EQUITY RESEARCH MORNING RESEARCH SUMMARY January 4, 2018

What's Inside Focus Items Rating Change Black Knight Inc. (BKI) Glenn Greene, CFA ↑ BKI O Black Knight Inc. Upgrading to Outperform DPZ O ↑ Domino's Pizza, Inc. LECO O ↑ Lincoln Electric Holdings, Inc. Lincoln Electric Holdings, Inc. (LECO) Jim Giannakouros, CFA SONC P ↓ Sonic Corp. Riding Momentum; Upgrading to Outperform

Estimates & PT Revisions CONSUMER Brian Bittner, CFA Investing Recipe For 2018 BJRI P ↑ BJ's Restaurants Inc. CAKE P ↑ Cheesecake Factory Inc. Atlassian Corporation Plc (TEAM) Ittai Kidron CMG P ↓ Chipotle Mexican Grill 2018 Top Pick Series—Atlassian DRI O ↑ Darden Restaurants Inc. Vertex Pharmaceuticals (VRTX) Hartaj Singh JACK O ↑ Jack in the Box, Inc. TEZ/IVA Survey Validates Development Strategy MCD P ↑ McDonald's Corporation QSR O ↓ Restaurant Brands International INDUSTRIAL/CAPITAL GOODS Colin Rusch SBUX O ↑ Starbucks Corporation Key Indicators to Watch in 2018 TEAM O ↑ Atlassian Corporation Plc TXRH P ↑ Texas Roadhouse, Inc. Other Headlines VRTX O ↑ Vertex Pharmaceuticals Technical Analysis Ari Wald, CFA, CMT YUM O ↑ Yum! Brands Inc. Color for Fundamental Focus Calls: VRTX, QSR, WM, TEAM YUMC O ↑ YUM China Holdings Inc. Zynerba Pharmaceuticals, Inc. (ZYNE) Derek Archila Updates In An Unsurprising Move, ZYNE Chooses To Go Rare BWLD NR Buffalo Wild Wings, Inc. INTC P Intel Corp. Intel Corp. (INTC) Rick Schafer Intel Call Tackles Security Issue ITRI O Itron, Inc. TSLA P Tesla, Inc. TECHNOLOGY Rick Schafer ZYNE P Zynerba Pharmaceuticals, Inc. Daily Chip Clips

Estimates/Ratings/Price Target Updates Itron, Inc. (ITRI) Noah Kaye Annual Estimates ITRI Poised to Complete SSNI Merger; Early Look at FY18 Current FY Next FY Ratings Price Targets Tesla, Inc. (TSLA) Colin Rusch

Bulls and Bears Both Get What They Want Company Ticker Prev Curr Prev Curr Prev Curr Prev Curr

Atlassian TEAM 0.47 0.47 0.61 0.61 O O $50.00 $58.00 Corporation Plc

BJ's BJRI 1.37 1.38 1.46 1.82 P P NA NA Restaurants Inc.

Black Knight BKI 1.37 1.37 1.57 1.92 P O NA $55.00 Inc.

For analyst certification and important disclosures, see the Disclosure Appendix.

Oppenheimer & Co Inc. 85 Broad Street, New York, NY 10004 Tel: 212-667-7990 Morning Summary - January 4, 2018

Cheesecake CAKE 2.59 2.59 2.57 2.83 P P NA NA Factory Inc.

Chipotle CMG 6.70 6.48 8.97 9.89 P P NA NA Mexican Grill

Darden DRI 4.46 4.93 5.00 5.75 O O $100.00 $105.00 Restaurants Inc.

Domino's Pizza, DPZ 5.79 5.68 6.95 7.60 P O NA $220.00 Inc.

Jack in the Box, JACK 4.46 4.59 -- 5.63 O O $125.00 $125.00 Inc.

Lincoln Electric LECO 3.72 3.72 4.25 4.30 P O NA $105.00 Holdings, Inc.

McDonald's MCD 6.48 6.50 6.72 7.44 P P NA NA Corporation

Restaurant QSR 2.03 2.02 2.80 2.87 O O $75.00 $75.00 Brands International

Sonic Corp. SONC 1.32 1.49 1.49 1.68 O P $29.00 NA

Starbucks SBUX 2.31 2.44 2.62 2.86 O O $60.00 $62.00 Corporation

Texas TXRH 1.95 1.95 2.17 2.47 P P NA NA Roadhouse, Inc.

Vertex VRTX 1.79 1.79 2.88 3.53 O O $175.00 $190.00 Pharmaceuticals

Yum! Brands YUM 2.79 2.79 3.10 3.32 O O $85.00 $90.00 Inc.

YUM China YUMC 1.41 1.41 1.59 1.60 O O $45.00 $45.00 Holdings Inc.

2 Morning Summary -January 4, 2018

Snap Commentaries - Equities Updates Glenn Greene, CFA TECHNOLOGY 312-360-5942 Black Knight Inc. (BKI - $45.85) Financial Technology & IT Services

Rating / Prior Market Cap Price Target / Prior Earnings Type 2016A 2017E 2018E / Prior

O / P $7,036.8M $55.00 / NA EPS 1.15 1.37 1.92 / 1.57

Upgrading to Outperform

Due to implementation delays and refinance origination headwinds, BKI’s growth disappointed during 2017, and shares modestly underperformed the market. That said, shares appear the most compelling in some time, given the combination of significant tax reform accretion (see our 12/21/17 note), a significant signed backlog, and current valuation. We have long been attracted to BKI’s strong market position, and its Mortgage Servicing Platform (MSP) is a unique crown jewel type asset that drives most of the company's value, in our opinion (also helps facilitate up-sell opportunities). Following a number of large and high-profile client wins, BKI maintains a sizable implementation backlog (> $130M), which should provide strong growth visibility over the next few years. We upgrade to Outperform (from Perform) with a $55 price target.

Jim Giannakouros, CFA INDUSTRIAL/CAPITAL GOODS 212-667-7785 Lincoln Electric Holdings, Inc. (LECO - $92.39) Industrial Machinery & Flow Control

Rating / Prior Market Cap Price Target / Prior Earnings Type 2016A 2017E 2018E / Prior

O / P $6,075.2M $105.00 / NA EPS 3.29 3.72 4.30 / 4.25

Riding Momentum; Upgrading to Outperform

We have come to better appreciate LECO's potential for sustainable MSD core growth, effective price/cost management, and continued strategic execution in the coming year. We believe L/MSD volume growth (particularly as O&G and heavy fab markets stabilize/ameliorate), improved sentiment on its automation story, and abating price/cost headwinds as price actions take hold all set up LECO to outperform going forward. We view relative underperformance in 2H17 (-1% vs. XLI +11% and S&P +10%), driven by expectation resets in both 2Q and 3Q, as overdone, providing an attractive opportunity into 2018. We raise '18/'19E EPS to $4.30/4.75 (from $4.25/4.65), mostly on higher International profitability (tax reform provides upside), and introduce a DCF-derived $105 PT. Upgrade to Outperform (from Perform).

CONSUMER Brian Bittner, CFA 212-667-7127

Investing Recipe For 2018

In our annual outlook edition for 2018 we: 1) detail updated EPS estimates across our coverage for new tax analysis, adjusted operating assumptions and introduction of '19 numbers, 2) upgrade DPZ to Outperform (from Perform) and downgrade SONC to Perform (from Outperform), 3) pound-the-table on JACK & QSR, where updated analysis suggests unduly negative sentiment presents excellent risk/rewards, 4) provide stock-by-stock thoughts across our coverage, and 5) discuss several industry themes and our top-down analysis for '18. Happy New Year all!

3 Morning Summary -January 4, 2018

Ittai Kidron TECHNOLOGY 212-667-6292 Atlassian Corporation Plc (TEAM - $47.06) Analytics and Infrastructure

Rating Market Cap Price Target / Prior Earnings Type 2017A 2018E 2019E

O $10,828.7M $58.00 / $50.00 EPS 0.36 0.47 0.61

2018 Top Pick Series—Atlassian

We remain positive on Atlassian and view it as one of our top 2018 picks. Our bullish thesis reflects our belief that: (1) its salesforce-light, go-to- market approach remains a competitive advantage applicable to new expansion areas; (2) it has multiple growth drivers including new customer growth, use case/TAM expansion (JIRA Service Desk, JIRA Core, Trello), product advancement (Stride, StatusPage), and price leverage (annual increases); and (3) a predictable and strong financial model that's still in the early innings of customer expansion/penetration. We highlight Atlassian's steady performance (~$4.5M rev./~$0.02 EPS avg. upside over its last four quarters) and believe management's steady execution and the company's differentiated business could drive more upside in CY18 as newer products see adoption.

Hartaj Singh HEALTHCARE 212-667-7589 Vertex Pharmaceuticals (VRTX - $152.01) Biotechnology

Rating Market Cap Price Target / Prior Earnings Type 2016A 2017E 2018E / Prior

O $38,443.8M $190.00 / $175.00 EPS 0.85 1.79 3.53 / 2.88

TEZ/IVA Survey Validates Development Strategy

We surveyed 25 high-volume pulmonologists regarding their use of approved doublet Orkambi (lumacaftor/ivacaftor) in the homozygous F508del and heterozygous F508del/residual function cystic fibrosis (CF) patients. We also gauged their satisfaction with the risk/benefit profile of Orkambi and the potential for soon-to-be-approved (PDUFA 2/28) follow-on doublet tezacaftor/ivacaftor (TEZ/IVA). Our survey validates: (1) VRTX's stated strategy to grow the total CF patients currently receiving a corrector/potentiator like Orkambi by adding another doublet, (2) there is a bolus of patients already awaiting TEZ/IVA, and (3) heterozygous F508del/residual function CF patients could be put on TEZ/IVA quickly. We update our 2018E-19E sales/earnings numbers and raise our PT to $190 (from $175) based on heightened certainty of a strong TEZ/IVA launch. We stay bullish.

INDUSTRIAL/CAPITAL GOODS Colin Rusch 212-667-7787

Key Indicators to Watch in 2018

Given our coverage exposure to Transportation, Power, Industrials, and Materials, we are seeing both short- and long-term technology trends emerging, interrelated with the ongoing evolution of the regulatory environment. We believe investors are well served to watch key variables in each sector and detail those variables in the note below. We remain bullish on the electrification of Transport, the migration to distributed generation and adoption of storage in the Power sector, the growth of high-margin software revenue for Industrials names, and light-weighting in the Materials sector. On page 2 we publish a summary of key variables in Market Adoption, Technology, and Policy & Enforcement for each segment. Top picks for the year are BWA, WPRT, HASI, SPWR, TRMB, WM, POL, and ALB.

4 Morning Summary -January 4, 2018

TECHNICAL ANALYSIS Ari Wald, CFA, CMT 212-667-5279

Color for Fundamental Focus Calls: VRTX, QSR, WM, TEAM

Derek Archila HEALTHCARE 617-428-5712 Zynerba Pharmaceuticals, Inc. (ZYNE - $13.46) Bio & Specialty Pharmaceuticals

Rating Market Cap Price Target Earnings Type 2016A 2017E 2018E

P $182.4M NA EPS (2.58) (2.49) (2.06)

In An Unsurprising Move, ZYNE Chooses To Go Rare

ZYNE announced today it plans to shift its strategy to focus on rare and near-rare neurological and psychiatric disorders, discontinuing development of ZYN001 (THC patch) and ZYN002 (transdermal CBD) for pain indications. This doesn't come as a surprise to us, given the enthusiasm from the company's management around its data from its open-label FAB-C study evaluating ZYN002 as a treatment for patients with Fragile X syndrome (FXS). We think this is a prudent shift in strategy which could accelerate ZYN002's path to market if shown effective in pivotal studies, likely reduces the company's capital needs long-term and allows for a more efficient and cost-effective commercial strategy. We don't think today's news should have a big impact on the stock since beyond formally communicating the strategy shift and the hiring of a chief medical officer, there was not much new in today's announcement. The company plans to hold a conference call tomorrow, January 4, at 8:30 am EST to discuss additional details from today's press release. We remain on the sidelines as we await the outcome of ZYNE's 1Q18 meeting with the FDA regarding the path forward for ZYN002 in FXS. We maintain our Perform rating.

Rick Schafer TECHNOLOGY 720-554-1119 Intel Corp. (INTC - $45.26) Semiconductors & Components

Rating Market Cap Price Target Earnings Type 2016A 2017E 2018E

P $211,816.8M NA EPS 2.72 3.24 3.31

Intel Call Tackles Security Issue

Intel hosted a call Wednesday to address widely circulated reports (1/3/18 - Reuters) of an issue found by Google's Project Zero, a team of security analysts. While vague on some details, management was clear it does not expect a financial or business impact as a result of the issue. As a result, we are not adjusting our estimates. The issue is silicon level, found on the CPU in nearly every modern computing device. The fix is accomplished with software and firmware updates that will degrade performance on a workload-dependent basis. Intel management believes the performance impact will be a minimal <2% for the "average user" but could be higher than 30% on "outlier" workloads with high back and forth rates between an app and the OS. Future CPUs are expected to see a smaller performance impact as the adjustment will be employed at the silicon level. Google noted the issues' pervasiveness in a blog post: "These vulnerabilities affect many CPUs, including those from AMD, ARM, and Intel, as well as the devices and operating systems running them." Apple and Microsoft reportedly have patches ready for desktops affected by the Intel-specific flaw. Net, while the development could impact Intel's reputation with customers, we would caution against making positive read-throughs to AMD as its CPUs are also reportedly vulnerable and will likely require mitigating updates.

5 Morning Summary -January 4, 2018

TECHNOLOGY Rick Schafer 720-554-1119

Daily Chip Clips

■ Midrange, high-end graphics card prices to rise (Digitimes) ■ Automotive MCU market to see 3% CAGR for 2017-2021, says Digitimes Research (Digitimes) ■ Passive components makers asked to advance shipments before Lunar New Year (Digitimes)

Noah Kaye INDUSTRIAL/CAPITAL GOODS 212-667-7936 Itron, Inc. (ITRI - $69.30) Sustainable Growth and Resource Optimization

Rating Market Cap Price Target Earnings Type 2016A 2017E 2018E

O $2,683.7M $78.00 EPS 2.54 3.02 3.57

ITRI Poised to Complete SSNI Merger; Early Look at FY18

SSNI shareholders have voted to approve the merger with ITRI. With HSR clearance already granted and ITRI having secured the merger financing, the companies expect the transaction to close on or about tomorrow (January 4). Once the merger closes, we expect the next major catalyst to be ITRI’s earnings and FY18 guidance in mid-1Q. While Street estimates vary widely and the merger could produce some "noise" in ITRI’s FY18 financials, we see improving operating leverage in ITRI’s model and believe investors will be looking closely at organic top line growth rates. Our pro forma estimates (note here) imply top line growth acceleration for both ITRI and SSNI standalone, which we believe is supported by strong backlog and FX tailwinds.

Colin Rusch INDUSTRIAL/CAPITAL GOODS 212-667-7787 Tesla, Inc. (TSLA - $320.53) Sustainable Growth and Resource Optimization

Rating Market Cap Price Target Earnings Type 2016A 2017E 2018E

P $53,870.6M NA EPS (2.87) (8.78) (4.44)

Bulls and Bears Both Get What They Want

While Model S and X deliveries beat consensus 4Q:17 forecasts, we believe investors are focused on Model 3 production, which came in well below consensus even as the company reallocated production resources (notably people) from Model X and S in December to Model 3 production. Guidance for 1Q:18 and 2Q:18 exit run-rate will give bulls some hope, but bears will see support for the thesis around persistent production delays, near-term cash needs, and an overextended organization. We believe a critical question for 4Q:17 results is how many of the Model 3’s were built with the automation running and how much of that production had to be reworked. We also believe equipment providers are likely looking for payment which could pressure TSLA to run into a challenging cash position. We remain on the sidelines.

Oppenheimer Marketing Events

Mar. 20-21, 2018 – 28th Annual Healthcare Conference - New York, NY May 8-9, 2018 –13th Annual Industrial Conference - New York, NY June 19-20, 2018 –18th Annual Consumer Conference - Boston, MA

6 Morning Summary -January 4, 2018

Aug. 7-8, 2018 - 21st Annual Technology, Internet & Communications Conference - Boston, MA Aug. 15, 2018 – Midwest Corporate Access Day Multi-Sector - Chicago, IL

7 Morning Summary -January 4, 2018

Disclosure Appendix Oppenheimer & Co. Inc. 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.

The published date of the recommendations contained in this report can be found by accessing disclosures (https:// opco2.bluematrix.com/sellside/MAR.action). This report was produced at January 4, 2018 07:01 EST and disseminated at January 4, 2018 07:01 EST.

Other companies mentioned in this report: 2357-TAI 2376-TAI 2377-TAI 6723-TKS 9984-TKS AAPL AMD BJRI BKI BWLD CAKE CMG DPZ DRI GOOG INTC ITRI JACK LECO MCD MSFT NXPI QCOM QSR SBUX SONC SSNI TEAM TSLA TXRH VRTX WM YUM YUMC ZYNE

Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered by Oppenheimer & Co. Inc.: Stock Prices as of January 4, 2018 Intel Corp. (INTC - NASDAQ, 45.26, PERFORM) Itron, Inc. (ITRI - NASDAQ, 70.15, OUTPERFORM) Atlassian Corporation Plc (TEAM - NASDAQ, 50.40, OUTPERFORM) Zynerba Pharmaceuticals, Inc. (ZYNE - NASDAQ, 13.46, PERFORM) Tesla, Inc. (TSLA - NASDAQ, 317.25, PERFORM) Black Knight Inc. (BKI - NYSE, 45.80, OUTPERFORM) Lincoln Electric Holdings, Inc. (LECO - NASDAQ, 92.39, OUTPERFORM) BJ's Restaurants Inc. (BJRI - NASDAQ, 39.05, PERFORM) Buffalo Wild Wings, Inc. (BWLD - NASDAQ, 156.55, NOT RATED) Cheesecake Factory Inc. (CAKE - NASDAQ, 50.41, PERFORM) Chipotle Mexican Grill (CMG - NYSE, 309.00, PERFORM) Darden Restaurants Inc. (DRI - NYSE, 98.54, OUTPERFORM) Domino's Pizza, Inc. (DPZ - NYSE, 191.66, OUTPERFORM) Jack in the Box, Inc. (JACK - NASDAQ, 98.22, OUTPERFORM) McDonald's Corporation (MCD - NYSE, 172.49, PERFORM) Restaurant Brands International (QSR - NYSE, 63.66, OUTPERFORM) Sonic Corp. (SONC - NASDAQ, 27.67, PERFORM) Starbucks Corporation (SBUX - NASDAQ, 58.71, OUTPERFORM) Texas Roadhouse, Inc. (TXRH - NASDAQ, 56.17, PERFORM) Yum! Brands Inc. (YUM - NYSE, 81.53, OUTPERFORM) YUM China Holdings Inc. (YUMC - NYSE, 42.24, OUTPERFORM) Vertex Pharmaceuticals (VRTX - NASDAQ, 152.01, OUTPERFORM) Waste Management, Inc. (WM - NYSE, 87.35, OUTPERFORM) NXP Semiconductors NV (NXPI - NASDAQ, 118.08, PERFORM) QUALCOMM Incorporated (QCOM - NASDAQ, 65.94, PERFORM) Apple Inc. (AAPL - NASDAQ, 172.23, PERFORM) Advanced Micro Devices (AMD - NYSE, 11.55, PERFORM) Alphabet Inc. (GOOG - NASDAQ, 1,082.48, OUTPERFORM) Microsoft Corporation (MSFT - NASDAQ, 86.35, OUTPERFORM) Silver Spring Networks, Inc. (SSNI - NYSE, 16.24, NOT RATED)

8 Morning Summary -January 4, 2018

All price targets displayed in the chart above are for a 12- to- 18-month period. Prior to March 30, 2004, Oppenheimer & Co. Inc. used 6-, 12-, 12- to 18-, and 12- to 24-month price targets and ranges. For more information about target price histories, please write to Oppenheimer & Co. Inc., 85 Broad Street, New York, NY 10004, Attention: Equity Research Department, Business Manager.

Oppenheimer & Co. Inc. Rating System as of January 14th, 2008: Outperform(O) - Stock expected to outperform the S&P 500 within the next 12-18 months. Perform (P) - Stock expected to perform in line with the S&P 500 within the next 12-18 months. Underperform (U) - Stock expected to underperform the S&P 500 within the next 12-18 months. Not Rated (NR) - Oppenheimer & Co. Inc. does not maintain coverage of the stock or is restricted from doing so due to a potential conflict of interest. Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008: Buy - anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments, and/or the ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector. Neutral - anticipates that the shares will trade at or near their current price and generally in line with the leading market averages due to a perceived absence of strong dynamics that would cause volatility either to the upside or downside, and/or will perform less well than higher rated companies within its peer group. Our readers should be aware that when a rating change occurs to Neutral from Buy, aggressive trading accounts might decide to liquidate their positions to employ the funds elsewhere. Sell - anticipates that the shares will depreciate 10% or more in price within the next 12 months, due to fundamental weakness perceived in the company or for valuation reasons, or are expected to perform significantly worse than equities within the peer group.

Distribution of Ratings/IB Services Oppenheimer & Co. Inc.

IB Serv./Past 12 Mos.

Rating Count Percent Count Percent BUY [O/B/OP] 324 60.00 137 42.28 HOLD [N/P/SP] 212 39.26 69 32.55 SELL [UP/S/U] 4 0.74 3 75.00

Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co. Inc. do not correlate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer & Co. Inc. has assigned buy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratings to securities rated Underperform. Note: Stocks trading under $5 can be considered speculative and appropriate for risk tolerant investors.

Oppenheimer & Co. Inc. makes a market in the securities of TEAM, SONC, TXRH, CAKE, BJRI, SBUX, BWLD, VRTX, TSLA, ITRI, INTC, AAPL, GOOG, MSFT, NXPI and QCOM.

Oppenheimer & Co. Inc. expects to receive or intends to seek compensation for investment banking services in the next 3 months from BJRI and ZYNE.

In the past 12 months Oppenheimer & Co. Inc. has provided investment banking services for ZYNE.

In the past 12 months Oppenheimer & Co. Inc. has managed or co-managed a public offering of securities for ZYNE.

In the past 12 months Oppenheimer & Co. Inc. has received compensation for investment banking services from ZYNE.

9 Morning Summary -January 4, 2018

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Additional Information Available Please log on to http://www.opco.com or write to Oppenheimer & Co. Inc., 85 Broad Street, New York, NY 10004, Attention: Equity Research Department, Business Manager.

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10 Morning Summary -January 4, 2018