EQUITY RESEARCH MORNING RESEARCH SUMMARY June 13, 2019 What's Inside Focus Items Estimates & PT Revisions Dollar General Corporation (DG) Rupesh Parikh, CFA ¯ AXGT P Axovant Sciences Ltd. The Bull Case Continues to Strengthen for DG; Maintain as a Top DG O ­ Dollar General Corporation Pick LULU O ­ Lululemon Athletica Inc. OKTA O ­ Okta, Inc. HEALTHCARE Michael Wiederhorn Home Health Regs Out Soon: Uncertainty Likely to Remain SYBX O ­ Synlogic Inc. HEALTHCARE Esther Rajavelu Updates Ophthalmic Innovations Address Unmet Needs AMD P Advanced Micro Devices INTC P Intel Corp. Okta, Inc. (OKTA) Shaul Eyal MPWR O Monolithic Power Systems Investor Meeting Takeaways MXIM P Maxim Integrated Products NVIDIA Corp. (NVDA) Rick Schafer NVDA O NVIDIA Corp. Notes from the Road SAIL O SailPoint Technologies, Inc. INDUSTRIAL/CAPITAL GOODS Noah Kaye Estimates/Ratings/Price Target Updates Landis+Gyr Investor Meetings Takeaways; Thoughts Ahead of Annual Estimates ITRI Investor Day Current FY Next FY Ratings Price Targets Company Ticker Prev Curr Prev Curr Prev Curr Prev Curr Other Headlines Technical Analysis Ari Wald, CFA, CMT Axovant AXGT (0.97) (4.69) (1.01) (3.69) P P NA NA Color for Fundamental Focus Calls: DG, OKTA, LHCG, ITRI Sciences Ltd. Dollar General DG 6.40 6.40 7.05 7.15 O O $135.00 $150.00 Synlogic Inc. (SYBX) Mark Breidenbach, Ph.D. Corporation Expanded Collaboration Could Supercharge Synthetic Biotic Lululemon LULU 4.60 4.64 5.45 5.45 O O $225.00 $225.00 Platform Athletica Inc. Okta, Inc. OKTA (0.47) (0.47) (0.15) (0.15) O O $115.00 $130.00 Axovant Sciences Ltd. (AXGT) Jay Olson, CFA Synlogic Inc. SYBX (1.95) (1.90) (2.73) (2.75) O O $15.00 $15.00 Quarterly Update Outlines Pipeline Progress SailPoint Technologies, Inc. (SAIL) Shaul Eyal Navigate 2019: Displacement Opportunities, Solid Partners & Channels and Predictive Identity Products Advanced Micro Devices (AMD) Rick Schafer Notes from the Road Intel Corp. (INTC) Rick Schafer Notes from the Road Monolithic Power Systems (MPWR) Rick Schafer Notes from the Road 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 - June 13, 2019 Maxim Integrated Products (MXIM) Rick Schafer Notes from the Road TECHNOLOGY Rick Schafer Daily Chip Clips Emerging Technologies and Services Andrew Uerkwitz E3 2019 Day 4 Field Notes: CD Projekt/HEAR/Ubisoft/Frontier Developments Lululemon Athletica Inc. (LULU) Brian Nagel, CFA Quick Read: Another Strong Print from LULU 2 Morning Summary -June 13, 2019 Snap Commentaries - Equities Updates Rupesh Parikh, CFA CONSUMER 212-667-5263 Dollar General Corporation (DG - $135.51) Food, Grocery & Consumer Products Rating Market Cap Price Target / Prior Earnings Type 2018A 2019E 2020E / Prior O $35,005.3M $150.00 / $135.00 EPS 5.97 6.40 7.15 / 7.05 The Bull Case Continues to Strengthen for DG; Maintain as a Top Pick Ahead of the OPCO Boston Consumer Conference next week and with DG shares reaching our prior $135 PT, we spent time revisiting our views on shares. DG shares are now up 25% YTD, outperforming a 15% gain in the S&P 500. For us, there are really three key positive surprises to start the year: 1) above-plan Q1 top-line momentum; 2) launch of DG Fresh, which increases our confidence in the company's ability to deliver on ~10% EPS growth; and 3) a much more favorable interest rate backdrop with increased investor interest in defensive names lately. We are lifting our PT to $150 from $135 and maintaining DG as a top pick. We overall expect an upbeat tone from management next week at our conference. HEALTHCARE Michael Wiederhorn 954-356-8312 Home Health Regs Out Soon: Uncertainty Likely to Remain CMS is set to release the important FY2020 Medicare Home Health proposal in the coming weeks. Given its approach to past regs and comments from management, we would not be surprised if CMS were to maintain the 6.4% behavioral adjustment from last year's proposal, despite the unprecedented nature of the approach and the questionable rationale behind it. As a result, the stocks could face potential short-term volatility, as investors become concerned about the at-risk earnings from this cut. Ultimately, however, we remain comfortable that the impact will be manageable as Congress could still take action, CMS could moderate the cut in the final rule and companies could offset the cuts through cost-reduction opportunities or actual benefits from behavioral changes. Furthermore, the large players remain unlevered and could look toward M&A as a way to drive earnings growth. As a result, we would be buyers of AMED/LHCG on any reimbursement-related weakness. HEALTHCARE Esther Rajavelu 212-667-7248 Ophthalmic Innovations Address Unmet Needs We hosted an investor call with Dr. Paul Karpecki to review the evolving clinical landscape for ophthalmic indications. Our discussion focused primarily on new launches, including AERI's Rocklatan (intraocular pressure) and KALA's Inveltys (ocular pain/inflammation post surgery), and emerging assets targeting dry eye disease (DED) and myopia. The key takeaways from our view are: 1) Our KOL views Rocklatan as an attractive product and indicates potential for use in ~75% of his patients with unrestricted access; 2) he uses Inveltys broadly across all ocular surgeries and has prescribed it to ~25% of his patients; 3) DED is a complex, chronic condition affecting 30M-50M patients, and he anticipates multiple treatment options based on current pipelines; 4) progressive myopia is a large, under-explored market opportunity with no effective treatment alternatives (we note EYEN initiated Phase 3 trials for this indication). We remain bullish on the ophthalmology segment. 3 Morning Summary -June 13, 2019 Shaul Eyal TECHNOLOGY 212-667-8411 Okta, Inc. (OKTA - $129.61) Infrastructure Software Rating Market Cap Price Target / Prior Earnings Type 2019A 2020E 2021E O $14,793.6M $130.00 / $115.00 EPS (0.32) (0.47) (0.15) Investor Meeting Takeaways Our key takeaways from a CFO/VP IR meeting (post 5/30's strong F1Q20) include the following: 1) We remain positive on OKTA's move toward higher-end enterprises as well as across many verticals as its solutions encompass customers' cloud migration and hybrid IT strategies. 2) Expanding uses-cases are driving incremental revenue opportunities. 3) We view international expansion opportunities adding to and building upon an ongoing domestic growth opportunity (through direct/ indirect channels and partners). 4) We believe OKTA remains at an early stage of a sizable >$20B TAM expansion, especially with large organizations that are shifting workloads to the cloud and as such remain highly comfortable with its LT outlook (through FY24) of >30% revenue growth per year. Reiterate Outperform and raise PT from $115 to $130. Rick Schafer TECHNOLOGY 720-554-1119 NVIDIA Corp. (NVDA - $150.75) Semiconductors & Components Rating Market Cap Price Target Earnings Type 2019A 2020E 2021E O $91,806.8M $190.00 EPS 6.64 5.38 8.32 Notes from the Road We had the chance to sit down with NVDA VP of IR Simona Jankowski on Tuesday. The tone of the meeting was confident, highlighting NVDA's leading position in core DC AI, gaming and autonomous growth verticals. AI accelerator attach remains below 5% today, although we expect this to rise materially in the years ahead as the proliferation of neural networks (roughly doubling annually) continues. We see NVDA's share of the training market at ~100%. We see few challenges to NVDA's training dominance on the horizon. Management highlighted winning the first MLPerf competition, beating TPU and CPU across six benchmark categories. The nascent inference market is dominated by INTC CPU today, but we see NVDA's TensorRT4 quickly gaining share in this rapidly growing market. Inference accounted for several $100 million in sales for NVDA last year, but it now represents ~20% of DC revenues. T4 was launched in 3Q and targets three of the four distinct inference market opportunities. 1) DC; 2) AI at the Edge (edge servers for hospitals, enterprise high-rise, campus, etc.) and 3) Autonomous machines (vehicles, robots, drones, etc.). The fourth inference market is AI at IoT end points where chip solutions are mostly ASIC (low ASP/margin). NVDA is our top large cap growth story. We see topline re-accelerating to 20%-plus growth as hyperscaler spending picks back up. We reiterate our Outperform rating and $190 target. INDUSTRIAL/CAPITAL GOODS Noah Kaye 212-667-7936 Landis+Gyr Investor Meetings Takeaways; Thoughts Ahead of ITRI Investor Day We recently hosted Landis+Gyr CEO Richard Mora and VP of IR Stan March for investor meetings in Canada. Landis+Gyr is ITRI’s primary competitor in the global smart metering industry. LAND management's commentary on macro trends was largely consistent with our takeaways from our ITRI May 23 investor meetings; both companies are positioning to benefit from growth 4 Morning Summary -June 13, 2019 in higher-margin communications and services businesses that support utilities’ evolving distribution network needs. We see ITRI’s restructuring efforts as positioning the company for some catch-up on LAND's EBITDA margins over our investment horizon. We believe ITRI's Investor Day on June 27 could help illuminate favorable mix/margin/FCF improvement trends and serve as a catalyst for the shares. TECHNICAL ANALYSIS Ari Wald, CFA, CMT 212-667-5279 Color for Fundamental Focus Calls: DG, OKTA, LHCG, ITRI Mark Breidenbach, Ph.D. HEALTHCARE 212-667-7251 Synlogic Inc. (SYBX - $7.85) Biotechnology Rating Market Cap Price Target Earnings Type 2018A 2019E / Prior 2020E / Prior O $199.3M $15.00 EPS (2.03) (1.90) / (1.95) (2.75) / (2.73) Expanded Collaboration Could Supercharge Synthetic Biotic Platform Wednesday, Synlogic announced an expanded collaboration agreement with Ginkgo Bioworks for developing next-generation synthetic biotics.