that Applied has received20% of TSMC total semicap orders so far in 2011 which is inline with its historical average of22%. We expect Applied to report in line Jul-11 quarter results this week but likely guide its Oct-11 sales down -10% q/q as our checks find its Silicon orders are tracking down -20% q/q.. North American Jul-11 semicap book to bill declined -9% m/m to 0.86Our review of SEMI’s monthly data showed Jul-11 semicap bookings declined -16% month overmonth to $1.3B (3rd consecutive monthly decline) as Jul-11 billings declined -8% m/m to $1.5B.We note that we are approaching similar trough bookings and book to bill levels seen in the2007 downcycle but still 10% above the 2002 and 2004 downcycles.

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QuantitativeEquity Analytics Austin H. Burkett, CFA.............+1-212-713 3235

[email protected] Reactions to U.S. Share Repurchase Announcements. We examine price movements surrounding repurchase announcements

Given recent interest in share repurchases, we observed the price movements in relation toshare repurchase announcements year-to-date for the S&P 500 and Russell 2000 companies.. Average 183 basis point 1-day outperformance following announcementsRussell 2000 stocks generally benefitted more with repurchase announcements, with anaverage 245 basis points of outperformance following announcements versus 103 for S&P 500stocks. We also observed that larger repurchase announcements (as % of shares outstanding)would (intuitively) provoke larger price reactions.. Relationship between dividends payers and price reactionShare repurchases are often compared to dividends, as both involve a cash transfer toshareholders. We observed larger outperformance for companies not paying dividends relativeto those that were.. Effect of prior performance on post-announcement price movementIf a stock had been performing poorly, the market may view a repurchase announcement as astatement of confidence from management in the face of underperformance. We observed thelargest 3-month underperformers benefitted the most from share repurchase announcements.

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EconomicsUS Daily Economic Comment Maury N. Harris.........................+1-212-713 2472

[email protected]

Drew T. Matus........................... +1-203-719 [email protected]

Samuel D. Coffin.......................+1-203-719 [email protected]

Kevin Cummins........................ +1-203-719 [email protected]

Bernanke to speak in coming week. Monday preview: No dataNo economic data on Monday. (Note: There is no official release date for the Q2 NationalMortgage Delinquency Survey, although it is likely to be released in the coming week.). Policy preview: Chairman Bernanke at Jackson Hole SymposiumFed Chairman Bernanke will speak on Friday at the Fed’s Jackson Hole conference, on the“Near- and Long-Term Prospects for the U.S. Economy”. We anticipate that Chairman Bernankewill seek to be more reassuring regarding the economic outlook than the August 9 Fedstatement in his speech. Recent comments by FOMC Vice Chair Dudley suggest as much (seebelow). At the same time, we believe he will continue to stress that the Fed does have the toolsto stimulate growth, and we expect him to spell out what those tools are without promising theiruse. The end goal for Chairman Bernanke, as we see it, will be to calm financial markets whilebuying time for the FOMC to observe more data before taking any additional action.. Data preview: Light week for economic dataAway from Jackson Hole, it is a light week for data. We expect claims to continue to inch lower,and look for another rise in the FHFA home prices index. Consumer sentiment likely recovereda bit in late August after plunging earlier. Q2 growth will probably be revised down—to 1.0%from the 1.3% originally reported. The Richmond and Kansas City Fed surveys warrant someattention, given the collapse in the Phil. Fed survey. Durables goods orders appear to havejumped in July.. NY Fed Pres Dudley still sees stronger growth in H2On Friday, NY Fed President Dudley spoke about the economy. Mr Dudley said that he expectsstronger growth in the second half of 2011, and that the recent performance of economic data is“at worst, mixed”. He noted that the recent slew of negative news was being offset by looseningcredit, stronger balance sheets, and better retail sales. He also pointed out that “[f]ollowing therelease of the FOMC’s statement, market interest rates generally removed lower, which shouldhelp provide some additional support for economic activity and jobs”. His comments on creditare consistent with the recently released Fed Sr. Loan Officer Opinion Survey for July; thatreport indicated that US bank credit conditions were

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US Economic Perspectives Maury N. Harris.........................+1-212-713 [email protected]

Drew T. Matus........................... +1-203-719 [email protected]

Samuel D. Coffin.......................+1-203-719 [email protected]

Kevin Cummins........................ +1-203-719 [email protected]

August Angst. The Equity MatrixEquity markets have created their own reality, and that reality may spill over into the “realeconomy.” Wall Street economists been surprised by the weaker data and understandably areat least somewhat less certain about their forecasts. On our part, we still do not see sufficientlycompelling evidence to merit a recession forecast. That said, we do see increased downsiderisk to the outlook from recent events.. Lending standards support second halfThe arguments for a double dip rely partly on tightening credit conditions—with Europeanstrains passing through into the US. However, the Fed’s Senior Loan Officer Survey indicatesthat US bank credit conditions were improving through July. Banks eased lending standardsacross all major categories of loans, and they also reported broad increases in loan demand.. Is “worst over” for inflation?On August 9 the FOMC statement stated that officials anticipate that “inflation will settle, overcoming quarters, at levels at or below those consistent with the Committee’s dual mandate asthe effects of past energy and other commodity price increases dissipate”. However, thepersistence of broad-based gains across most categories of the core CPI, especially shelter,raise doubts that the core can be counted on to slow. We still expect a gradual rise in underlyinginflation into 2012.. The past weekThe July data released over the past week suggested a strong start to the third quarter, but theAugust survey data raised concerns about recession.. The week aheadAway from Jackson Hole, it is a light week for data. We expect claims to continue to inch lower,and look for another rise in the FHFA home prices index. Consumer sentiment likely recovereda bit in late August after plunging earlier. Q2 growth will probably be revised down—to 1.0%from the 1.3% originally reported. The Richmond and Kansas City Fed surveys warrant someattention, given the collapse in the Phil. Fed survey. Durables goods orders appear to havejumped in July.

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UBS 11








Equity StrategyGlobal Emerging Markets Fund Flows Nicholas Smithie.......................+1-212-713 8679

[email protected]

Stephen Mo.............................+44-20-7568 [email protected]

Jennifer Delaney, CFA............. +1-212-713 [email protected]

Still no respite. Outflows everywhereTotal GEM funds experienced strong outflows of around $2.8 billion over the last week. All theregions saw strong net selling as investors remain concerned over the European debt crisis andglobal slowdown. On a 4-week moving average basis, we have seen outflows of $1.1 billionfrom Asia ex Japan; outflows of $1 billion from Dedicated GEM with EMEA and LatAm seeingoutflows of $447 million and $310 million, respectively.. Outflows in non-ETF funds gathers momentumNon-ETF funds (long-only money) have seen another week of strong outflows. With theexception of April, this group have consistently experienced net selling pressures this year. On a4-WMA basis, ETF saw outflows of $952 million compared to outflows of $1,909 million in thenon-ETF segment. ETF flows typically make up 41% of total flow.. Money flows into the defensive/domestic-demand driven marketsWe also look at the biggest movers within the geographical focused funds. The top fivedestinations for flows over the past week (as a percent of AUM) were Colombia, Mexico,Thailand, Indonesia and the Czech Republic. The biggest net losers of funds were Taiwan,South Africa, South Korea, Russia and Malaysia.. Net selling year to date compared to strong inflows last yearTotal GEM fund flows year-to-date amount to a withdrawal of $16.9 billion of funds. Thiscompares to total inflows of $84.1 billion into GEM in 2010. On a cumulative basis over $155bnhas flowed into GEM funds since January 2006.

-

North American E&P Weekly William A. Featherston.............+1-212-713 [email protected]

George Toriola.......................... +1-403-695 [email protected]

Betty Jiang................................ +1-212-713 [email protected]

Daniel Drum.............................. +1-212-713 1151Associate [email protected]

Margaret O'Connor...................+1-212-713 2257Associate [email protected]

Matthew Stephenson................+1-403-695 3637Associate [email protected]

Weekly Summary. Crude and natural gas finish lower after another volatile weekOil prices held steady through mid-week before plummeting on Thursday due to renewedEurozone debt and U.S recession fears fuelled by a trio of bearish economic news. Oil pricesended the week down 3.6% at $82.26/Bbl. Natural gas prices slumped throughout the week,pushed lower by a bearish EIA storage report, falling back below $4.00/MMBtu. Prices closedout the week down 3.0% to $3.94/MMBtu.. E&Ps underperform the broader marketsU.S. E&Ps fell 7.6% WoW, underperforming the S&P 500, which fell 4.7%. Canadian E&Pswere also down 7.6% WoW, underperforming the TSX’s 3.8% drop.. Company newsNBL purchased 331,670 net acres in the SW PA & NW WV Marcellus from CNX for $3.4 billion($1.07 bn in cash over 3 years and $2.13 bn in an 8 year drilling carry) for ~$7,100/acre on anNPV basis above recent deal average of ~$5,486 on an NPV basis. We upgraded OAS to “Buy”on above consensus ’12 volumes as we believe investors will shift focus to the ‘12 growthoutlook driven by an increase in drilling activity & well performance. RRC raised its resourceestimate by 1 Tcfe to 40-56 Tcfe with the increase coming from the Midcontinent and unveiled a6 Bcfe type curve for the NE Marcellus.. A look at the week aheadWe expect the EIA to report a 75-85 Bcf injection on Thursday.

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UBS 12










Required Disclosures

This package has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates arereferred to herein as UBS.

This package contains summaries of UBS research content. For a complete copy of the non-summarized version, please contact your UBSsales representative.

For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performanceinformation; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. Thefigures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additionalinformation will be made available upon request. UBS Securities Co. Limited is licensed to conduct securities investment consultancybusinesses by the China Securities Regulatory Commission.

UBS Investment Research: Global Equity Rating Allocations

UBS 12-Month Rating Rating Category Coverage[1] IB Services[2]Buy Buy 54% 39%Neutral Hold/Neutral 39% 35%Sell Sell 7% 14%

UBS Short-Term Rating Rating Category Coverage[3] IB Services[4]Buy Buy less than 1% 33%Sell Sell less than 1% 25%

1:Percentage of companies under coverage globally within the 12-month rating category.2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months.3:Percentage of companies under coverage globally within the Short-Term rating category.4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12months.Source: UBS. Rating allocations are as of 30 June 2011.UBS Investment Research: Global Equity Rating Definitions

UBS 12-Month Rating DefinitionBuy FSR is > 6% above the MRA.Neutral FSR is between -6% and 6% of the MRA.Sell FSR is > 6% below the MRA.

UBS Short-Term Rating Definition

BuyBuy: Stock price expected to rise within three months fromthe time the rating was assigned because of a specificcatalyst or event.

SellSell: Stock price expected to fall within three months fromthe time the rating was assigned because of a specificcatalyst or event.

KEY DEFINITIONS

Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months.Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, theequity risk premium).Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject topossible change in the near term, usually in response to an event that may affect the investment case or valuation.Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in thefundamental view or investment case.Equity Price Targets have an investment horizon of 12 months.

EXCEPTIONS AND SPECIAL CASES


UBS 13

UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performancerecord, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors suchas structure, management, performance record, discount.Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC).Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocksdeemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, theywill be identified in the Company Disclosures table in the relevant research piece.

Company DisclosuresCompany Name Reuters 12-month rating Short-term

ratingPrice Price date

Advantest 16 6857.T Buy N/A ¥1,018 19 Aug 2011

AECOM Technology Corp. 1, 5, 16 ACM.N Buy N/A US$18.82 18 Aug 2011

Alliant Techsystems 16 ATK.N Buy N/A US$57.65 19 Aug 2011

Anadarko Petroleum Corp. 4a, 5, 6a, 6c,

7, 13, 16

APC.N Buy N/A US$66.09 19 Aug 2011

Apache Corporation 2, 4a, 5, 6a, 6c, 7, 16 APA.N Buy N/A US$97.03 19 Aug 2011

Applied Materials Inc. 5, 16 AMAT.O Neutral N/A US$10.82 19 Aug 2011

ASML 16, 24 ASML.AS Buy N/A €23.18 19 Aug 2011

Babcock & Wilcox Co 16 BWC.N Neutral N/A US$21.00 18 Aug 2011

BE Aerospace Inc. 2, 4a, 6a, 16, 20 BEAV.O Neutral (CBE) N/A US$30.58 19 Aug 2011

Boeing Co. 4a, 5, 6a, 6b, 6c, 7, 8, 16, 18a BA.N Neutral N/A US$57.54 19 Aug 2011

Canadian Natural 16 CNQ.TO Buy N/A C$33.91 18 Aug 2011

CareFusion Corporation 4a, 6a, 16 CFN.N Buy N/A US$24.21 18 Aug 2011

CBS Corp. 4a, 6a, 13, 16, 22 CBS.N Buy N/A US$22.04 19 Aug 2011

Chesapeake Energy Corp. 4a, 6a, 16 CHK.N Neutral N/A US$29.31 19 Aug 2011

Chevron Corp. 6b, 7, 16 CVX.N Buy N/A US$93.29 19 Aug 2011

DHT Holdings, Inc. 2, 4a, 6a, 16, 19 DHT.N Suspended N/A US$2.89 18 Aug 2011

Discovery Communications Inc 16 DISCA.O Neutral N/A US$36.32 19 Aug 2011

El Paso Corp. 4a, 5, 6a, 6b, 7, 13, 16 EP.N Buy N/A US$17.75 18 Aug 2011

EOG Resources 2, 4a, 6a, 16, 22 EOG.N Neutral N/A US$87.57 19 Aug 2011

Esterline Technologies Corp. 16 ESL.N Neutral N/A US$62.23 19 Aug 2011

ExxonMobil Corp. 3, 4a, 5, 6b, 7, 16, 18b XOM.N Neutral N/A US$69.80 19 Aug 2011

Fluor Corporation 4a, 6a, 6b, 6c, 7, 13, 16 FLR.N Buy N/A US$55.14 18 Aug 2011

Foster Wheeler Ltd. 5, 13, 16 FWLT.O Buy N/A US$22.41 18 Aug 2011

General Dynamics Corp. 16 GD.N Buy N/A US$57.47 19 Aug 2011

Goodrich Corp. 2, 4a, 5, 6a, 6b, 6c, 7, 16, 22 GR.N Buy N/A US$81.50 19 Aug 2011

Hess Corp. 4a, 6a, 13, 16 HES.N Buy N/A US$54.29 19 Aug 2011

Hexcel Corporation 16 HXL.N Neutral N/A US$19.17 19 Aug 2011

Honeywell International Inc. 2, 4a, 5, 6a,

6b, 6c, 7, 16, 18c, 22

HON.N Neutral N/A US$42.19 19 Aug 2011

Interpublic Group of Companies,Inc. 2, 4a, 5, 6a, 6c, 7, 13, 16, 22

IPG.N Buy N/A US$7.74 19 Aug 2011

Jacobs Engineering Group, Inc. 16 JEC.N Neutral N/A US$32.54 18 Aug 2011

KBR, Inc. 4a, 6a, 6c, 7, 16 KBR.N Buy N/A US$26.69 18 Aug 2011

KLA-Tencor Corp. 16 KLAC.O Buy N/A US$33.67 19 Aug 2011

LAM Research Corp. 16 LRCX.O Buy N/A US$35.99 19 Aug 2011

Lockheed Martin Corp. 4a, 5, 6a, 6b, 6c, 7,

16, 22

LMT.N Neutral N/A US$69.39 19 Aug 2011

Marathon Oil Corporation 4a, 6c, 7, 16 MRO.N Buy N/A US$25.17 19 Aug 2011

McDermott International 5, 16 MDR.N Buy N/A US$12.73 18 Aug 2011


UBS 14

Company DisclosuresCompany Name Reuters 12-month rating Short-term

ratingPrice Price date

Medtronic, Inc. 4a, 5, 6a, 6b, 6c, 7, 16 MDT.N Buy N/A US$31.25 18 Aug 2011

MEMC Electronic Materials 16, 18d WFR.N Buy N/A US$5.82 19 Aug 2011

Newfield Exploration Co. 13, 16 NFX.N Buy N/A US$46.74 19 Aug 2011

Noble Energy, Inc. 2, 4a, 6a, 6c, 7, 16 NBL.N Buy N/A US$81.24 19 Aug 2011

Northrop Grumman Corp. 16, 22 NOC.N Neutral N/A US$49.26 19 Aug 2011

Novellus Systems Inc. 16 NVLS.O Neutral N/A US$26.24 19 Aug 2011

Oasis Petroleum Inc 2, 4a, 6a, 16 OAS.N Buy N/A US$23.98 19 Aug 2011

Occidental Petroleum Corp. 2, 4a, 5, 6a,

16, 18e

OXY.N Buy N/A US$80.91 19 Aug 2011

PetroBakken Energy Ltd. 4b, 16 PBN.TO Buy N/A C$10.67 18 Aug 2011

Pioneer Natural Resources Co. 4a, 6a,

16

PXD.N Neutral N/A US$71.91 19 Aug 2011

Precision Castparts Corp. 16 PCP.N Neutral N/A US$142.45 19 Aug 2011

QEP Resources Inc. 16 QEP.N Buy N/A US$33.82 18 Aug 2011

Quicksilver Resources Inc. 4a, 6a, 16, 20 KWK.N Buy (CBE) N/A US$9.60 19 Aug 2011

Range Resources Corp. 2, 4a, 6a, 16 RRC.N Neutral N/A US$57.45 19 Aug 2011

Raytheon Co. 2, 4a, 6a, 6c, 7, 16, 22 RTN.N Neutral N/A US$39.87 19 Aug 2011

Rockwell Collins Inc. 4a, 5, 6a, 6b, 6c, 7, 8,

16, 18f

COL.N Buy N/A US$45.25 19 Aug 2011

SandRidge Energy Inc 2, 4a, 6a, 16 SD.N Neutral N/A US$6.72 19 Aug 2011

Seattle Genetics, Inc. 16, 20 SGEN.O Neutral (CBE) N/A US$13.95 18 Aug 2011

Shaw Group Inc 4a, 6a, 6c, 7, 16, 20 SHAW.N Buy (CBE) N/A US$21.19 18 Aug 2011

Southwestern Energy Company 4a, 6a,

16

SWN.N Neutral N/A US$36.21 19 Aug 2011

Spirit AeroSystems Holdings 16 SPR.N Buy N/A US$14.63 19 Aug 2011

Teradyne Inc. 5, 16 TER.N Neutral N/A US$10.90 19 Aug 2011

Textron Inc. 6c, 7, 13, 16, 18g, 22 TXT.N Buy N/A US$15.21 19 Aug 2011

Time Warner Inc. 2, 4a, 5, 6a, 6b, 6c, 7, 15, 16,

18h

TWX.N Neutral N/A US$27.90 19 Aug 2011

Tokyo Electron 16 8035.T Buy N/A ¥3,400 19 Aug 2011

TransDigm Group Inc. 2, 4a, 6a, 6c, 7, 16 TDG.N Buy N/A US$84.78 19 Aug 2011

Triumph Group Inc 4a, 6a, 16 TGI.N Buy N/A US$45.65 19 Aug 2011

Tutor Perini Corp. 5, 16 TPC.N Buy N/A US$13.09 18 Aug 2011

Ultra Petroleum Corp. 16, 20 UPL.N Neutral (CBE) N/A US$34.81 18 Aug 2011

United Technologies Corp. 4a, 8, 16, 18i UTX.N Buy N/A US$67.45 19 Aug 2011

URS Corporation 4a, 6a, 16 URS.N Neutral N/A US$31.75 18 Aug 2011

Varian Semiconductor EquipmentAssoc. 16

VSEA.O Neutral N/A US$60.25 19 Aug 2011

Viacom Inc. 2, 4a, 6a, 6c, 7, 16 VIAb.N Buy N/A US$40.87 19 Aug 2011

Willbros Group, Inc. 4a, 5, 6a, 16 WG.N Neutral N/A US$5.44 18 Aug 2011

Source: UBS. All prices as of local market close.Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stockpricing date

1. UBS Securities LLC is acting as manager/co-manager, underwriter, placement or sales agent in regard to an offering of securitiesof this company/entity or one of its affiliates.

2. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of thiscompany/entity or one of its affiliates within the past 12 months.

3. UBS Ltd is acting as financial advisor to Royal Dutch Shell plc and ExxonMobil Corporation on the sale of certain underground


UBS 15

gas storage facilities in Germany to GDF Suez4a. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from

this company/entity.4b. Within the past 12 months, UBS Securities Canada Inc or an affiliate has received compensation for investment banking services

from this company/entity.5. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this

company/entity within the next three months.6a. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services

are being, or have been, provided.6b. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-investment banking

securities-related services are being, or have been, provided.6c. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-securities services are

being, or have been, provided.7. Within the past 12 months, UBS Securities LLC has received compensation for products and services other than investment

banking services from this company/entity.8. The equity analyst covering this company, a member of his or her team, or one of their household members has a long common

stock position in this company.13. UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of this company`s common equity securities as of

last month`s end (or the prior month`s end if this report is dated less than 10 days after the most recent month`s end).15. UBS AG, its affiliates or subsidiaries has issued a warrant the value of which is based on one or more of the financial instruments

of this company.16. UBS Securities LLC makes a market in the securities and/or ADRs of this company.

18a. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in BoeingCo.

18b. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in ExxonMobil Corp.

18c. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position inHoneywell International.

18d. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in MEMCElectronic Materials.

18e. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position inOccidental Petroleum Corp.

18f. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position inRockwell Collins Inc.

18g. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in TextronInc.

18h. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in TimeWarner Inc.

18i. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in UnitedTechnologies Corp.

19. Because UBS believes this security presents lower-than-normal risk, its rating is deemed Buy if the FSR exceeds the MRA by 5%and Sell if the FSR is more than 5% below the MRA (compared with 6% and 6%, respectively, under the normal rating system).

20. Because UBS believes this security presents significantly higher-than-normal risk, its rating is deemed Buy if the FSR exceeds theMRA by 10% (compared with 6% under the normal rating system).

22. UBS AG, its affiliates or subsidiaries held other significant financial interests in this company/entity as of last month`s end (or theprior month`s end if this report is dated less than 10 working days after the most recent month`s end).

24. UBS AG, its affiliates or subsidiaries beneficially held more than 5% of the total issued share capital of this company; or for UKand Irish companies, a line of stock of this company; as of the date shown in this disclosure table.

Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report.

ANALYST CERTIFICATION

Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to eachsecurity or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views aboutthose securities or issuers and were prepared in an independent manner, including with respect to UBS, and (2) no part of his or hercompensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analystin the research report.

For a complete set of disclosure statements associated with the companies discussed in this report, including information on valuation and risk,


UBS 16

please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention: Publishing Administration.

Additional Prices: Dice Holdings Inc, US$8.55 (19 Aug 2011); Discovery Holdings Ltd, RCnt3,684 (19 Aug 2011); Gannett Co., US$10.05(19 Aug 2011); Monster Worldwide Inc., US$7.27 (19 Aug 2011); New York Times Co., US$6.63 (19 Aug 2011); Omnicom Group Inc.,US$37.05 (19 Aug 2011); Scripps Networks Interactive Inc, US$38.84 (19 Aug 2011); Walt Disney Co., US$31.87 (19 Aug 2011); Source:UBS. All prices as of local market close.

Additional Prices: BP, 390p (19 Aug 2011); Source: UBS. All prices as of local market close.


UBS 17

Global Disclaimer

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UBS 18

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