Thursday, February 13, 2014 Americas / United States Equity Research Global Product Marketing
FIRST EDITION – U.S. ALERT
Economics Research Select Upcoming Events US N. Soss (Pg. 3) Economic Calendar: CBO Budget Update: Borrowing to Pay the Interest Feb 13 Estimate / Target Price Changes . Initial Jobless Claims (wk ended Feb 8) (CS Est 325K; Mkt Est 330K; Prior Cisco Systems Inc. (CSCO, UNDERPERFORM) K. Garcha (Pg. 3) 331K) - 8:30AM From revenue weakness to margin concerns; Revising Estimates . Retail Sales (Jan) (CS Est -0.1%; Mkt Priceline.com (PCLN, OUTPERFORM) D. Prissman (Pg. 4) Est 0.0%; Prior 0.2%) - 8:30AM Ideas Engine Series: Shifting the Share Dialogue; Raising Estimates and Target Price to $1450 (from $1275) . Ex. Autos (Jan) (CS Est 0.0%; Mkt Est Mondelez (MDLZ, NEUTRAL) R. Moskow (Pg. 4) 0.2%; Prior 0.7%) - 8:30AM 11% Operating Growth Target For 2014? Be Careful What You Ask For; Lowering Estimates and Target Price to $35 (from $37) . Ex. Auto and Gas (Jan) (CS Est 0.2%; Mkt Est 0.1%; Prior 0.6%) - 8:30AM McKesson Corporation (MCK, OUTPERFORM) G. Santangelo (Pg. 4) . Control Group (Jan) (CS Est 0.4%; Raising Estimates to Incorporate Celesio - N-T Questions Have Created Opportunity Mkt Est 0.2%; Prior 0.7%) - 8:30AM Deere & Co. (DE, OUTPERFORM) J. Cook (Pg. 5) . Business Inventories (Dec) (CS Est Bucking the Trend; Lowering Estimates 0.5%; Mkt Est 0.4%; Prior 0.4%) - Thomson Reuters Corporation (TRI.N, OUTPERFORM) C. Moore (Pg. 5) 10:00AM Self-Help Story Not Getting Any Outside Help; Lowering Estimates and Target Price to $41 (from $43) . UST 30-Year TIPS Announcement - 11:00AM Rogers Communications (NVS) (RCIb.TO, NEUTRAL) C. Moore (Pg. 6) . UST 30-Year Bond Auction - 1:00PM Q4.13: Year-End Loot Bag Slightly Less Full; Lowering Estimates and Target Price to C$49 (from C$50) Feb 14 Applied Materials Inc. (AMAT, NEUTRAL) J. Pitzer (Pg. 6) . Producer Price Index historical Another Solid Execution Quarter; Raising 2014 Estimates revisions released - 8:30AM Whole Foods Market (WFM, NEUTRAL) E. Kelly (Pg. 6) . Import Price Index (Jan) (CS Est NA; Another Miss and Guide Down as Slowdown Continues; Margin a Developing Risk; Lowering Estimates Mkt Est 0.0%; Prior 0.0%) - 8:30AM . Industrial Production (Jan) (CS Est NetApp (NTAP, NEUTRAL) K. Garcha (Pg. 7) 0.5%; Mkt Est 0.3%; Prior 0.3%) - Solid Margins but Revenue a Concern; Raising Estimates 9:15AM Dr Pepper Snapple Group, Inc (DPS, NEUTRAL) M. Steib (Pg. 7) . Univ of Michigan Consumer Sentiment Making The Most Out Of A Challenging Environment; Raising Estimates and Target Price to $54 (from $50) (Feb-p) (CS Est 81.5; Mkt Est 80.5; Tim Hortons, Inc. (THI.TO, UNDERPERFORM) D. Hartley (Pg. 7) Prior 81.2) - 9:55AM
Growth May Be Driven Less by Core Business in Near Future; Lowering 2013 Estimates Valspar (VAL, NEUTRAL) J. McNulty (Pg. 8) F1Q EPS Beats; 2H14 Set Up Looking Interesting; Revising Estimates and Raising Target Price to $79 (from $78) SPX (SPW, NEUTRAL) J. Mitchell (Pg. 8) Upside potential to margins in FY14; Thermal looks largely de-risked; Revising Estimates and Raising Target Price to $109 (from $105) SunPower Corp. (SPWR, NEUTRAL) P. Jobin (Pg. 9) Solid Execution in Q4; 2014 A Transition Year but Guidance In-Line with Prior Comments; Raising Estimates World Fuel Svc (INT, OUTPERFORM) G. Lewis (Pg. 9) Land Segment Driving Earnings Beat; Lowering Estimates and Raising Target Price to $48 (from $45) Charles River Laboratories International Inc. (CRL, NEUTRAL) J. Bailin (Pg. 9) Adjusting Model Post F4Q13 Results; Raising 2015 Estimates and Target Price to $60 (from $52) Taylor Morrison (TMHC, OUTPERFORM) D. Oppenheim (Pg. 10) Backlog Conversion and Margin Persistence Pushing 2014 EPS Higher Brookfield Residential Properties (BRP, OUTPERFORM) D. Oppenheim (Pg. 10) Demand for Land Remains Strong, Revising Estimates The Cheesecake Factory (CAKE, OUTPERFORM) K. Holthouse (Pg. 10) Bakery as Much a Headwind as Weather; Raising 2016 Estimates Caesarstone Sdot-Yam Ltd. (CSTE, OUTPERFORM) M. Dahl (Pg. 11) Can't Keep a Winning Product Down; Raising Target Price to $58 (from $53) EVERTEC, INC (EVTC, OUTPERFORM) G. Mihalos (Pg. 11) Revenue Ramp Pushed Out, Already Priced In; Lowering Estimates B&G Foods Inc - Class A (BGS, NEUTRAL) R. Moskow (Pg. 11) FY14 Guidance Disappoints; Lowering Estimates and Target Price to $31 (from $35), Remain Neutral
DISCLOSURE APPENDIXES (LINKED AND/OR AT THE BACK OF THIS REPORT) CONTAIN IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-U.S ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access
1 Thursday, February 13, 2014 Itron (ITRI, NEUTRAL) P. Jobin (Pg. 12) 2014 Guidance Disappoints; All is Not Well in Electric, Margin Pressures A Nagging Issue; Lowering Estimates and Target Price to $38 (from $45) TAL International Group (TAL, OUTPERFORM) G. Lewis (Pg. 12) Guidance Heading Lower, But Dividend Higher; Lowering Estimates and Target Price to $50 (from $55) Midcoast Energy Partners, L.P. (MEP, OUTPERFORM) J. Edwards (Pg. 12) First Dropdown Announced, Cutting Estimates on Base Business Decline LivePerson (LPSN, UNDERPERFORM) M. Nemeroff (Pg. 13) 4Q13 In-Line; Small Biz Churn Slowing Growth; Lowering 2014 Estimates Acadian Timber Corp. (ADN.TO, UNDERPERFORM) A. M. Kuske (Pg. 13) Inline quarter, looking for growth; Raising 2015 Estimates Vical Inc. (VICL, NEUTRAL) L. Kalowski (Pg. 13) Updating Model Post Q4; Raising Estimates and Target Price to $1.50 (from $1.25) Company Updates MetLife, Inc. (MET, OUTPERFORM) T. Gallagher (Pg. 14) Investment Spreads, International Offset Some Lingering Softness in Group Benefits Humana Inc. (HUM, NEUTRAL) R. Giacobbe (Pg. 14) Mgmt Meeting Takeaways Talisman Energy Inc. (TLM.N, OUTPERFORM) J. Frew (Pg. 14) First Read: Q4 CFPS + '14 Capex In Line Kinross Gold Corp. (KGC.N, OUTPERFORM) A. Soni (Pg. 15) First read: Q4 miss but 2014 better costs & reserve grade Agnico Eagle Mines Limited (AEM.N, OUTPERFORM) A. Soni (Pg. 15) First read: Q4 beat, 2014-2016 in-line, 2P grades improve URS Corporation (URS, NEUTRAL) J. Cook (Pg. 15) URS Lowers Guidance Africa Oil Corp (AOI.V, OUTPERFORM) D. Phung (Pg. 16) Etuko Confirmed; Additional Upside Possible Luxoft Holding, Inc. (LXFT, NEUTRAL) G. Mihalos (Pg. 16) F3Q14 First Look - Eye Popping Growth Intrepid Potash Inc. (IPI, UNDERPERFORM) C. Parkinson (Pg. 16) 4Q Miss a Negative; Headwinds Still Present Industry Updates Financial Services C. Suisse Global Product Marketing (Pg. 17) 2014 Credit Suisse Financial Services Forum - Key Takeaways - Day 2 Energy C. Suisse Global Product Marketing (Pg. 17) 2014 Credit Suisse Energy Conference - Key Takeaways - Day 2 Semiconductor Devices J. Pitzer (Pg. 18) Taiwan Monthly Sales - January Sales Below Seasonal, C1Q14 Tracking In-line with Expectations
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
2 Thursday, February 13, 2014
ECONOMICS RESEARCH
US N. Soss CBO Budget Update: Borrowing to Pay the Interest . Under current tax and spending laws, the CBO projects the federal budget deficit will shrink over the next few years, reaching a low of $478bn (2.6% of GDP) in fiscal year 2015. . However, several forces are expected to increase deficits later this decade. If current laws do not change, the CBO puts the deficit up to 4% of GDP in ten years. And the overall debt in the hands of the public, under the same current-law assumptions, will equal 79% of GDP in 2024 and be on an upward path. . The factors behind this uncomfortable scenario include an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and importantly growing interest payments on federal debt. We discussed this in our February 6, 2013 "US Economics Digest: CBO Budget Update: Uncomfortable Debt Dynamics." This research note updates our work from last year with the newest CBO projections. . The dramatic decline in interest rates since 2007 has restrained the budgetary cost of servicing the government's debts. The problem going forward is that once interest rates reach an irreducible minimum and stop falling, the incremental beneficial effect disappears. The situation gets more extreme if market interest rates rise. If the CBO interest rate assumptions came to pass, net interest payments would equal 82% of a projected $1.1 trillion budget deficit in 2024. . We do not expect the Federal Reserve to announce a policy of pegging interest rates for the benefit of the budget. But it did so during the wartime period of the 1940s, illustrating that independent central banks are a luxury of normal times, to be compromised in extreme circumstances.
ESTIMATE / TARGET PRICE CHANGES
Cisco Systems Inc. (CSCO) UNDERPERFORM K. Garcha CP: US$ 22.85 TP: US$ 20 CAP: US$ 122170.2m 212 325 4795 From revenue weakness to margin concerns; Revising Estimates . F2Q14 results - sales down 8% y/y, slightly better than feared. Results were largely in-line with expectations although we are somewhat concerned with the trend in product gross margins (lowest levels seen in 10-plus years). While we acknowledge that some of Cisco's revenue weakness is simply macro-related, the magnitude of the weakness and a continuing transition in the product portfolio leaves some cause for concern. We see secular issues such as SDN likely persisting. We slightly adjust our FY14/FY15 EPS to $1.98/$1.99 from $2.00/$1.98, respectively and maintain our TP of $20. . Sales weakness to continue; GMs to remain under pressure. Cisco expects sales weakness to continue into the next quarter implying group revenues will be down a further 7% y/y (at midpoint) driven by continued weakness in EMs and a difficult macroeconomic environment. Cisco reported product GMs of 58.8% for F2Q14 - the lowest level seen in over 10 years. The company noted that this weakness was driven by a number of factors including (1) weak volumes and as a result fewer benefits of scale; (2) pricing (discounts); and (3) a weaker mix than usual. While we acknowledge these factors, we are concerned that going forward there may be a structural decline given competition/SDN impact on product gross margins. Given these pressures, we expect a revenue decline of 3.4% in FY14 and 2.7% growth FY15 with GMs of 61.8%/61.5%, respectively. . SDN to threaten the most profitable part of the stack. We continue to maintain our secular concerns on the impact of SDN, which will introduce more competition at multiple points in the network. While the impact will take time, the threat will be very real, shrinking gross profit dollars for the industry. Regardless of Cisco's ability to execute amidst this evolving landscape, we expect margin pressure to remain and we forecast OMs of 26% LT. . Valuation. Our $20 target price implies a 10x multiple on our FY15 estimate which is reasonable in light of the secular concerns the company faces and the accelerating pace with which they will impact Cisco's fundamentals.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
3 Thursday, February 13, 2014
Priceline.com (PCLN) OUTPERFORM D. Prissman CP: US$ 1,246.64 TP: US$ 1,450 CAP: US$ 64111.7m 212 325 7959 Ideas Engine Series: Shifting the Share Dialogue; Raising Estimates and Target Price to $1450 (from $1275) . Propriety Study Suggests Material Runway: We reiterate our conviction in Outperform-rated Priceline as an open-ended growth story. Our proprietary work suggests significant runway remains, with share of fillable rooms from the 407k properties on the platform a modest ~7%, up from ~5% three years ago. . Underappreciated Due to Limited Visibility: Best-in-class execution and technology, and difficult-to-replicate scale have enabled PCLN to sustain a +45% EPS CAGR over the past four years; however, the Street has consistently underestimated the company's growth prospects. We believe concerns of market share saturation suggested by the wide use of third-party data to be a key driver. . We Establish a Better Measure of Share: Through use of proprietary tracking tools we establish a more precise measure of share. Namely, PCLN's share of addressable fillable room nights, i.e., the number of rooms-nights sold (a disclosed metric) divided by the total number of rooms available for sale (our proprietary metric). On this basis PCLN participated in a modest 7% of the ~4 billion room-nights sold in FY13 by its property partners. . Expanding the TAM and Strengthening the Competitive Moat: Our tracking further suggests a rapid emergence of alternative lodging inventory, which now comprises ~25% of PCLN's properties. PCLN appears to be filling in gaps within its EU geographical footprint where hotel supply is limited, a tactic we believe further differentiates the platform. . Raising Estimates and Price Target: We raise our FY14-19 gross profit CAGR by 200bps. As a result our DCF-derived price target, which assumes a 10.5% WACC and 3% terminal growth rate, increases to $1450 (from $1275), implying EV/EBITDA of 20x FY14E, in line with 20% long-term Adj. EBITDA CAGR. Our Adj. EBITDA estimates are 5% and 9% ahead of consensus for FY14 and FY15, respectively. We are raising our 2014/2015 EPS estimates to $58.21/$78.66 from $52.26/$58.71, respectively. . Please see our full report for more details.
Mondelez (MDLZ) NEUTRAL R. Moskow CP: US$ 33.21 TP: US$ 35 CAP: US$ 59611.9m 212 538 3095 11% Operating Growth Target For 2014? Be Careful What You Ask For; Lowering Estimates and Target Price to $35 (from $37) . Following MDLZ's rather messy 4Q results, we are lowering our target price to $35 from $37 to reflect an 18x P/E multiple against our 2015 estimate of $1.88 (down from $1.92). We are lowering our 2014 EPS estimate to $1.68 (down from $1.71), which represents the middle of management's EPS guidance for 2014 (including 7c FX headwind). We are lowering our 2015 EPS estimate to $1.88 from $1.92. . Say goodbye to investment-driven 5-7% top-line targets. Management signaled that they will shift to "category growth-plus" revenue targets going forward rather than a rigid target of 5-7%. We applaud this approach because it gives management more flexibility to adjust their marketing spending to the realities of the marketplace rather than blindly gearing up investments in markets just to achieve unreasonable and unprofitable growth targets. The inventory problems in China are a good example of the consequences of unprofitable revenue growth. . Say hello to big spending cuts. Perhaps in response to outside pressure from activist investments, the margin expansion plan now appears to include more aggressive overhead reductions, administrative cuts, and perhaps even more scrutiny to A&C (9% of sales). Our concern is that the 11% operating profit growth target seems overly aggressive in a year where the company isn't getting much operating leverage from revenue growth. Revenue is only expected to grow 4% with probably 1% of it coming from pricing that merely offsets transactional currency headwinds. Also, the operating income base for 2013 includes $75m in 4Q for gains on sales, which sets up a 2% headwind for next year.
McKesson Corporation (MCK) OUTPERFORM G. Santangelo CP: US$ 174.95 TP: US$ 200 CAP: US$ 40260.7m 212 538 5678 Raising Estimates to Incorporate Celesio - N-T Questions Have Created Opportunity . Bottom Line - Increasing Estimates for Celesio Contribution: Following MCK's successful acquisition of Haniel & Elliott Management's stake in Celesio, we have updated our model to reflect the consolidation of Celesio financials. Despite extremely strong underlying results in the recent quarter and the successful close of the Celesio deal, shares have flat-lined in the low-to-mid 170's. We acknowledge that there are many moving parts and uncertainty ahead of F15 guidance could be impacting sentiment. While commentary across the drug distributor's this earnings season has suggested moderating tailwinds from generic pricing in the coming quarters, we remain comfortable in the robust fundamental backdrop for MCK. Similarly we see numerous long-term drivers of upside from the Celesio acquisition. With visibility into healthy above- average earnings growth we continue to view MCK favorably and believe greater clarity on F15 guidance will pave the way for outperformance again this year. . Estimates & PT: We are increasing our F15 and F16 estimates to $10.51 and $12.09 from $9.72 and $10.86, respectively. Our new estimates incorporate our assumptions around the core Celesio business, financing for the deal, synergies, near- term capital deployment priority shifts, and the timing around acquiring the minority stake in Celesio. Our unchanged PT of $200 implies shares can trade at 17x our C15 estimate of $11.74 (assumes 100% ownership starting in C15).
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
4 Thursday, February 13, 2014
Deere & Co. (DE) OUTPERFORM J. Cook CP: US$ 86.90 TP: US$ 102 CAP: US$ 32271.8m 212 538 6098 Bucking the Trend; Lowering Estimates . Thoughts Post Call: DE's stock was down 0.6% as the company maintained its FY'14 guidance (net income of $3.3B), despite a ~$0.29 beat on the quarter. Q2 sales were guided down ~6% y/y with production expected lower given Tier 4 Final transitions (combines and higher HP tractors) which will negatively impact mix in the quarter. DE also took down its FY'14 A&T margin to 14% (from 15%), although indicated it was mostly on FX. The order book is strong for tractors with availability out into early Sept and early May for 8R and 9R tractors, respectively, while the early order program for combines was down double-digits, although in line with DE's expectations. The ag industry outlook remained unchanged. C&F sales were up a modest 4% with margins of 6.9%, however, FY guidance was maintained reflecting higher shipments (off low levels) and improving US/Int'l sales. C&F incrementals were impressive at 45% as DE is executing on its focus on cost. Overall, DE surprised again on the quarter and the waiting game for the NA peak continues. In the meantime, DE continues to manage effectively and has oppty's for margins to hold better with Tier 4 Final out of the way. We also think DE may begin to be more aggressive on buyback later this year, helping drive EPS further. We adj. our FY'14-16 EPS to $8.65, $8.45 and $8.70 from $8.66, $8.47 and $8.78, respectively. Our $102 TP implies 12x our CY'15 est. . FY'14 Guidance Unchanged: DE maintained its FY'14 guidance for NI of $3.3B (implies EPS of ~$8.80) on equipment sales down 3%. For 2Q'14, DE expects sales down ~6% y/y (+2% pricing, -3% impact from JD Land and -1% from currency) implying $9.65B. Ag sales guidance was maintained at down 6% (JD Land now -3 points vs. -4 points prev). Ag margins are expected at 14% (vs. prev 15%). Ag Industry sales were maintained across each region. C&F sales were maintained at up 10% y/y on margins of 9%.
Thomson Reuters Corporation (TRI.N) OUTPERFORM C. Moore CP: US$ 34.32 TP: US$ 41 CAP: US$ 28220.3m 416 352 4589 Self-Help Story Not Getting Any Outside Help; Lowering Estimates and Target Price to $41 (from $43) . What's new: TRI reported Q4.13 results and a 2014 outlook that was below expectations owing to weaker F&R and legal trends. . Earnings: Our 2014 EPS takes a large step-down, about half of which is related to incorporating $120 million (~0.15 p.s.) in restructuring charges that carry-over from 2013 announcements. The remainder reflects 1% lower revenues due in part to self-inflicted initiatives such as planned disposals, rolling-off low-margin recovery revenues, ongoing migration losses and tightening Latin America collections. Ongoing macro weakness and slightly weaker margin profile also contribute. The change to 2015 EPS is less severe, declining to $2.31 from $2.46. We are lowering our 2014 EPS estimates to $1.86 from $2.15. Accordingly, we lower our TP to $41 from $43. . View: Despite some signs of stability in developed markets, the environment remains challenging due in part to ongoing European bank restructuring and emerging markets. While the revenue backdrop for 2014 is a bit disappointing (against low expectations) we continue to see a playbook for self-recovery owing to: 1) Improved market position with x3000 desktops mostly converted to Eikon (reducing churn pressure) and an increasing focus on the buy-side; 2) Short-term revenue headwinds that should be less material in 2015; 3) Significant cost-cutting initiatives to lift margins in 2015 with more opportunity beyond as other platforms shut-down; 4) Shareholder friendly capital returns, with $300 million shares repurchased since October. . Catalysts: We anticipate gradual earnings/FCF growth to be the main drivers, although that is now more weighted to 2015, which is likely to keep the 'show me' investors waiting a bit longer. We anticipate the investor day in March to provide greater confidence in cost cutting potential.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
5 Thursday, February 13, 2014
Rogers Communications (NVS) (RCIb.TO) NEUTRAL C. Moore CP: C$ 43.28 TP: C$ 49 CAP: C$ 22289.2m 416 352 4589 Q4.13: Year-End Loot Bag Slightly Less Full; Lowering Estimates and Target Price to C$49 (from C$50) . What's New: Rogers results were slightly weaker across the board, including Q4.13 results, dividend increase (+5% vs. our 10%) and 2014 outlook (0 to +3% y/y EBITDA guidance vs. our 3.5% y/y with higher capex). More limited insight from the new CEO on any change in strategic direction, as he wisely surveys the landscape, may have also tempered enthusiasm. . View: While the 5% sell-off seems a bit overdone, we lowered our target to $49 from $50 to reflect slightly weaker wireless ARPU trends. At this time we remain Neutral, as reasonable valuation at 7% FCF yield is balanced with near-term wireless ARPU headwind trends from roaming and simplified plan re-pricing, as well as ongoing competitive pressures in cable. . Estimates: Our 2014E EBITDA declines by 1% y/y to 2.5% y/y to reflect slightly stronger wireless ARPU headwinds, while our 2014 EPS declines to C$3.40 (from C$3.65) as we also reflect higher depreciation. We are lowering our 2015 EPS estimates to . C$3.56 from C$3.75. Our FCF estimate of . ~$1.5 billion (-5% y/y) is $100 million lower than our initial forecast, as we model higher LTE related wireless capex and is mid-range of guidance. . Notables: 1) Wireless network revenues declined -2% y/y vs. our -1% y/y estimate as blended ARPU (-3% y/y) remained under pressure from reduction in U.S. roaming packages and simplified pricing plans. Strong cost control and lower activations helped offset revenues pressures driving 1% y/y of EBITDA growth. Wireless subscriber trends were in-line as improving churn offset lower gross additions; 2) Cable revenues increased 2% y/y in Q4.13 on flat pricing and 2% RGU growth (helped by Mountain acquisition). Cost savings contributed to EBITDA growth of 3% y/y although capex was elevated, in part due to higher equipment subsidies.
Applied Materials Inc. (AMAT) NEUTRAL J. Pitzer CP: US$ 17.91 TP: US$ 17 CAP: US$ 21584.8m 212 538 4610 Another Solid Execution Quarter; Raising 2014 Estimates . Bottom Line: AMAT reported JanQ rev/EPS above Street estimates and guided AprQ broadly in-line with Street Estimates. AMAT indicated C2H14 Silicon shipments roughly flat from C1H14, better than current Street/CS expectations of 16%/9% decline. More importantly, management stated no issues with S4 filing; we expect AMAT to file S1 within next few weeks. The only concern was DRAM orders down 50% q/q and only 5% of total, somewhat worse than peers. While we have high degree of confidence in management's ability to drive improvements on issues within their control (profitability and share), we continue to view their earnings power target of $2.05 ($2.40 w/ TEL) by 2017 as highly dependent on $37bn WFE which appears optimistic relative to our cautious view on consumer electronics. Even this year's intermediate step of a WFE TAM of $31-34 bb, up 10-20%, seems more a best case scenario with downside risk, than conservative with upside surprise. Specifically: (1) Foundry spending is moderating given commentary from peers and recent filings by TSMC (2) TSMC is already predicting high re-use rate from 20 nm planar to 16 nm FinFet - a key driver to 2H14 spending or lack thereof, (3) CY14 shipments estimates for SemiCap companies embed 20% y/y shipment growth, at high end of WFE indications of SemiCap Companies and (4) INTC CapEx (~15% of WFE) likely has a multi-year downward bias. We are raising our CY14 rev/EPS from $9.23bn (up 14.6% y/y)/$1.06 to $9.61bn (up 18.3% y/y)/$1.15 to higher expectations from 2H14. Street was at $9.32bn (up 15.5% y/y)/$1.14 prior to the call. Our TP of $17 represents 14x of CY14 EPS plus net cash.
Whole Foods Market (WFM) NEUTRAL E. Kelly CP: US$ 55.46 TP: US$ 55 CAP: US$ 20647.4m 212 325 3241 Another Miss and Guide Down as Slowdown Continues; Margin a Developing Risk; Lowering Estimates . Credit Suisse View: Whole Foods' recent struggles continued, as the company reported disappointing earnings and lowered guidance for the second consecutive quarter. Q1 EPS of $0.42 missed consensus of $0.44 and our estimate of $0.43. The shortfall was paced by somewhat disappointing comp growth (+5.4% vs. consensus of +5.7%), gross margin (+7 bps vs. consensus +15 bps), and corporate expense. Comps improved modestly so far in Q2, but the market seemed to be expecting a bigger acceleration. We continue to rate the stock Neutral. While one-time issues (weather, calendar) may be playing some role in recent results and the disappointments have not been too large, we also believe it's becoming clearer that the business is being pressured by some underlying consumer and competitive pressures. We are also concerned that management has once again introduced the possibility of more sustained price investments/gross margin pressure. The stock should be capped until visibility on better sales and earnings develops. . Our Estimates: We lowered our FY'14 EPS estimate to $1.60 from $1.68 and our FY'15 estimate to $1.85 from $1.96. We lowered our FY'16 EPS estimates to $2.15 from $2.31.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
6 Thursday, February 13, 2014
NetApp (NTAP) NEUTRAL K. Garcha CP: US$ 42.59 TP: US$ 45 CAP: US$ 14515.5m 212 325 4795 Solid Margins but Revenue a Concern; Raising Estimates . Retaining Neutral, $45 TP. NetApp reported F3Q14 results, with revenue of $1.61bn (-1.2% y/y), slightly weaker than estimates offset by better-than-expected gross (63.5%) and operating (19.5%) margins driving an EPS beat of $0.75. Of greater concern is F4Q14 revenue guidance which is expected to decline -2.7% y/y at the mid-point off a relatively easy comp and would mark the second consecutive quarter of y/y declines. We modestly adjust our EPS estimates FY14/FY15 to $2.79/$3.27 from $2.70/$3.25, respectively. While the storage industry remains cyclically depressed, competitive pressure in the mid-range of the market may curb NetApp's ability to achieve outsized revenue growth in a rebounding environment and as such we retain our Neutral rating. . Harvest season approaching. NetApp's focus in recent quarters has rapidly shifted to OpEx cuts and cash return over investing for growth. The strategy has certainly has had its merits as operating margins are up 240bps y/y and average share count has declined by 6% since the plan was announced following F4Q13 driving EPS growth of 13%. With decelerating branded revenue growth, the business appears more in "harvest" mode than "growth" mode despite NT momentum from the ONTAP 8.1.1/8.2 release. Further, NetApp's LT growth potential remains shrouded by uneven macro spend, as highlighted by EMC results and concerns over secular dynamics in storage given enterprise transitions to SSDs, commodity infrastructures, i.e., VMware VSAN, ground-up developed SSD entrants and cloud. . Margins seeing benefits of cost containment. Given NetApp's prudent focus on expense management and realignment activities as discussed above, we expect operating leverage as we forecast OMs of 18.5%/19.9% in FY14/FY15 despite the current macro environment. . Valuation. Our target price of $45 reflects a P/E of 10x on our FY15 EPS and credit for the ~$12 of net cash per share. While shares are inexpensive vs. history, given concerns over long-term positioning and the company's flash strategy we do not see material upside.
Dr Pepper Snapple Group, Inc (DPS) NEUTRAL M. Steib CP: US$ 49.99 TP: US$ 54 CAP: US$ 10030.1m 212 325 5157 Making The Most Out Of A Challenging Environment; Raising Estimates and Target Price to $54 (from $50) . DPS finished the year strongly as efficiency gains and a rational use of resources drove strong operating margin improvement, despite ongoing poor top line dynamics. Management set a credible topline outlook for 2014, reflecting challenging category dynamics in the US and Mexico. We raise our estimates (FY14 EPS to $3.42 from $3.37; FY15 EPS to $3.62 from $3.61) and target price to $54 from $50 to reflect a slightly better EPS outlook for next year. . DPS reported core EPS of $0.97, a solid beat versus consensus. This was driven by a significant decline in SG&A due to a decrease in marketing spend and general productivity improvements as a result of the RCI initiatives which are falling to the bottom line. The muted topline performance (with volumes down -4%) was generally expected given weak category growth in the U.S. For FY13, DPS delivered an impressive 10% EPS growth. . Focusing on improved Returns-On-Investment: marketing spend declined somewhat in 4Q as the company reduced spend in some areas that were not yielding the expected returns. For FY14, DPS expects marketing spend to be slightly below 2013 due to a shift to more digital media in order to optimize resource allocation and maximize ROI. . Limited exposure to emerging markets and related FX headwinds are a plus at the moment: Unlike KO and PEP, DPS faces very limited currency headwinds. As evidenced in the relative share price performance (DPS has outperformed KO by 9% and PEP by 5% year-to-date), investors seem comfortable with a model of low but predictable topline growth, and very efficient cost management.
Tim Hortons, Inc. (THI.TO) UNDERPERFORM D. Hartley CP: C$ 57.51 TP: C$ 49 CAP: C$ 8124.2m 416-352-4580 Growth May Be Driven Less by Core Business in Near Future; Lowering 2013 Estimates . Forecasting EPS of $0.77 (down from $0.79 previously), in line with consensus: Tims reports on Thursday February 20th, CC at 10am. We lowered Q4/13 SSSG in Canada to nil from 2% owing to ice storm impact before Christmas in Central Canada. We expect share buybacks (7.8mm shares, $480mm) to drive 7.8% of expected 9.5% EPS growth in Q4/13. We expect sales of $832mm, up 3% YoY. We forecast a 12% increase in quarterly dividend to $0.29/share. . Expecting Strategic Plan to be Unveiled: We expect few surprises, but more details on the ideas that CEO, Marc Caira, has shared in the recent months since his arrival. He has indicated that organic growth of the core business will remain restrained and that new store growth in Canada is expected to trail off over time. Mr. Caira suggests Tims will have a greater focus on driving ROA/ROIC, and leveraging the customer traffic. Recent announcement of TimsTV in-store advertising may be material to EPS. Potential to leverage distribution, roasting facilities may be opportunities. Working/capital arrangements with franchisees could be reviewed. . Investment Thesis Unchanged: Upside from leveraging balance sheet to buy back stock appears priced into the shares. We assign low probability of management agreeing to other activist initiatives previously raised in the market place (i.e. sale of distribution assets, closing of US business). Our fundamental thesis is unchanged: 1) short-term growth trends appear challenged; 2) long-term challenges in deploying capital at acceptable return; 3) management change uncertainty; & 4) stretched valuation. . Maintain Underperform rating. 2013 EPS falls by $0.02 to $2.91.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
7 Thursday, February 13, 2014
Valspar (VAL) NEUTRAL J. McNulty CP: US$ 75.03 TP: US$ 79 CAP: US$ 6564.1m 212 325 4385 F1Q EPS Beats; 2H14 Set Up Looking Interesting; Revising Estimates and Raising Target Price to $79 (from $78) . Earnings Debrief: VAL reported F1Q14 EPS of $0.70 vs. the Street at $0.66 and our estimate of $0.64 with the beat coming mostly from operations as Paints margins came in noticeably above our expectations. Overall, we are warming up on the name given solid performance in the quarter and a more broad end market pickup environment than in 2013 such as Australia (where Valspar should outperform the market growth of 2%) and signs of a potential recovery in GI such as off- road coatings. We are raising our 2014 EPS estimate to $4.10 (from $4.05) and factor in low double-digit sales growth in Coatings along with mid-to-high-single-digit sales growth in Paints. We expect margins to expand in Paints by ~60bps y/y as the Ace initiative should begin to see accretion in 2H14 although B&Q is expected to remain dilutive for the year and potentially into the first months of 2015. In addition, 2Q Paint earnings are likely to be pressured by incremental marketing spend to support the initiatives. In Coatings, we expect ~60bps of margin expansion y/y mostly led by restructuring and InverGroup on track to exit FY214 at a low double digit margin (from high single digits currently). We are lowering our 2015 EPS estimates to $4.85 from $4.88. . We raised our target price to $79 (from $78) which represents an ~11x multiple on our 2015 EBITDA estimate. Although risk/reward is currently balanced (especially after the run in the shares), broader end market strength, lower investment/marketing expenses in the outer quarters, and a mgmt. team focused on shareholder return (we expect the share count to decrease by ~4.4% this year) we believe the set up for 2H14 could look more positive. . Looking at the details we see: . Sales: VAL's top-line came in slightly better than expected, with sales growth of +9.2% vs. our +9% estimate. The Paint segment which includes US architectural coatings as well as China and Australian architectural coatings saw sales growth of 9.8% vs. our +9.5% estimate with the company highlighting strong volume growth in the US and China as well as improving volumes in Australia that has been weak for some time now. We note that the segment is benefitting from various initiatives such as the LOW lower price point contract win as well as the B&Q rollout in Europe, and the Ace rollout in the US. The Coatings segment (can/container coatings, industrial, etc.) saw sales growth of +10.2% vs. our +8.6% mostly driven by acquisitions (InverGroup) and growth in their wood product line. . Please see our full report for more details.
SPX (SPW) NEUTRAL J. Mitchell CP: US$ 101.94 TP: US$ 109 CAP: US$ 4623.4m 212 325 6668 Upside potential to margins in FY14; Thermal looks largely de-risked; Revising Estimates and Raising Target Price to $109 (from $105) . Following Q4 earnings, we raise our TP slightly on SPW to $109 (from $105), as our FY14 EPS estimates move up slightly. We think the newly issued 2014 guidance could prove conservative, particularly on the margins, and self-help from asset divestments is likely to persist through the year. . Sales outlook - Food & Beverage strong, Thermal bottoming: While Oil & Gas and the slope of the Power Transformer recovery remain contentious points, we feel re-assured about the Thermal demand outlook, given the 9% backlog growth exc-South Africa, reported yesterday. Electric utility capex is one of markets where investor sentiment is very weak, and we think this, couple with the backlog at Thermal, should mean the risk of further disappointment is reduced. After 9% / 10% sales declines for Thermal in 2012 / 2013, we forecast ~4% growth in the 2H14. In Flow, we had mentioned in our i-Spy earlier this week that Food & Beverage demand is a bright spot globally, as evidenced by ROK, GEA and Japanese cheddar cheese price negotiations; we est ~6% Flow F&B sales growth over 2014-15. . Margin upside: Our forecast of 80bps segment op margin improvement for FY14 is in-line with guidance. However, we note that this compares with 70bps margin improvement in FY13, when sales were down 2%; for FY14, we forecast 3% sales growth. A combination of operational leverage from increased volumes, and ongoing cost reduction (another $25m of restructuring in 2014 is underway) should mean that margin expansion outpaces what was seen last year. It is also encouraging that ClydeUnion has now worked through most of the more problematic projects within its order backlog, and could double-digit margins this year. . Valuation: We think the current FY14 EV/EBITDA multiple appropriately captures the strong outlook in Flow which offsets Thermal in our SOTP. We are raising our 2014 EPS estimates to $5.25 from $5.18 and lowering our 2015 EPS estimates to $6 from $6.52.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
8 Thursday, February 13, 2014
SunPower Corp. (SPWR) NEUTRAL [V] P. Jobin CP: US$ 31.62 TP: US$ 29 CAP: US$ 3838.5m 212 325 0843 Solid Execution in Q4; 2014 A Transition Year but Guidance In-Line with Prior Comments; Raising Estimates . Bottom line - retain Neutral and $29 PT: SunPower beat 4Q13 results and guided 2014 EPS in-line with prior comments. As expected, 2014 is a transition year for SunPower as rooftop sales and leasing grows while monetization of large projects may be pushed to 2015 for better economics and/or YieldCo potential. The official 2014 EPS guidance of $1.00-1.30 is in-line with consensus and prior management commentary of >$1. We continue to believe SunPower is well positioned for profitable growth in rooftop sales and leasing, despite the normalizing margins for new utility-scale projects in North America. We increase our 2014/2015 estimates to $1.21/$1.74 (from $1.19/$1.53) based on higher margins from rooftop sales partially offset by lower revenue. We retain our $29 price target. . Strong execution in Q4: EPS of $0.47 was above guidance of $0.15-0.35, CS at $0.31 and the Street at $0.28. SunPower's execution on two large solar projects, in addition to strong commercial sales in Japan and a project sale in Israel, enabled the 4Q13 beat. Management believes that the capacity expansion plans are slightly ahead of schedule, laying the foundation for growth in 2015. Revenues of $758.2m (up 22% q/q) were above guidance of $675-725mm, CS $724mm and consensus $708mm. GM was 20.4%, above guidance of 17-19% and CS at 18.1%. OpM was 9.6%, above CS at 7.9%. The sale of a project in Israel helped gross margins in EMEA increase 680bps q/q to 16.4% in 4Q13. A mix shift from residential to commercial sales in Japan led to lower GM in APAC by 620bps q/q to 16.2%. Residential margins in Japan would have been flat q/q. . Please see our full report for more details.
World Fuel Svc (INT) OUTPERFORM G. Lewis CP: US$ 44.09 TP: US$ 48 CAP: US$ 3291.1m 212 325 6418 Land Segment Driving Earnings Beat; Lowering Estimates and Raising Target Price to $48 (from $45) . Increasing Target Price to $48 (from $45). We are lowering our 2014/15 EPS estimates to $3.30/$3.80 (from $3.35/$3.86). Our 2014/15 estimates are 4%/4% above consensus estimates. Our $48 TP is 12.5x our 2015 EPS estimate. . Earnings Beat. INT reported Q4 EPS of $0.73 ahead of consensus of $0.68 (CS $0.70). The beat was driven by better than expected gross profit at $196M (CS $188M) +$0.10 which was offset by higher than expected costs of $125M (CS $120M) which was above guidance of $118-123M - a high class problem. The tax rate was 12% (guidance 16-19%) which added $0.03 - INT realized $6M (-$0.07) in bad debt expense which impacted the tax rate by 2%. EBIT was $65M (CS $67M) flat sequentially and up 10% Y-Y. . Creating Value Through the Cycle. ROC was ~11% (annualized) in-line with the TTM. Excluding bad debt expense ROC would have been ~12% in Q4. We estimate WACC at 10% which points to EVA of 1-2%. This compares to EVA of about 2- 3% generating from 2011-12 when ROC averaged 13-14% and WACC was closer to 11%. . Land Delivered Strong Quarter, But Polar Vortex Should Put Pressure on Margins. Land gross profit margins were 2.6% (up 50bps Q-Q) which produced Land gross profit of $21M - up $6M Q-Q. However, the polar vortex should push Land margins lower in Q1 (less driving in the Midwest). . Lac-Megantic. There was nothing incremental on the call - and we would expect any update to be communicated via a filing or press release.
Charles River Laboratories International NEUTRAL J. Bailin Inc. (CRL) CP: US$ 57.58 TP: US$ 60 CAP: US$ 2770.6m 212 325 6167 Adjusting Model Post F4Q13 Results; Raising 2015 Estimates and Target Price to $60 (from $52) . Bottom Line: Following CRL's 4Q13 earnings and initial 2014 guidance we have revisited our model and key operating assumptions. We have incorporated the guidance commentary, while adjusting for the improving preclinical trend/margin profile and initiatives on the research models side. Our F14 estimate of $3.04 is unchanged. We are adjusting our F15 estimate to $3.30 from $3.27 and introducing our F16 EPS estimate of $3.62. Our new PT of $60 (old PT:$52) implies that shares can trade at roughly 18x our F15 estimate of $3.30, ahead of historical averages given improving preclinical trends.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
9 Thursday, February 13, 2014
Taylor Morrison (TMHC) OUTPERFORM [V] D. Oppenheim CP: US$ 22.06 TP: US$ 27 CAP: US$ 2698.1m 415 1 2 12 325 5726 Backlog Conversion and Margin Persistence Pushing 2014 EPS Higher . Raising 2014 EPS on better closings; adjusting order growth to reflect environment: We are raising our 2014 EPS estimate to $2.10 from $2.00 to reflect the expected 4Q/14 tower closings (wholly owned and JV) driving a higher backlog conversion rate, while our lower order growth estimate is a partial offset. Our 2014 gross margin estimate is unchanged at 22.2%. . Deliveries higher as tower closings outweigh lower absorption: We are lowering our 2014 order estimate to +21% from +27%. This reflect a higher 2013 base after including better than expected 4Q/13 orders and a slightly lower 2014 absorption estimate (now (9)% yr/yr from (6)% or 2.46 homes / month from 2.49), which incorporates our view for a potentially challenging 1H/14 selling environment. Despite our lower order estimate, our 2014 delivery estimate moves to 6,345 units (+9% yr/yr) from 6,227, which primarily reflects the expected closing of three towers in Canada in 4Q/14 (two wholly-owned and one JV tower). . Still see first-half pushing 2014 gross margins over 2013: We are keeping our 2014 gross margin estimate unchanged at 22.2%, which is up 60 bps vs. 2013. This is based on our expectation for the US regions to post flat gross margins through 1H/14, before edging lower in 2H/14 as the current backlog rolls off and higher cost land comes through results. In Canada, we expect gross margins to step down in 1Q/14 due to the lack of tower closings before regaining some of that margin in 4Q/14 with the two wholly-owned tower closings. Our 2014 SG&A estimate moves slightly higher (to 9.6% from 9.5%), which reflects a higher starting base in 4Q/13.
Brookfield Residential Properties (BRP) OUTPERFORM D. Oppenheim CP: US$ 22.49 TP: US$ 27 CAP: US$ 2676.9m 415 1 2 12 325 5726 Demand for Land Remains Strong, Revising Estimates . Raising 2014 EPS, adjusting 2015 on margin mix: We are raising our 2014 EPS ests. to $1.60 from $1.55 on better revs., partially offset by lower gross margins (mix shift in land, as well as reduced pricing power and higher land costs in homebuilding). We are adjusting our 2015 EPS est. to $1.90 from $2.00 on lower gross margins (mix in land and homebuilding segments). . California drives higher land/lot sales; lower homebuilding absorption a partial offset: We est. 2014 revs of $1.7 bln (+25% yr/yr), with better land and lower homebuilding revs. (lower absorption) vs. our prev. ests. Land sales are aided by a ~$75 mln 1Q acre sale; however, we still est. higher core single-family lot sales ($393 mln vs. $311 mln prev.), based largely on stronger California lot sales vs. our prev. est. We also est. higher lot sales in Canada and Central/East. U.S., though our ests. are partially offset by a lower ASP (mix in Canada and California). We est. total 2014 consolidated lot sales of 3,261, in-line with guidance for 3,250 closings. For homebuilding, we est. consolidated closings of 2,281 vs. guidance for 2,375. . 2014 gross margins impacted by mix, better expansion in 2015: We est. 2014 gross margins of 27.3%, up from 26.9% though this is driven by higher-margin lot sales comprising a greater share of total revs. We are actually tweaking our land gross margins lower (43.2% from 46.4%), based on increased sales from the lower margin U.S. regions (relative to Canada). We est. 2014 homebuilding margins of 20.8% (from 21.2%) based on expected choppiness in the U.S. in 1H/14, similar to trends for other homebuilders. In 2015, we expect gross margin expansion across both segments, with land margins increasing to 43.4% and homebuilding margins increasing to 21.9%.
The Cheesecake Factory (CAKE) OUTPERFORM K. Holthouse CP: US$ 45.33 TP: US$ 56 CAP: US$ 2370.8m 212 325 0863 Bakery as Much a Headwind as Weather; Raising 2016 Estimates . Core Cheesecake Factory business stronger than ops miss suggests: Although CAKE consensus EBIT missed by $0.06/share, we est. a weather-driven comp miss only accounted for $0.02 of this. D&A, G&A, and pre-open (and some cost timing issues) were another $0.02, and we est. the bakery was a full $0.02 - consensus modeled flattish bakery revenues vs a reported decline of 37% (or $10mil). We are penalizing CAKE for a weather hit on 1Q comps as well; however, a better COGS outlook offsets this and our F14/F15 EPS est. remain $2.36/$2.76. F16 rises to $3.22 from $3.21. . Weather was a factor, but underlying trend is stable...: CAKE's comps disappointed, with weather driving them towards the low end of the guidance range. That said, the underlying traffic trend remains stable (see our full report), 3Q to 4Q seasonality in AWS was within the historical range, and, ex-weather, CAKE is not expecting a material acceleration or deceleration in sales in 1Q. We believe this is a reasonable base assumption. . ...and we believe CAKE will remain a secular outperformer: CAKE continues to benefit from strong real estate (e.g., higher end malls), a higher-income customer, a natural buffer of wait times, and more occasion versus convenience oriented dining. We believe this has driven steady outperformance versus Knapp (see our full report) and can continue. . Int'l remains strong: We estimate that int'l units in 4Q annualized to ~$0.016 in per unit profit, well ahead of guidance of $0.01. . Target price remains $56: Our DCF-supported $56 target price is based on a 20x multiple applied to our NTM, 12 months from now, EPS est. of $2.76.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
10 Thursday, February 13, 2014
Caesarstone Sdot-Yam Ltd. (CSTE) OUTPERFORM [V] M. Dahl CP: US$ 55.28 TP: US$ 58 CAP: US$ 1941.9m 212 325 5882 Can't Keep a Winning Product Down; Raising Target Price to $58 (from $53) . Maintaining our '14 ests. above guidance; raising target to $58: We are maintaining our 2014 EPS est. at $2.30, with our sales and EBITDA ests. essentially unchanged at $439 mln and $117 mln, respectively (from $440 mln and $118 mln previously). Our ests. are above mgmt's initial guidance of $410-420 mln of revenue and $104-109 mln of EBITDA, as we think extremely strong end demand will lead to a relatively quick ramp up on the new 5th production line. We are increasing our target price to $58 from $53. . Firmly on the path toward $3.25 EPS and $164 mln EBITDA in 2016: We are introducing 2015 and 2016 EPS ests. of $2.60 and $3.25, with EBITDA of $132 and $164 mln, respectively. We see quartz continuing to gain appeal with U.S. consumers given its durability, low maintenance, and attractive aesthetics, and see substantial scope for further penetration (quartz has just 7% of U.S. sales) across channels. We think the pace of capacity expansion will continue to be the primary earnings constraint. Our 2016 ests. assume 7 lines operating at ~90% utilization and slight further improvement in mix/productivity ($97 mln revs/line vs. $95 mln current). We think accelerating new capacity additions and/or returning excess FCF can drive additional upside, esp. given CSTE's significant net cash position. . Margin expansion tempered near-term by FX and raw materials: We continue to expect op. margins of 21.8% in '14 (+100 bps), with gross margins flat at 44.6% vs. 44.5% in '13 as FX and higher quartz costs largely offset better mix and fixed cost leverage. We see sufficient pricing power if costs are more severe than anticipated, though the current preference is to realize higher prices via product mix, not same-slab increases.
EVERTEC, INC (EVTC) OUTPERFORM [V] G. Mihalos CP: US$ 24.07 TP: US$ 29 CAP: US$ 1884.4m 212 325 1749 Revenue Ramp Pushed Out, Already Priced In; Lowering Estimates . 2014 Puts & Takes: EVTC reported mixed 4Q results, with adj. EPS and adj. EBITDA above CS/Street expectations but revenue growth of 2.6% below our 3.5% estimate and a deceleration from 3Q's 4.3%. 2014 guidance is roughly in-line with tempered Street expectations, but below the company's long-term revenue and adj. EBITDA targets reflecting pushed out new business and investments in new customer ramps. We expect a more normalized growth profile to return in 2015 (~7% organic growth and adj. EBITDA margin expansion in 100+ bps range). While guidance will not be a catalyst to the shares, we see little downside given a strong pipeline of new business and very undemanding valuation at just 14x our 2014E adj. EPS. . Core Growth Tracking In-Line: While overall revenue growth of 3% in 4Q is uninspiring, we note that core Payments related revenue (Merchant & Payment Processing) grew at a 7% clip, in-line with long-term targets. Volatile Business Solutions revenue declined reflecting tougher comps. EVTC's outlook assumes steady high-single-digit Payments growth in 2014, with the higher end of revenue guidance (5-7% range) assuming an acceleration in Merchant tied to the closing of new deals. EVTC highlighted a robust pipeline of new business opportunities outside of PR. Revenue outside of PR continues to grow at a low d-d pace (in line with 3Q), though admittedly slightly below our midteens expectations. . Trimming Estimates, Reiterate Outperform: Reflecting a slower revenue and margin ramp, we are trimming our 14/15 adj. EPS estimates to $1.65/$1.82 from $1.66/$1.86. Our TP remains $29 or 16x our 2015E adj. EPS. Our thesis on EVTC remains in-tactwe believe the shares trade at an unwarranted discount to slower growing U.S. bank processors and recommend investors capitalize on the investment opportunity.
B&G Foods Inc - Class A (BGS) NEUTRAL R. Moskow CP: US$ 30.69 TP: US$ 31 CAP: US$ 1626.5m 212 538 3095 FY14 Guidance Disappoints; Lowering Estimates and Target Price to $31 (from $35), Remain Neutral . B&G Foods reported adjusted 4Q EPS of $0.39 that missed consensus by 5c. Adjusted full-year EBITDA of $184M fell $7M short of mid-point guidance for the year. While sales growth was ahead of expectations, higher than planned expenses in both cost of goods and SG&A accounted for the most of the miss. Increased volume over the past year and a half has strained warehouse facilities, but management expects this pressure to ease as they increase capex this year to $20M (up $5M from original guidance) to relocate two facilities in 1H. . Management's EBITDA guidance was below expectations. Management guided to EBITDA growth of 10% (at the high-end) with a "couple points" coming from the base business. This implies an 8% incremental contribution from the snack platform, which is only slightly below our original expectations and still signals a healthy outlook. . Base business grew despite the promotional environment. We give management credit for stabilizing the base business in the quarter (+1%) despite the heavy promotions that amounted to a $2.8M drag in 4Q. While the success of promotions has been largely mixed, some brands have responded very well. For example, Ortega saw double-digit volume increases with net sales up nearly 9%. Management intends to use the learnings from Ortega and apply it to Cream of Wheat, which did not respond well. In addition, Tier 1 brands were up mid-single digits and foodservice grew high single digits despite PL pricing pressure. . Cutting estimates and lowering price target to $31 (from $35). We are lowering our FY14 and FY15 EPS estimates to $1.55 (from $1.70) and $1.71 (from $1.77), respectively. We are lowering our 12-month target price to $31 based on 12x our 2015 EBITDA estimate of $214M. This is a 14% premium to the food group average due to the successful roll-up strategy and the track record for dividend increases.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
11 Thursday, February 13, 2014
Itron (ITRI) NEUTRAL P. Jobin CP: US$ 41.43 TP: US$ 38 CAP: US$ 1621.9m 212 325 0843 2014 Guidance Disappoints; All is Not Well in Electric, Margin Pressures A Nagging Issue; Lowering Estimates and Target Price to $38 (from $45) . Bottom line - Q4 miss and weak guide: Itron reported a 5% miss, delivering a "clean" non-GAAP EPS of $0.72 (excl. $0.36 tax charge) in Q4 vs. cons of $0.76 but in-line with our estimate of $0.72 and in-line with prior comments of the low end of the prior guidance range of $2.25-$2.55 for the year. We lower our 2014/2015 estimates to $1.66/$2.34 (from $2.66/$3.54) to reflect the continued pressures. We retain our Neutral rating and lower our Target Price to $38 (from $45) reflecting 23x 2014 EPS. We are encouraged, however, by management's recent acknowledgement of the need to rethink the way they approach parts of their business. . 2014 guidance disappoints - electric and tax to blame: Itron issued weak 2014 guidance of a 3.8% decline in revenues and an EPS of $1.30-$1.80 (a 31% y/y decline vs. the "clean" 2013 EPS), 42% below our prior estimate of $2.66 and 47.5% below consensus' $2.95. While this is partly due to the loss of the ~$4m/yr R&D tax credit (~$0.10) and a $0.20 impact from the deferred tax asset charge, it is also a result of continued weakness and long-duration of projects in the electric business. The company expects the gas and water businesses to grow modestly (we forecast 4.5%) the electric business is likely to decline (we estimate ~11%). While some new awards have materialized, including Baltimore Water and New Hampshire, most opportunities are 2015+ drivers. Recall FirstEnergy selected Itron for a ~2m meter deployment in 2012 which still hasn't been announced - but wouldn't ramp until 2017 according to regulatory documents. ErDF in France is likely to make selections late this year (deployment in 2016) and UK utilities are considering Foundation plans given the push-out of the Endurance phase.
TAL International Group (TAL) OUTPERFORM G. Lewis CP: US$ 43.30 TP: US$ 50 CAP: US$ 1465.6m 212 325 6418 Guidance Heading Lower, But Dividend Higher; Lowering Estimates and Target Price to $50 (from $55) . Lowering Target Price to $50 (from $55). We are lowering our 2014/15 EPS estimates to $4.18/4.59 (from $4.65/5.01) based on guidance that 2014 pre-tax income will be below 2013 levels. We are 4%/2% below 2014/15 consensus. Our $50 TP is 11x our 2015 EPS estimate (7x Pretax Income). . Taking a Bite Out of Earnings. While TAL echoed a stronger than expected start to 2014 citing 1) strong utilization 2) strong box prices 3) improving per diem rates management expects lower disposal gains to push pre-tax income down in 2014 Y- Y - management has consistently pointed to a normalization of disposal gains over the last year. . Putting Its Money Where Its Mouth Is. TAL increased its dividend for the 10th straight quarter by $0.02 or 3% to $0.72. On an annualized basis this equates to a 7% yield (highest yield among the lessors). The dividend equates to a payout ratio of 45% of our 2014 pre-tax income estimate - ahead of 2013 at 42%. Management noted the increase puts TAL closer to its target of balancing returns and retaining cash for further growth. . Earnings Miss. TAL posted Q4 EPS of $0.99 below Consensus and our estimate of $1.01. The miss to our estimate was driven by higher than expected provisions for doubtful accounts of $1M (CS $0.1M). Leasing Revenue was $147M (CS $145M) up 2% Q-Q and 6% Y-Y. The top line beat was driven by a higher than expected per diem rate. EBITDA was $128M (CS $129M) and EBITDA margin was 82% (TTM 79%). Q4 utilization was 97% (CS 97%) and stood at 97.2% at year end.
Midcoast Energy Partners, L.P. (MEP) OUTPERFORM [V] J. Edwards CP: US$ 19.90 TP: US$ 24 CAP: US$ 918.2m 713 890 1594 First Dropdown Announced, Cutting Estimates on Base Business Decline . Guidance in-line with expectations despite earlier than expected drop: MEP announced that it plans to acquire a ~$300- $500 million interest in Midcoast Operating in mid-2014, slightly ahead of our prior model that forecasted a $300mm drop at the beginning of 4Q14. Despite the accelerated timing, guidance for $105-$125mm of EBITDA was only $2mm above our prior $115mm est at the midpoint. Assuming an 8-10x multiple, we expect that the dropdown should contribute ~$8-$16mm of quarterly EBITDA, which implies that the base business will be down ~$6-$14mm on the year. We cut our estimates after lowering our volume forecasts. . Miss due to basis compression and drop in dry gas drilling: 4Q reported EBITDA of $14.6mm was below our $23.1mm estimate while DCF of $10.1 was below our $16mm estimate. The drop was largely due to a decrease in natural gas hub pricing spreads and lower dry gas drilling activities. Volumes in the Anadarko, E. TX, and N. TX were down 5%, 8%, and 7%, vs. our forecasts and guidance points to further declines in the Anadarko in 2014. Some of this was weather related. . Holding $24 TP: We are maintaining our $24 target price. Our TP is derived from our 3-Stage DDM utilizing ~13.9% growth from years 1-5, 1.0% (down from 1.5%) growth from year 6-10, and 0.5% terminal growth at an 10.0% discount rate. Our DDM suggests a 5.50% yield based on our forward distribution estimates, implying ~23-34% total return over the next 12 months, which is supportive of our Outperform rating. . We are lowering our 2014-2017 EPU estimates to $0.43/$0.68/$0.98/$1.23 from $0.60/$0.79/$1.06/$1.29, respectively.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
12 Thursday, February 13, 2014
LivePerson (LPSN) UNDERPERFORM M. Nemeroff CP: US$ 13.20 TP: US$ 9 CAP: US$ 714.6m 212 325 2052 4Q13 In-Line; Small Biz Churn Slowing Growth; Lowering 2014 Estimates . Results. LPSN reported 4Q13 revenue of $46.9M (+10.4% yr/yr), above Street of $46.7M (+10.1%) and at the high-end of $46-47M guide, and EPS of $0.06 was in-line with Street of $0.06. 1Q14 revenue/EPS guide of $46.5-47.5M (+9.4-11.8%) / $0.04-0.06, at the midpoints were below Street of $47.4M (+11.5%) / $0.06, respectively. Initial 2014 revenue guide of $199-204M (+11.9% to +14.7% yr/yr), brackets Street of $201.7M (+13.5% yr/yr), but 2014 EPS guide $0.21-$0.25 was below Street of $0.26. . Analysis. As previewed, LPSN reported Q4 revenue (+10.4% yr/yr) ahead of Street (+10.1% yr/yr) and guidance (just +9.5% at the mdpt), due to solid B2B growth (+11% yr.yr). Q4 bookings growth of +15% yr/yr ($10M) decelerated from +26% in Q3, although it was over a tough +38% compare in 4Q12. 1Q14 revenue guide of +10.6% yr/yr (at the mdpt) was lower than Street expectations of +11.5%, but if achieved it would be the first quarter of sequentially accelerating revenue growth following four consecutive quarters of deceleration. 2014 revenue guide of +13.3% yr/yr at the midpoint is slightly below Street expectations of +13.5% and somewhat uninspiring, in our view, especially over a relatively easy +13.0% comp. We believe LPSN is laying the foundation for improved performance in 2014, but we still have concerns that the roll- out of the new LiveEngage platform to enterprise customers could be bumpy, and might not contribute meaningful revenue until 2H14, at the earliest. We believe that LPSN shares do not warrant an EV/Sales multiple higher than 2.5x (currently 3.2x) given 2014 revenue growth is expected to be <+15%, which compares to the 5.9x average for SaaS peers that are growing +24.0% yr/yr. . Estimates. Reducing 2014 rev/EPS to $202.0M/$0.22 from $202.4M/$0.26. . Target. Our $9 target price implies a 2014E EV/Sales multiple of 2.0x.
Acadian Timber Corp. (ADN.TO) UNDERPERFORM A. M. Kuske CP: C$ 12.95 TP: C$ 12 CAP: C$ 216.7m 416 352 4561 Inline quarter, looking for growth; Raising 2015 Estimates . Earnings review: Acadian reported Q4 2013 EPS of C$0.20/sh. If we adjust for several items, then EPS is roughly C$0.247 that was relatively inline with our C$0.24 EPS view and the Street's C$0.25 (C$0.24-C$0.26 range on two estimates). The company stated they are "optimistic that Acadian will be in a position to participate in attractive opportunities during 2014." In our view, this new strategy (announced with Q2'13 results) looks similar to some other Brookfield entities (namely BIP, BEPu and BPY). We look forward to ADN's strategic execution in future quarters. From our perspective, the successful execution of this growth strategy will dictate the future value of the stock. . Selected highlights: Notable points included: (a) the company stated price trends are strong or stable except for softwood pulpwood that "represents only a very small portion of Acadian's sales"; (b) ADN stated "[o]ur outlook for 2014 is positive"; (c) Q4 2013 EBITDA was C$6.1m versus C$5.2m in Q4 2012; (d) sales volumes for Q4 2013 increased to 369.7k m3 from 327.1k m3 in Q4 2012; (e) harvest levels increased at 377.8k m3 in Q4 2013 from 334.7k m3 in Q4 2012; (f) New Brunswick pricing was C$60.13/m3 for Q4 2013 vs. C$56.03/m3 in Q4 2012; and (g) Maine pricing was C$61.26/m3 in Q4 2013 vs. C$55.56 in Q4 2012. . Longer-term value: We believe Acadian is reasonably well positioned for a market recovery and, over the longer-term, with a broader mandate having the ability to invest in Brookfield related funds. At this time, the mandate is not transformational, however, the corporate direction clearly improved. . Valuation: Our Underperform rating and target price of C$12.00 is obtained from applying a 6.9% dividend yield on current dividend of C$0.825 per share. After the quarter we slightly increased our EPS for 2015 to C$0.84 from C$0.83.
Vical Inc. (VICL) NEUTRAL [V] L. Kalowski CP: US$ 1.50 TP: US$ 1.50 CAP: US$ 130.2m 212 325 9683 Updating Model Post Q4; Raising Estimates and Target Price to $1.50 (from $1.25) . VICL reported Q4 results. Following Q4 results, we are updating our model with new estimates for contract and license revenue as well as operating expenses. We have modestly raised our contract/license revenue and have lowered operating expenses. New 2014 guidance calls for cash burn of $13-16M (we go from $19M down to $13M in 2014)accordingly, our EPS estimates improve to 2020 and our DCF-derived target price goes from $1.25 to $1.50. We make no changes to our forecasts of ASP0113, for which VICL is partnered with Astellas. This is the main driver of the model. . Pipeline. The Phase I/II trial of VICL's therapeutic vaccine for HSV-2 is underway; Astellas is running a Phase III and a Phase II trial for ASP0113 (CMV vaccine) in stem cell transplant (HCT) and solid organ transplant (SOT) recipients, respectively. . Valuation. We continue to value VICL on a DCF basis, largely driven by ASP0113 royalties. We forecast approximately $300M in end-user net sales in 2025 (unchanged). . We are raising our 2014/2015/2016 EPS estimates to ($0.18)/($0.18)/($0.22) from ($0.30)/($0.28)/($0.29), respectively.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
13 Thursday, February 13, 2014 COMPANY UPDATES
MetLife, Inc. (MET) OUTPERFORM T. Gallagher CP: US$ 49.88 TP: US$ 59 CAP: US$ 55918.3m 212 538 2010 Investment Spreads, International Offset Some Lingering Softness in Group Benefits . MET reported operating earnings of $1.37, better than our $1.33 estimate and consensus of $1.30. However, after adding back 13c of unfavorable items (9c for the preannounced Asbestos charge and 4c for an additional litigation reserve) and backing out 9c of above plan variable investment income and 2c for below plan cats, favorable PYD, and a tax item in EMEA, we arrive at core earnings of $1.39. . Overall it was a solid quarter with strong mortality in the US and beats relative to our estimates in MET's international businesses, which came as somewhat of a relief after mixed international results from PRU and PFG. Group Voluntary and Worksite was a little softer than expected but we understand that weaker-than-expected results were mostly driven by higher dental claims and fewer offsets in disability (as opposed to higher claims incidence or severity), issues that haven't been a trend for Met and that we suspect will lessen, with earnings improving in the segment. . Looking ahead to 1Q, we still think our $1.41 estimate looks good as we expect higher earnings from Corporate Benefit Funding from higher spread income to offset our expectation for some near-term follow-through softness in annuities and Group Benefits, both likely subdued by quarter to date equity markets and adverse seasonal mortality.
Humana Inc. (HUM) NEUTRAL R. Giacobbe CP: US$ 95.59 TP: US$ 98 CAP: US$ 15137.3m 212 538 5691 Mgmt Meeting Takeaways . Bottom Line: We recently co-hosted an on-site visit with a number of senior executives at HUM. Discussion revolved around Medicare Advantage (MA) MLR and 2014 bids, comfort around new MA membership, the imminent 2015 preliminary MA rate proposal, and exchanges. Mgmt asserted confidence around its 2014 MA bids and significant new MA membership growth, noting that it sees nothing alarming at this point in relation to its 2014 new member cohort. While encouraging, we would note that it will take several months before HUM has a complete view of this population. We maintain our Neutral rating, as we await the preliminary MA rate proposal and look to gain greater visibility on MA and exchange margins. . MA MLR and Cost Trend: Unlike CI which cited higher acuity and severity as the underlying causes of its elevated MA MLR during 2H13, HUM emphasized that it has not seen these pressures manifest. Additionally, mgmt cited comfort with its 2014 MA bids, noting that it submitted bids early in the year when cost trends were running higher. Since submitting bids, cost trends improved in the back half of the year, creating the potential for some cushion in 2014 if cost trends continue at this lower level. . Comfort Around New MA Lives: Mgmt reiterated that despite capturing significant new MA lives (+16% y/y), there is nothing concerning at this point around the growth of this population. HUM noted that early indicators about utilization, including pharmacy cost data, suggest nothing unusual about these new members. Additionally, data analytics, new predictive modeling, and faster health risk assessments are enabling HUM to be more proactive vs. their approach in 2012 when new member cohorts exhibited higher utilization than expected. That being said, we note that it will take HUM several months to develop a complete view around these new members. . Please see our full report for more details.
Talisman Energy Inc. (TLM.N) OUTPERFORM J. Frew CP: US$ 10.85 TP: US$ 13 CAP: US$ 11237.2m 403 476 6022 First Read: Q4 CFPS + '14 Capex In Line . Q4 Results - CFPS in line: TLM reported Q413 CFPS of $0.56, ~3% lower than our estimate of $0.58 but in line with consensus of $0.56 based on a company survey of analysts. Quarterly production of 387 mboe/d was slightly lower than our estimate of 393 mboe/d and consensus of 389 mboe/d. Operating EPS of ($0.11) was lower than our estimate of ($0.03) and consensus of $0.01, and included a higher DD&A charge to reflect reserve revisions at certain UK fields. Headline EPS of ($0.98) was impacted by non-cash, non-recurring impairment charges impacting North American conventional dry gas properties and assets in the North Sea. . 2014 Guidance: TLM also provided a 2014 budget of $3.2 billion, flat y/y and largely in line with street expectations of approximately the same amount and our forecast for ~$3 billion. Post dispositions, the budget is expected to support production from continuing operations in the range of ~350-365 mboe/d, a 2-6% increase over 2013. The company also projected cash flow growth of ~5% to $2.3 billion, inclusive of a further G&A reduction target of 10%, following G&A reductions of 20% in 2013. . Disposition Update: TLM achieved $2.2 billion of asset sales in 2013 and Q114 (including recent sale of Monkman gas - 75 mmcf/d). Going forward the company is targeting an additional $2 billion over next 12-18 months of non-core, capital intensive and longer dated assets in effort to continue streamlining the portfolio. As a reminder, the company has a sale process going on for its Norwegian business unit and is seeking a partner for its Duvernay acreage, where six wells are planned for 2014, as the company continues to appraise its extensive land position (TLM will drill its first multi-well pad in the southern part of the play). Kurdistan (Topkhana) farm-down and sale of Marcellus midstream, among other options, are also being contemplated.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
14 Thursday, February 13, 2014
Kinross Gold Corp. (KGC.N) OUTPERFORM A. Soni CP: US$ 5.15 TP: US$ 6 CAP: US$ 5913.9m 1 416 352 4587 First read: Q4 miss but 2014 better costs & reserve grade . Kinross reported Q4/13 adj. EPS of ($0.02), below CS at $0.02 and Bloomberg consensus at $0.03. It was a messy quarter, the miss vs. CS est. was on higher adj. taxes (CS est.), G&A, exploration and interest vs. CS est. Production was in-line with and AISC below FY13 guidance (see our full report). . 2014 production guidance of 2.5-2.7M GEO in-line with CS est. of 2.58M GEO: Russia guidance was above CS est. (690- 730k GEO vs. 633k GEO CS est.) while the Americas (1.33-1.43M GEO vs. 1.41M GEO CS est.) and West Africa (480- 540k GEO vs. 539k GEO CS est.) were slightly below CS est. KGC has a strong four year track record of meeting production guidance and raised its original 2013 guidance from 2.4-2.6M GEO in 2013 to 2.6-2.65M GEO, finishing the year at 2.63M GEO. . AISC guidance of $950-$1,050/oz ~5% below CS est. of $1,050/oz: Considering all financial guidance provided by KGC, we roughly estimate our FCF est. for 2014 will increase ~$30M (see our full report). KGC's total cash cost guidance of $730-$780/oz is ~6% above CS est. of $714/oz due to higher than expected cost guidance for the Americas ($780-$840/oz vs. $742/oz CS est.) and Russia ($560-$590/oz vs. $545/oz CS est.). . Reserves decline ~25% (excl. FDN) as KGC's focus on margins continues with fully loaded costing driving reduction at Paracatu: Reserves declined to 39.7Moz at 2013YE from 59.6Moz at 2012YE (52.9Moz excl. FDN). Paracatu underwent a mine optimization as part of KGC's "way forward" program, the 7.6Moz reserve reduction is in the context of a 5% increase in grade to 0.42g/t from 0.40g/t, a still long 17 year mine life (from 29 years), a 60% reduction in LOM capex (better than the 40% mine life reduction), as well as lower LOM opex. Based on our preliminary modeling KGC's NAV increases under the new reserve plan.
Agnico Eagle Mines Limited (AEM.N) OUTPERFORM A. Soni CP: US$ 32.88 TP: US$ 35 CAP: US$ 5826.7m 1 416 352 4587 First read: Q4 beat, 2014-2016 in-line, 2P grades improve . AEM reports Q4/13 adj. EPS of $0.25, above Credit Suisse est. of $0.21/sh and Bloomberg consensus of $0.20: The beat was on higher production (322koz vs. 297koz CS est.), and lower costs ($623/oz vs. $685/oz CS est.). . 2014 and 2015 production guidance revised up as expected: AEM increased production guidance for 2014 to 1.19Moz, in- line with CS est. of 1.19Moz and above prior guidance of 1.10-1.14Moz. 2015 was raised to 1.25Moz, 1% below CS est. of 1.27Moz but above prior guidance of 1.2Moz. Production in 2016 is expected to exceed 1.275Moz, 3% below current CS est. of 1.32Moz, with CS expecting mine life at Lapa to continue beyond mid-2016. As expected, better than expected grades at Meadowbank are the primary driver of the guidance increase in 2014, while higher reserve grades contributed to the increase in 2015. . Total cash cost guidance for 2014 of $670-$690/oz better than $699/oz CS est. and prior AEM guidance of less than $700/oz. AISC guidance of $990/oz is in-line with CS est. of $995/oz (including stock based comp., prior CS est. of $965/oz excluded stock based comp in-line with AEM's 2013 reporting convention). Total cash costs in 2015-2016 are expected to be at slightly lower levels vs. 2014 and AEM is also targeting a reduction to AISC. . Reserves decline 10% YoY to 16.9Moz, grade up 11%: AEM calculated its gold reserves at a $1,200/oz gold price. Meadowbank and LaRonde grades increased by 16% and 10%, with a 24% and 8% reduction in ounces. . Dividend reduced to $0.08/quarter (from $0.22): AEM expects to save $80M/year with the reduction and it reflects management's decision to conserve cash for longer term deployment and growth of its asset base. . Impairment charges of $537M at Meadowbank and Meliadine.
URS Corporation (URS) NEUTRAL J. Cook CP: US$ 49.36 TP: US$ 56 CAP: US$ 3696.3m 212 538 6098 URS Lowers Guidance . Q4 Miss on O&G Project Delays: URS preannounced Q4 negatively tied to continued issues with Flint. FY13 revs are expected to be $11B (prev $11-$11.5B) vs the street at $11.15B. Q4 EPS is expected to be $0.13-$0.23 vs the street at $1.08. OCF for 2013 is forecast to be $600M and cash EPS of $4.16-$4.26 (prev $5.05-$5.20). Backlog is expected to be $11.3B, down 14.9% y/y and down 2.8% q/q. The miss is due to execution issues in O&G and project delays caused, in part, by lower than expected nat gas prices and pipeline capacity which impacted Q4 O&G op income by ~$40M. 2013 revs for O&G are expected at $2.2B, in line with expectations. URS will also see higher income tax of $15M due to O&G and int'l ops. FX adversely impacted $4M due to an increase in the US dollar vs the Canada dollar. Also, URS reduced the carrying value of two assets for a total of $15M. . FY14 Outlook Disappointing: URS expects revs of $10.8-$11.2B vs the street at $11.37B. EPS is forecasted to be $3.20- $3.50, or midpoint of $3.35, vs the street at $4.30. Cash EPS is expected to be $4.13-$4.43. Industrial, infrastructure and power markets look positive. In federal, y/y comps are difficult given Chem Demil, with revs expected to fall $355M and op income down $125M. Despite lower EPS, OCF is better at $725-$775M and URS is accelerating its plan to return cash to shareholders. URS now expects to spend $350M for stock repo and has approved up to 12M shares in 2014. . Management Reorganization: Bill Lingard, previously President and CEO of Flint, resigned as President and COO of URS as of 2/10/14. He was widely believed to be CEO Martin Koffel's successor. Also, Wayne Shaw, President of O&G will now report to George Nash, President of E&C.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
15 Thursday, February 13, 2014
Africa Oil Corp (AOI.V) OUTPERFORM [V] D. Phung CP: C$ 8.32 TP: C$ 13 CAP: C$ 2575.6m 403 476 6023 Etuko Confirmed; Additional Upside Possible . Etuko Discovery Confirmed; Additional Upside Possible: Etuko-1 on Block 10BB in Kenya tested at 550 boe/d over three zones in the Lokhone, confirming the discovery. An additional potential pay zones in the Auwerwer was identified and the drilling rig has been skidded to drill a 650 meter well to evaluate and test those shallower zones. Generally these shallower zones have exhibited more favorable reservoir properties in prior wells and we believe higher rates and upside could be possible upon testing. . Sanction Targeted for 2015/16: The partners are in discussions with the Government of Kenya to begin development studies, including a FEED study for an export pipeline. A final resolution on this pipeline could be a major milestone in project sanctioning, which is currently targeted for the 2015/16 timeframe. Expansions to these plans is possible should the company further discover meaningful amounts of oil in new basins. . Catalysts: Basin opening well Sala-1 (~$3.20 un-risked) is currently drilling and expected to be completed in April/14, with Emong (~$2.20 un-risked) having also recently spud and is expected to be completed in March/14. Testing is underway at Ekales (~$1.80 un-risked) and is expected to be completed by the end of March/14. . Recommendation: We maintain our Outperform rating and C$13 target price. We continue to recommend Africa Oil because of the company's large/concentrated land base in East Africa, its partnership with well-regarded exploration partner Tullow Oil, as well as its catalyst-rich drilling program that includes a number of new basin-opening exploration wells that could de-risk a large amount of resources.
Luxoft Holding, Inc. (LXFT) NEUTRAL [V] G. Mihalos CP: US$ 37.79 TP: US$ 36 CAP: US$ 1237.9m 212 325 1749 F3Q14 First Look - Eye Popping Growth . A Big Beat: LXFT reported F3Q14 results that handily exceeded our estimates across the board. Revenue of $110.2M was up 32% y-o-y, surpassing our 22% projection and accelerating from 1H14's already outsized 25% growth. Adj. EBITDA margin of 20.5% was in line with our estimate. Company-defined adj. EPS of $0.54 exceeded our estimate by $0.08. The outsized growth was contributed by LXFT's largest geographies and verticals (see our full report). The US and UK (~70% of revenue) posted accelerating revenue growth of 56%/34%, respectively. Financial services, LXFT's largest vertical, posted solid 44.3% growth (from 41% in F2Q) and now accounts for ~60% of total revenue. Automotive and transport made great strides in the quarter, posting over 100% y-o-y growth (11.7% of total). The company was able to lower attrition by 50 bps sequentially (230 bps y-o-y) to 10.4% while achieving greater efficiency metrics. Annualized revenue per delivery employee is now $73,000, a new record for the company. . FY14 Outlook Increased, Again: LXFT raised its FY14 outlook for the second time. The company now anticipates revenue growth of at least 26% ($396M+), up from 22% previously. YTD revenue growth has totaled ~27.7%. Adj. EBITDA margins are still expected to be between 17-19%, with adj. EPS of at least $1.70, up from $1.60. YTD adj. EBITDA margins are 19.4%. . Key Questions for the Call: 1) Percentage of Revenue from Top 2, Top 5 and Top 10 clients; 2) Commentary surrounding revenue deceleration in Germany and Canada (specific client performance?); 3) Color around Travel and aviation vertical and expectations for revenue acceleration in the near future; 4) Update on the rollout of platform-based solutions and thoughts on revenue potential; 5) New revenue guidance suggests a sequential decline in absolute revenue despite positive 4Q seasonality - what could drive this?
Intrepid Potash Inc. (IPI) UNDERPERFORM C. Parkinson CP: US$ 15.30 TP: US$ 11 CAP: US$ 1159.2m 212 538 6286 4Q Miss a Negative; Headwinds Still Present . 4Q13 Miss Expected, but Magnitude and Forward Guidance a Negative: IPI reported adjusted 4Q13 EPS of -$0.11 versus our expectation of $0.04 and consensus of $0.00. The miss to our number derived from lower-than-expected potash pricing (rep. $338/st vs. CS $345/st) and higher cash production costs (rep. $224/st vs. CS $205/st). IPI also initiated 2014 volume guidance of 850k to 890k, which includes 50k-100k of production from the HB Solar Solutions mine. Despite low expectations heading into the qtr, we still view results negatively as guidance implies higher cash production costs throughout '14, the opposite of which has been a pillar of the bull thesis. . Uncertainty Still Looms Over US Potash Pricing: While the market continues to expect incremental pricing improvements in the US potash market, we would note that (1) price increases (if accepted by buyers) will not materially benefit the industry in 1Q and (2) over the intermediate term US prices are likely to remain pressured as NA supply will likely outpace demand in '15-'17. Overall we continue to believe expectations remain too high for material improvements across the entire industry, warranting caution. . Execution Better, but Not Enough to Offset Industry Headwinds: We would highlight that IPI is in the process of completing two of its primary growth initiatives (HBSS mine and North Compaction), which sets the stage for s significant reduction in aggregate capital expenditures to $40mm to $50mm ( '14 guidance) versus ~$250mm in 2013. While these completions are certainly a positive, we believe ongoing industry pricing pressures will more than offset the benefits of incremental supply and lower average costs (particularly given high expectations being reflected in a lofty valuation).
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
16 Thursday, February 13, 2014 INDUSTRY UPDATES
Financial Services C. Suisse Global Product Marketing 2014 Credit Suisse Financial Services Forum - Key Takeaways - Day 2 212 538 4442 . Day 2 - Select Highlights . NSM reiterated 2014 guidance of $4.50-6.00, which has been a subject of much debate leading up to the conference. Normalized profitability was 6 bps (per $ of UPB) in the fourth quarter and should grow to 11 bps in 2014, which the company had guided to previously. This increase in profitability will be achieved by 3 bps of lower costs and 2 bps of higher Solutionstar revenues; these are new details. . STI noted that it will see a step-down in commercial swap income (receive fixed, pay floating) in 2015 from 2014 ($102M from $366M). . Regarding C, the CEO of Citi Cards presented and remains positive about its prospects in the Card business. After years of underinvestment, C is now focused on re-tooling and simplifying the North America business. The company is also seeing good growth from international markets and is refining their focus globally. . Management from BX commented on how it is building minority stakes in hedge funds (a la AMG) as building blocks to build long-only funds. Traditional fund of funds products are now contributing 70% of total HFS revenues, versus 90% 5 years ago. . WFC noted that growth remain diversified. Potential portfolio acquisitions will be less thematic and more opportunistic. On average, management noted that opportunities are slower than what was experienced last year. . Please see our full report for more details.
Energy C. Suisse Global Product Marketing 2014 Credit Suisse Energy Conference - Key Takeaways - Day 2 212 538 4442 . Day 2 - Select Highlights . . BHI commented on their Latin America exposure; Brazil is still BHI's largest geo-market in Latin America, while Mexico is in wait-and-see mode for 2014. BHI has nice exposure offshore in Mexico but limited onshore exposure. . APC commented on several potential catalysts on the horizon - several key exploration wells are underway, including high- impact wells at Nansen Deep as well as Coronado and Yucatan in the Shenandoah mini-basin. Management seemed optimistic on well location on Yucatan and expect to close $2.6 billion partial Mozambique monetization. . Investors have been nervous about CVX's growth prospects; 70% of production comes from legacy assets, which creates a solid base for the deepwater growth and eventually faster activity in the Permian shale/Duvernay Shale. North America has a clear ability to grow through end decade (and beyond) and generate strong cashflow. . PSX announced $8-10bn of incremental logistic capex; this is over and above the announced plans (additional fracs at Sweeney, product exports, condensate splitter). Management also thinks ethane markets are oversupplied and that neither LNG spiking nor ethane transport will be enough to offset. This sets up a strong outlook for chemicals profitability. . For GLF, investors have been concerned with drilling activity but management is bullish on N. Sea, noting that activity has never been stronger. . Please see our full report for more details.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
17 Thursday, February 13, 2014
Semiconductor Devices J. Pitzer Taiwan Monthly Sales - January Sales Below Seasonal, C1Q14 Tracking In-line with Expectations 212 538 4610 . Bottom Line. Taiwan January month sales decreased 19.4% m/m, well BELOW the normal seasonal pattern of -11.2% m/m decrease - however, we would note that (1) the 820bps of underperformance follows December/November month sales which were 340bps/790bps ABOVE normal seasonal, respectively and (2) the Chinese New Year took place in January this year vs. typically February (normal seasonal since 2002 when CNY falls in January is -13.7% m/m). In January, relative strength was seen in Handsets (-8.2% m/m reported vs. -11.9% m/m seasonal) and Foundry (+3.1% m/m reported vs. flat m/m seasonal), while relative weakness was seen in EMS (-35.6% m/m reported vs. -14.8% m/m seasonal) and IC Design (-7.5% m/m reported vs. +2.1% m/m seasonal) - the sequential weakness in EMS was entirely driven by a slowdown at Hon Hai Precision (-35.9% m/m reported vs. -13.3% m/m seasonal), but we would note that the steep sequential decline was largely in-line with expectations as (1) Hon Hai's December sales reached a record high and (2) the market largely anticipated their CE segment (iPhone/iPad) to experience a steep drop-off in January. In addition, Memory outperformed in January (it's 5th straight month of outperforming vs. seasonality) and is tracking well above seasonal in C1Q14 (+7.8% q/q expected vs. -5.3% q/q seasonal), consistent with our thesis of a secular growth cycle in Memory. Relative to individual stock picks within Semis, we continue to prefer (1) those levered to data growth as we continue to believe it is one of the most UNDERESTIMATED demand curves in Semis (MU and SNDK), as well as (2) the best product cycle plays (NXPI). . January Monthly Sales Below Seasonal. All of the 110 companies in our Taiwan database have reported January sales with total revenue down 19.4% m/m, 820 bps WORSE than the normal seasonal pattern for January of down 11.2% m/m. A below seasonal January follows December and November sales which outperformed the normal seasonal pattern by 340 bps / 790 bps, respectively. In January, 5 of the 12 sub-sectors we track outperformed the normal seasonal pattern (December was 10 out of 12), while 7 out of 12 underperformed (December was 2 out of 12). Relative to sub-sectors, Handsets (-8.2% m/m reported vs. -11.9% m/m seasonal), Foundry (+3.1% m/m reported vs. flat m/m seasonal) and Networking (-5.7% m/m reported vs. -8.6% m/m seasonal) were the greatest outperformers relative to normal m/m seasonality. Strength within Handsets was led by HTC Corp. (-22.2% m/m reported vs.-26.3% m/m seasonal) and Compal Communications (+29.1% m/m reported vs. -0.2% m/m reported), while Foundry was led by TSMC (+3.5% m/m reported vs. flat m/m seasonal) which saw some incremental orders ahead of Chinese New Year and a 2% boost from NT$ depreciation, although full quarter is only tracking slightly ahead. On the contrary, EMS (-35.6% m/m reported vs. -14.8% m/m seasonal) and IC Design (-7.5% m/m reported vs. +2.1% m/m seasonal) were the greatest underperformers relative to normal seasonality. The steep decline in EMS was largely driven by Hon Hai Precision (-35.9% m/m reported vs. -13.3% m/m seasonal), but would note that the steep sequential decline was largely in-line with expectations as (1) their December sales reached a record high and (2) their CE segment (iPhone/iPad) was expected to see a steep drop-off. . Please see our full report for more details.
All headline prices are as of the previous day's close unless otherwise noted.
Companies Mentioned (Price as of 12 Feb 14) Acadian Timber Corp. (ADN.TO, C$12.95, UNDERPERFORM, TP C$12) Africa Oil Corp (AOI.V, C$8.32, OUTPERFORM, TP C$13) Agnico Eagle Mines Limited (AEM.N, US$32.88, OUTPERFORM, TP US$35) Anadarko Petroleum Corp. (APC, US$81.69, OUTPERFORM, TP US$105.00) Applied Materials Inc. (AMAT, US$17.91, NEUTRAL, TP US$17) Astellas Pharma (4503, ¥6,226, OUTPERFORM, TP ¥6,900, MARKET WEIGHT) B&G Foods Inc - Class A (BGS, US$30.69, NEUTRAL, TP US$31) Baker Hughes Inc. (BHI, US$59.69, OUTPERFORM, TP US$65) Blackstone Group (BX, US$31.4, OUTPERFORM, TP US$36) Brookfield Infrastructure Partners LP (BIP.N, US$37.87, NEUTRAL, TP US$42) Brookfield Renewable Energy Partners (BEP_u.TO, C$30.89, OUTPERFORM, TP C$32) Brookfield Residential Properties (BRP, US$22.49, OUTPERFORM, TP US$27) Caesarstone Sdot-Yam Ltd. (CSTE, US$55.28, OUTPERFORM, TP US$58) Charles River Laboratories International Inc. (CRL, US$57.58, NEUTRAL, TP US$60) Chevron Corp. (CVX, US$112.03, OUTPERFORM, TP US$140.00) Cisco Systems Inc. (CSCO, US$22.85, UNDERPERFORM, TP US$20) Citigroup Inc. (C, US$49.96, OUTPERFORM, TP US$65) Deere & Co. (DE, US$86.9, OUTPERFORM, TP US$102.00) Dr Pepper Snapple Group, Inc (DPS, US$49.99, NEUTRAL, TP US$54) EMC Corp (EMC, US$25.09, OUTPERFORM, TP US$30) EVERTEC, INC (EVTC, US$24.07, OUTPERFORM, TP US$29) GulfMark Offshore (GLF, US$40.81, OUTPERFORM, TP US$60) HTC Corp (2498.TW, NT$129.00, UNDERPERFORM, TP NT$97) Hon Hai Precision (2317.TW, NT$82.7, OUTPERFORM, TP NT$108.00) Humana Inc. (HUM, US$95.59, NEUTRAL, TP US$98) Intel Corp. (INTC, US$24.55, OUTPERFORM, TP US$30) Intrepid Potash Inc. (IPI, US$15.3, UNDERPERFORM, TP US$11)
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
18 Thursday, February 13, 2014 Itron (ITRI, US$41.43, NEUTRAL, TP US$38) Kinross Gold Corp. (KGC.N, US$5.15, OUTPERFORM, TP US$6) LivePerson (LPSN, US$13.2, UNDERPERFORM, TP US$9) Luxoft Holding, Inc. (LXFT, US$37.79, NEUTRAL, TP US$36) McKesson Corporation (MCK, US$174.95, OUTPERFORM, TP US$200.00) MetLife, Inc. (MET, US$49.88, OUTPERFORM, TP US$59) Micron Technology Inc. (MU, US$24.89, OUTPERFORM, TP US$30) Midcoast Energy Partners, L.P. (MEP, US$19.9, OUTPERFORM, TP US$24) Mondelez (MDLZ, US$33.21, NEUTRAL, TP US$35) NXP Semiconductors N.V. (NXPI, US$52.63, OUTPERFORM, TP US$60) Nationstar Mortgage Holdings Inc. (NSM, US$30.11, OUTPERFORM, TP US$44) Nestle (NESN.VX, SFr67.1, RESTRICTED) NetApp (NTAP, US$42.59, NEUTRAL, TP US$45) PepsiCo, Inc. (PEP, US$81.49, NEUTRAL, TP US$87) Phillips 66 (PSX, US$73.64, NEUTRAL, TP US$85) Priceline.com (PCLN, US$1246.64, OUTPERFORM, TP US$1,450.00) Principal Financial Group (PFG, US$43.96, NEUTRAL, TP US$50) Prudential Financial, Inc. (PRU, US$84.34, OUTPERFORM, TP US$95) Rockwell Automation (ROK, US$115.56, NEUTRAL, TP US$116.00) Rogers Communications (NVS) (RCIb.TO, C$43.28, NEUTRAL, TP C$49) SPX (SPW, US$101.94, NEUTRAL, TP US$109.00) SanDisk Corp. (SNDK, US$72.09, OUTPERFORM, TP US$85) SunPower Corp. (SPWR, US$31.62, NEUTRAL, TP US$29) SunTrust Banks Inc. (STI, US$37.13, NEUTRAL, TP US$41) TAL International Group (TAL, US$43.3, OUTPERFORM, TP US$50) Talisman Energy Inc. (TLM.N, US$10.85, OUTPERFORM, TP US$13) Taylor Morrison (TMHC, US$22.06, OUTPERFORM, TP US$27) The Cheesecake Factory (CAKE, US$45.33, OUTPERFORM, TP US$56) The Coca-Cola Company (KO, US$38.51, OUTPERFORM, TP US$48) Thomson Reuters Corporation (TRI.N, US$34.32, OUTPERFORM, TP US$41) Tim Hortons, Inc. (THI.TO, C$57.51, UNDERPERFORM, TP C$49) URS Corporation (URS, US$49.36, NEUTRAL, TP US$56) Valspar (VAL, US$75.03, NEUTRAL, TP US$79) Vical Inc. (VICL, US$1.5, NEUTRAL, TP US$1.5) Wells Fargo & Company (WFC, US$45.99, NEUTRAL, TP US$50) Whole Foods Market (WFM, US$55.46, NEUTRAL, TP US$55) World Fuel Svc (INT, US$44.09, OUTPERFORM, TP US$48)
Disclosure Appendix Important Global Disclosures The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities. As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O): The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N): The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U): The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
19 Thursday, February 13, 2014 *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American, Japanese, and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10- 15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark. Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight: The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight: The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight: The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors. Credit Suisse’s distribution of stock ratings (and banking clients) is: Global Rating Distribution* Outperform/Buy* 43% (54% banking clients) Neutral/Hold* 40% (49% banking clients) Underperform/Sell* 15% (44% banking clients) Restricted 2% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors. Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
20 Thursday, February 13, 2014 Important Regional Disclosures Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS-- Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.’s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at anytime after that. Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan-based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. CS may have issued a Trade Alert regarding this security. Trade Alerts are short term trading opportunities identified by an analyst on the basis of market events and catalysts, while stock ratings reflect an analyst's investment recommendations based on expected total return over a 12-month period relative to the relevant coverage universe. Because Trade Alerts and stock ratings reflect different assumptions and analytical methods, Trade Alerts may differ directionally from the analyst's stock rating. The author(s) of this report maintains a CS Model Portfolio that he/she regularly adjusts. The security or securities discussed in this report may be a component of the CS Model Portfolio and subject to such adjustments (which, given the composition of the CS Model Portfolio as a whole, may differ from the recommendation in this report, as well as opportunities or strategies identified in Trade Alerts concerning the same security). The CS Model Portfolio and important disclosures about it are available at www.credit-suisse.com/ti. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. . Colin Moore, non-U.S. analyst, is a research analyst employed by Credit Suisse Securities (Canada), Inc. . David Hartley, non-U.S. analyst, is a research analyst employed by Credit Suisse Securities (Canada), Inc. . Andrew M. Kuske, non-U.S. analyst, is a research analyst employed by Credit Suisse Securities (Canada), Inc. . Jason Frew, non-U.S. analyst, is a research analyst employed by Credit Suisse Securities (Canada), Inc. . Anita Soni, non-U.S. analyst, is a research analyst employed by Credit Suisse Securities (Canada), Inc. . David Phung, non-U.S. analyst, is a research analyst employed by Credit Suisse Securities (Canada), Inc. Important Credit Suisse HOLT Disclosures With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report. The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default variables and incorporated into the algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. These adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur. Additional information about the Credit Suisse HOLT methodology is available on request. The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variables may also be adjusted to produce alternative warranted prices, any of which could occur. CFROI®, HOLT, HOLTfolio, HOLTSelect, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
21 Thursday, February 13, 2014 Additional information about the Credit Suisse HOLT methodology is available on request. Important MSCI Disclosures The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create any financial products, including any indices. This information is provided on an “as is” basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Credit Suisse. For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683. Disclaimers continue on next page.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
22 Thursday, February 13, 2014 Americas / United States Equity Research Global Product Marketing
References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who_we_are/en/. This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. CS may, to the extent permitted by law, participate or invest in financing transactions with the issuer(s) of the securities referred to in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. CS may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment. Additional information is, subject to duties of confidentiality, available on request. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, having registered address at 990 Abdulrahim Place, 27 Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited regulated by the Securities and Exchange Board of India (registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the “FAA”), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Copyright © 2014 CREDIT SUISSE AG and/or its affiliates. All rights reserved. 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. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.
To receive this product, please specify your Credit Suisse contact and email [email protected] or call (212) 538-4442
23