Financial Pacific - Commodity price review, Gold price upgrades (third party)
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Financial Pacific - Commodity price review, Gold price upgrades (third party)

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    Financial Pacific - Commodity price review, Gold price upgrades (third party) Financial Pacific - Commodity price review, Gold price upgrades (third party) Document Transcript

    • ab Global Equity Research Americas UBS Investment Research Equity Strategy Morning Expresso - United States Market Comment 8 September 2011 www.ubs.com/investmentresearch U.S. Equity Product Management 212-713-2400 Thursday 8 September 2011 Morning Expresso This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 26. UBS 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.
    • Morning Expresso - United States 8 September 2011Morning Meeting Agenda UBS Global I/O®:Commodity Price Review Mining & Metals Analyst: Julien Garran Tel: +44-20-7568 3540 Upgrading gold Input: Strengthening fundamentals Ongoing strong physical gold demand from India and China, constrained scrap supply and net central bank purchasing have combined to generate a profound improvement in gold fundamentals during 2011. Input: Debt crisis adds glister At the same time, the ongoing deterioration in the European debt crisis, as well as the downturn in global growth, have raised the likelihood of reflationary or even inflationary policy action. Output: Gold price upgrades We have raised our gold forecasts to US$1665/oz (from US$1500/oz) for 2011, to US$2075/oz (US$1380) for 2012 and to US$1725/oz (US$1200) for 2013. We have raised our long term price to US$1100/oz (US$934) following our analysis of cost inflation in prospective new mine capacity. Output: After the derating Gold equities have seen a significant derating relative to gold in recent months, on the back of cost inflation, a lack of M&A and production disappointments. We now believe that a moderation of those concerns will allow our 10 favoured global gold stocks to at least perform in line, and potentially outperform, the gold price. Our favoured names are European Goldfields, Petrapavlosk, Polyus International, Goldcorp, Newmont, Osisko, Iamgold, Perseus, Anglogold and Zijin Mining A, all Buy Rated. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 7 September 2011 Energy Sector Oil Companies, Major Analyst: William A. Featherston Tel: +1-212-713 9701 Oil & Gas Price and Equity Rating Reset Lowering natural gas & WTI forecasts while raising ’11-12 Brent forecasts We’re reducing ‘11-12 NYMEX natural gas forecasts ~9% to $4.20/MMBtu & $4.50/MMBtu, and are lowering our normalized gas price to $5.50/MMBtu from $6.00/MMBtu on lower long term F&D forecasts due to faster than expected gas shale development. On the oil side, we trimmed ‘11E WTI to $92.75/Bbl but raised ‘11-12 Brent forecast by ~5% to reflect resumption of Libyan volumes, offset by higher non-OECD demand growth. Recent sell-off appears overdone; estimates little changed for oily names While WTI & Brent have only fallen 7% & 1% & natural gas has declined just 5% since 7/31, E&Ps and Majors are off a much larger 17% & 9% over the same period. We believe oil prices should remain resilient. As such, we are lowering ‘12E CFPS & NAV estimates for the gassy E&Ps by ~6% & 12%, but just ~0.4% & 5% for the oily E&Ps. The Majors’ 2012E EPS rose ~4% due to higher exposure to Brent. Upgrading XOM, DVN & SWN on valuation; downgrading KWK We see a much more favorable risk/reward in oil and gas equities now, & are upgrading XOM & DVN to Buy on compelling valuation. We are also upgrading SWN to Buy on a combination of attractive growth and valuation but are downgrading KWK to Neutral due to high financial leverage. Valuation: Discounting $4.65/MMBtu and $75/Bbl Our top E&P picks are oil-weighted APC, NBL, OXY & MRO. We favor SWN among gas-weighted names. We prefer CVX within the Integrateds. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 8 September 2011 Devon Energy Rating: Buy Target: US$85.00 Price: US$66.38 RIC: DVN.N Prior: Neutral Prior: US$90.00 Mkt Cap: US$27.6bn BBG: DVN US Oil Companies, Secondary Analyst: William A. Featherston Tel: +1-212-713 9701 Upgrading to Buy on Compelling Valuation Upgrading to Buy from Neutral on compelling valuation DVN has underperformed large cap & gas-weighted peers by ~570 bps & 930 bps, respectively, over the past 3 months. With its growth outlook on an absolute and debt adjusted basis only slightly below peers in 2012, we believe its 22% discount to 1P NAV and 1 DACF turn discount to peers seems overdone and its shares offer compelling value. New Ventures, liquids-rich drilling & YE resource update may be catalysts DVN holds 860,000 net acres across 5 plays (Niobrara, Mississippian, Ohio Utica, Michigan Utica/A1 Carbonate, & the Smackover) plus 250,000 net acres in the Tuscaloosa Shale. DVN plans to drill 30 wells in these emerging plays which, if successful, could add to NAV and long term growth visibility. DVN also plans to update its companywide risked resource base estimate of 13.6 BBoe by YE. Risks to our upgrade: 1) Disappointing New Ventures results with a lack of other meaningful near-term catalysts could cause stock to languish 2) inability to expand share buyback into ’12 as $6.5 bn in offshore cash needs to be repatriated tax-efficiently removes prop that supported stock in 2011 3) capital intensity of liquids drilling could result in higher than expected ’11-’12 capex. Valuation: Upgrading to Buy, but lowering PT to $85 from $90 Our $85 PT assumes 5.2x 2012E EBITDA (below its historical average of 5.6x), or 0.8x NAV. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$66.38 on 07 Sep 2011 18:42 HKT UBS 2
    • Morning Expresso - United States 8 September 2011 ExxonMobil Rating: Buy Target: US$90.00 Price: US$73.65 RIC: XOM.N Prior: Neutral Prior: Unchanged Mkt Cap: US$358bn BBG: XOM US Oil Companies, Major Analyst: William A. Featherston Tel: +1-212-713 9701 Selloff Overdone; Upgrading to Buy Upgrading XOM on compelling valuation; relative PE near lows: XOM’s underperformance relative to its Integrated peers (-2.4% last 3 months, and -3.5% LTM) and the S&P 500 (-2.3% last 3 months and -2.2% LTM) has resulted in a prolonged narrowing of its relative PE versus the S&P as well as versus its integrated peers. We believe the recent sell off coupled with the compression in XOM’s relative PE multiples presents upside risk toward our $90 price target (unchanged). XOM appears relatively inexpensive versus S&P and Integrated peers Based on consensus estimates, XOM is trading at a relative PE of 0.72x below its respective 5- & 10- year averages of 0.80x & 0.87x. (Exhibit 1) Using our revised ’12 EPS estimate ($8.01 vs. consensus of $8.82), XOM’s relative PE is still inexpensive vs. its 10-year average. XOM is also trading at a near record low relative PE ratio of 1.19x vs. other Majors, below its 5- & 10- year historical avg of ~1.30x. We note XOM has seen relative multiple expansion when its relative PE dips below 1.20x (Exhibit 2) Attractive investment vehicle in the current environement We prefer XOM given its strong balance sheet, FCF generation (8% FCF yield), & attractive valuation compared to the E&Ps. Despite the ROCE dilution from the XTO deal, it still offers the highest ROCE within the energy sector & is still regarded as one of the best run Integrateds in the world. Valuation: upgrading from Neutral to Buy while maintaining $90 target Our $90 PT assumes 8.0x normalized ‘11E DACF, below its 5-yr avg of 8.6x. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$73.65 on 07 Sep 2011 18:42 HKT Southwestern Energy Rating: Buy Target: US$44.00 Price: US$37.60 RIC: SWN.N Prior: Neutral Prior: US$52.00 Mkt Cap: US$13.1bn BBG: SWN US Oil Companies, Secondary Analyst: William A. Featherston Tel: +1-212-713 9701 Upgrading to Buy on Valuation and Incremental Growth From Marcellus Strong growth & low costs attractive despite lower gas price environment We expect SWN to deliver one of the stronger absolute & debt- adjusted prod’n growth profiles in our universe in 2011-12. Additionally, it is the lowest cost producer in our universe. Excluding a midstream monetization, which now appears to be delayed until 2H12 at earliest, our 2PNAV of $55/share implies that SWN is trading at 0.64x 2PNAV. We estimate an MLP or JV would add +$5/share upside to NAV. Multiple catalysts in front of SWN Near-term catalysts include: 1) SWN may raise its 2011 production guidance of 483-491 Bcfe along with 3Q results due to the 2Q volume beat and stronger than originally expected Marcellus volumes, and 2) results from its 2 wells to be drilled in 3Q and 4Q in the emerging Lower Smackover Brown Dense formation. Catalysts in 2012 include: 1) a potential MLP or other strategic option to maximize value for its midstream assets, and 2) more details on other New Venture plays with one widely believed to be the Utica Shale play. Risks to our upgrade: We believe the primary risks to our upgrade are 1) another leg down in natural gas prices, and 2) another QoQ decline in Fayetteville Shale IP rates implying best of its acreage has been drilled. Valuation: upgrading to Buy from Neutral, ~20% upside to current price Our $44 PT (was $52 before reduction in gas forecast) assumes ~0.8x 2PNAV. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$37.60 on 07 Sep 2011 17:42 EDT Quicksilver Res. Rating: Neutral Target: US$11.00 Price: US$9.61 RIC: KWK.N Prior: Buy Prior: US$13.00 Mkt Cap: US$1.64bn BBG: KWK US Oil Companies, Secondary Analyst: William A. Featherston Tel: +1-212-713 9701 Downgrading to Neutral Downgrading on reduced natural gas price forecast, funding deficit Despite materially underperforming YTD, we are lowering KWK to Neutral from Buy based on our lower long term natural gas price outlook (see “Oil & Gas Price and Equity Rating Resets” published today) as well as concerns about KWK’s high financial leverage and a large FCF deficit that threatens its longer term growth outlook. We do not believe the JVs it seeks in the Horn River Basin midstream or its emerging resource plays will attract enough capital to reduce our concerns with its financial flexibility. Projected FCF deficit a concern; growth rate below resource play peers At current NYMEX strip prices, we estimate KWK’s 2011-12 organic FCF deficit to be ~$440 MM and ~$310 MM (-18% FCF yield), respectively, which will need to be plugged by further asset sales, equity, or greater leverage. KWK’s net debt to total capital of 71% is already well above peers’47%. Notably, we estimate KWK’s DAPPS growth in 2011-12 is 4% and 13%, below the resource play peers’ 9% and 15%. Risks to downgrade: 1) Greater than expected proceeds from the Horn River midstream JV (expected to be disclosed in 3Q) or on any of its unconventional plays, or 2) bullish results from its 8-14 wells on 210,000 net Sandwash acres (prospective for Niobrara). Valuation: Lowering to Neutral from Buy w/ $11 PT based on ~0.70x NAV $11 PT (was $13) assumes 0.70x 2PNAV of $15, lower than our typical target of 0.8x because of its high financial leverage and funding deficit. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$9.61 on 07 Sep 2011 17:42 EDT UBS 3
    • Morning Expresso - United States 8 September 2011 U.S. Independent Refiners Oil Companies, Secondary Analyst: Craig Weiland Tel: +1-212-713 3654 Updating 2011 Refining Margins Taking composite 2011 margins up In conjunction with our global oil price forecast update, we’re raising our 4Q composite refining margins (and hence our 2011 forecast). We now project 2011 composite margins to average $12.32/Bbl, up from a prior forecast of $11.88/Bbl. Our revised outlook accounts for a seasonal decline in margins from a higher than originally forecast 3Q base, which translates to a moderately higher 4Q forecast. Demand forecasts incorporate recent changes to UBS economic forecasts With our economics team having revised U.S. GDP forecasts to 1.6% in 2011 and 2.2% in 2012 (previously 1.8% and 2.3%), we are taking this opportunity to revise our demand forecasts. We project U.S. refined product demand remains flat in 2011 and grows by 1.5% in 2012 (previously 1.7% and 1.8%). Margins have been remarkably resilient despite recessionary concerns Year-to-date composite margins are up 67% vs 2010 while 3Q to-date composite refining margins have increased 118% from a year-ago. And while year-to-date total refined product demand is 1.8% below 2010’s daily run-rate, trailing four week demand looks more resilient (up 1% YoY), while gasoline is down 2.1% YoY (but trending upwards), and distillate demand is up 5.5% YoY. Valuation: independent refiners trading at 3.1x 2012E EBITDA Our top picks include VLO and HFC. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 8 September 2011 HCA Rating: Buy Target: US$33.00 Price: US$19.84 RIC: HCA.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$10.6bn BBG: HCA US Healthcare Providers Analyst: Justin Lake, CFA Tel: +1-212-713 2765 Looking Ahead to Update on Acuity Expect HCA to give update on 2Q acuity issues and July/August trends We expect HCA to release findings on deep-dive analysis of 2Q Medicare acuity issues as well as update investors on July/August acuity trends ahead of management presentation at competitor conference next Thursday, 9/15. While deep dive analysis and July/August update may be non-conclusive as to whether acuity trend change is one-time in nature or more systemic, look for HCA to also discuss cost-cutting strategies and potentially rev per adj admit trend in 3Q as well. Closer look indicates 3Q case mix comparison is toughest of the year Our analysis of HCA’s recent Medicare, Commercial and overall case mix index (CMI) progression indicates 3Q’10 case mix growth was highest of year at +1.2% for Medicare and +2.6% overall (vs. 0.0%/2.3% respectively in Q2’10). This may leave trend change somewhat difficult to discern given tougher comparison in 3Q vs. 2Q and we look for HCA to also provide updated rev per adjusted admission trends (vs. +0.5% in Q2’11) given comparisons here are not nearly as difficult. While update may be non-conclusive, LT risk-reward appears positive It will likely take several qtrs of in-line results for HCA to move beyond Q2’11 overhang but at EV/EBITDA of 5.8x and a 10%+ FCF yield investors are being paid to wait. Beyond above mentioned issues & “super- committee” outcome, HCA mgmt may also be pressed to discuss 2012 EBITDA growth prospects given lackluster economy & headwinds incl lower HCIT, Texas UPL and Medicaid cuts. Valuation: Buy Rating, $33 Price Target $33 PT is based on a target EV / EBITDA multiple of 7.25x off our 2012 estimate. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$19.84 on 07 Sep 2011 18:42 EDT Boeing Rating: Neutral Target: US$73.00 Price: US$64.90 RIC: BA.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$48.1bn BBG: BA US Aerospace Analyst: David E. Strauss Tel: +1-212-713 6185 Dreamlifter Activity Still Low Watching flights into Everett and Charleston We are tracking movements of Boeing’s modified 747 “Dreamlifter” fleet to gauge the progress of 787 production. Specifically, we are monitoring Dreamlifter flights into Snohomish County Paine Field Airport, adjacent to 787 production, to gauge the pace of shipments from the structural suppliers. 787 structural components are delivered via the Dreamlifter fleet to Boeing in Everett, WA for final assembly. We are now also monitoring Dreamlifter deliveries into Charleston associated with the opening of the second production line. Flights into Everett remain slow We tracked seven Dreamlifter arrivals into Everett during August. This is above the prior month as Boeing has resumed component deliveries into Everett following a roughly three-week pause, although still much lower than levels seen in early 2010. We also tracked two flights into Charleston for the second production line during August. Need to see increase in Dreamlifter activity We think the still slow pace of structural component deliveries reflects supply-chain problems and rework necessary on early aircraft. Dreamlifter activity had been relatively consistent at 15-20 monthly arrivals into Everett since the Machinists strike in late 2008. However, activity has been slow since mid-2010 with Boeing now having halted component deliveries into Everett five times. Valuation: Neutral Rating, $73 price target Our $73 PT reflects our DCF analysis (10% WACC, 3% terminal growth rate). Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$64.90 on 07 Sep 2011 18:42 EST UBS 4
    • Morning Expresso - United States 8 September 2011 Option Strategy Strategist: Mitchell S. Revsine Tel: +1-212-713 1416 Capitalizing on High Volatility Attractive conditions for selling puts With the S&P500 down 11.4% since the July 7 peak, implied volatility elevated and put skew high, we believe conditions are attractive for selling puts on companies with intact fundamentals and a scarcity of near-term catalysts. Based on our screen for Buy- rated stocks that met these criteria, we highlight 10 stocks for which we suggest selling October puts. On average these puts are 11% out of the money to provide a cushion given currently volatile markets and generate a 3.2% premium. October maturity preferred For our selected stocks, we prefer selling puts in the October maturity as the expiration is prior to earnings for each and no materially negative stock-specific catalysts are expected during this time, while visibility becomes limited further out. Also, the October maturity generally has higher implied volatility than longer maturities (i.e. downward sloping term structure). Also consider selectively selling calls For a subset of these stocks (ADSK, APA, BHI, CRM, CTSH and WFT) we also suggest investors consider selling out-of-the-money October calls (e.g. 110%), as no near-term positive catalysts are expected. For reference, Oct 110% calls can be sold for approximately 2.2% or 3.4% where a stock’s implied volatility is 40% or 50% respectively. Disclosure: Options, structured derivative products and futures are not suitable for all investors, and trading in these instruments is considered risky and may be appropriate only for sophisticated investors. Past performance is not necessarily indicative of future results. Various theoretical explanations of the risks associated with these instruments have been published. Prior to buying or selling an option, and for the complete risks relating to options, you must receive a copy of "The Characteristics and Risks of Standardized Options." You may read the document at http://www.optionsclearing.com/about/publications/character-risks.jsp or ask your salesperson for a copy. Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 7 September 2011 UBS 5
    • Morning Expresso - United States 8 September 2011MACRO AND STRATEGY RESEARCH US Daily Economic Comment Economist: Maury N. Harris Tel: +1-212-713 2472 Policy speeches the focus Preview: Bernanke 1:30pm/ Obama 7pm. Hurricane may have depressed claims (1) Fed Chairman Bernanke will speak at 1:30pm (EST) about “The U.S. Economic Outlook”. It will be important how he prioritizes the possible tools he plans to use if the FOMC decides additional stimulus is necessary at the Sep 21 meeting. (2) At 7pm (EST), President Obama is scheduled to announce a comprehensive plan to create jobs. See The “Jobs” Speech in the Sep 2 US Economic Perspectives. (3) Jobless claims likely fell in the week of Sep 3 (cons & UBSe: 405k) from 409k the prior week. Hurricane Irene may have held down claims, with potential claimants either unable to reach the Labor Dept. or otherwise preoccupied. (4) We forecast a slight narrowing in the trade deficit in July (UBSe: $52.5B, cons: $51.0B) after sharp increases in May and June. Consumer credit likely rose again in July (cons& UBSe: $6.0B), albeit at a less significant pace than in June ($15.5B). Review: Softer Beige Book. Mixed store sales. Mortg apps & JOLTS flattish (1) The Beige Book had a slightly softer tone than the prior Beige Book—as expected. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 7 September 2011 Macro Keys Economist: Larry Hatheway Tel: +44-20-7568 4053 Credit Fundamentals: A Tale of Two Tiers One nearly universally accepted view across the global investor base has been the significant improvement of the private sector – specifically corporates – coming out of the 2008-09 downturn. Corporate profits have rebounded, balance sheets have delevered, cash stockpiles have amassed and debt has been termed out. This is precisely the rhetoric we hear from investors inquiring about whether iTraxx XO spreads trading at 715bp (44% implied probability of default over 5 years) are overdone. In our view, the issue is far from black and white and the answer is not a resounding affirmation. Credit fundamentals have recovered less in Europe than in the US and less in high yield than in high grade. Total leverage for XO companies increased roughly 2.5x to 5.8x from 2007 to 2009 and subsequently declined to 4.1x as of 2010. Credit fundamentals among lower-tier credits have retraced about 70% of the deterioration from the trough but remain notably above 2007 levels – heading into another downturn. The vast majority of that improvement (50% of the 70%) has come from a rebound in earnings rather than debt reduction, suggesting leverage will creep higher in "grey sky"/ mild recession scenario as earnings are flat to lower and, in a "black sky"/ deep recession scenario, could reach levels in-line with 2008. The liquidity picture is far from secure. Cash has not piled up on highly levered balance sheets (unlike those of large cap tech and pharma). Maturities loom larger in this cycle as firms have not adequately addressed the 2014-15 wall of maturities, and step-downs in covenant packages for legacy LBOs could present pressure points. CLO/bank demand for leveraged loans is waning, so the (large) refinancing burden will fall on the high yield market and retail investors that historically have proven a rather fickle bunch. At the same time, the continued decline in valuation multiples (e.g., EV/EBITDA) place downward pressure on recovery rates. Conversely, sluggish GDP growth and flat to lower earnings historically do not warrant a XO spread trading inside of 450bp. In other words, risks from a global growth slowdown remain for European high yield firms and the real threat of a sovereign/banking crisis is likely to keep non-default risk premiums elevated. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 8 September 2011 UBS 6
    • Morning Expresso - United States 8 September 2011GLOBAL SECTOR RESEARCH Gold Price Review Strategist: Edel Tully Tel: +44-20-7567 6755 Gold Price Review: Gold to Average $2075 in 2012 Input: Lifting 2012E average gold price to $2075 Our core view is that ongoing global macroeconomic disappointments, the inevitability of further negative turns in the European sovereign debt crisis, with low business, consumer and investor confidence will lead to gold being increasingly used as the line of defence against additional negative market outcomes. With the pool of competing asset alternatives sparse, ‘new’ money will likely flow into the gold market over the months ahead and into 2012, and this should have significant price implications. Input: What would it take for us to change our call? Factors that could force us to alter our call include: (1) a deleveraging and disinvestment repeat of 2008; (2) a European central bank selling gold reserves; (3) a material improvement in the macro outlook; (4) policy makers succeed in creating a formidable solution to the European debt crisis; and (5) a significant increase in gold scrap supply. Output: Material changes to our gold forecasts We revise our 2011E average gold price to $1665, from $1500 previously which involves a mark-to- market revision but also an expectation of a strong Q4 price environment. More significantly we have made quite large changes to our 2012 and further dated annual forecasts. For 2012, our average forecast is lifted to $2075, from $1380 previously. Similarly, 2013E is raised to $1725 from $1200. Our long-term gold price now sits at $1100, versus $934 previously. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 7 September 2011 UBS Resources Mining & Metals Analyst: Ben Davis Tel: +44-20-7568 3472 Going for gold in 2012 Raising 2012 gold forecasts to US$2075/oz on strengthening fundamentals We have raised our gold forecasts to US$1665/oz (from US$1500/oz) for 2011, to US$2075/oz (US$1380) for 2012 and to US$1725/oz (US$1200) for 2013 on strengthening fundamentals. Strong physical demand from India and China and net central bank purchasing has led to a profound improvement in fundamentals during 2011. Furthermore, the ongoing deterioration in the European debt crisis has raised the likelihood of reflationary or even inflationary policy action. Long-term gold price revisited; raising to US$1100/oz from US$934/oz We have raised our long term price forecast (theoretical price to incentivise mine production) to US$1100/oz from US$934/oz, with a view of higher expected operating and capital cost inflation. POG looking very attractive at current gold price; spot 2012 P/E of 4.3x Given that Petropavlovsk is trading at spot 2012 P/E of 4.3x compared to the sector at 6.0x and that gold is the only commodity we forecast with significant upside from current spot prices into 2012, POG is added to our top picks in the space and we see potential for a large re-rating of the gold equities against the UK miners. Readdressing price target valuation after global derating Gold equities have seen a significant derating relative to gold in recent months, on the back of cost inflation, a lack of M&A and production disappointments. We have adjusted a price target methodology and now on a qualitative basis base our price targets for POG and EGU on a 1.0x and 1.4x NPV multiple, respectively. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 7 September 2011 Global Oil and Gas Oil Companies, Major Analyst: Jon Rigby, CFA Tel: +44-20-7568 4168 Updating on oil prices: A mixed picture but prices continue to be robust Closing days of Libyan conflict signal time to update With the Libyan conflict all but over, the process of restarting the industry will now begin. War damage and the age and quality of some of the fields may inhibit a rapid restart but the re-entry of the IOCs and their familiarity with the fields should mitigate this. We forecast that liquids exports will be fully restored by 4Q12. Incorporating recent changes to UBS economic forecasts We also taking this opportunity to update our demand forecasts for the recent GDP changes made by UBS. We are forecasting global GDP growth at 3.3% in 2011 and 2012. We forecast global oil demand at 1.2% in 2011 and 1.5% in 2012. Prices remarkably resilient despite recession concerns and Libyan return It’s probably right that the front end of the curve has been unaffected by the prospect of a restart of Libyan exports although sentiment might have been expected to have suffered. However, prices have actually risen since the fall of Tripoli and must be considered to discount a restart and, given the turmoil in markets, expectations of weak global economic growth. We believe prices do subside but only as Libyan production restarts We are raising our 2011 Brent oil forecast to $111.47/bbl from $105.72/bbl and 2012 to $100/bbl from $95/bbl. Long-term remains $95/bbl based on the economic clearing price for marginal projects plus a risk premium. We have marginally reduced our WTI forecast for 2011 to $92.74/bbl but left outer years unchanged. Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 8 September 2011 UBS 7
    • Morning Expresso - United States 8 September 2011BASIC MATERIALS North American Precious Metal Producers Precious Metals Analyst: Brian MacArthur, CFA Tel: +1-416-350 2229 Gold price forecasts revised higher Gold forecast up: new money flow expected in Q4 and through 2012 UBS has revised its gold price assumptions higher. Significant increases have been made to our gold price forecasts for 2011-2015 and to our long-term price assumption. According to UBS Precious Metals Strategist, Edel Tully, ongoing macroeconomic disappointments, the inevitability of further negative turns in the European sovereign debt crisis, along with low business, consumer and investor confidence will lead to gold being increasingly used as the line of defence against additional negative market outcomes. With the pool of competing asset alternatives sparse, ‘new’ money will likely flow into the gold market over the months ahead and into 2012, and this should have significant price implications. Near-term EPS estimates revised higher; now well above consensus As a result of incorporating our near-term gold price revisions into our analysis, we have made significant increases to our EPS estimates. For UBS North American precious metal universe, 2011, 2012 and 2013 EPS estimates have been revised up by 19%, 66% and 66% respectively. In addition, On average, our 2011 and 2012 EPS estimates are 8% and 22% higher than consensus. However, due to lower forecast silver prices in 2013, consensus EPS estimates are 2% higher than our forecasts. Valuation: No significant changes to price targets and ratings Although we have revised our near-term EPS estimates higher given UBS’ revised gold price assumptions, we have not made any significant changes to our price targets or ratings. Our 12-month price targets continue to be premised on a P/NAV methodology assuming flat gold ($1,900/oz) and silver ($42.50/oz) prices. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 8 September 2011 Temple-Inland Rating: Neutral Target: US$32.00 Price: US$30.99 RIC: TIN.N Prior: Buy Prior: US$28.00 Mkt Cap: US$3.37bn BBG: TIN US Containers & Packaging Analyst: Gail S. Glazerman, CFA Tel: +1-212-713 3486 Updating rating, target and estimates Agreed to be acquired by International Paper Yesterday, Temple-Inland agreed to be acquired by International Paper for $32 per share plus $690mm assumed debt (total enterprise value of $4.3bn). The transaction is expected to close early next year pending Department of Justice review and shareholder vote. Adjusting target and rating to reflect the deal As a result of the agreement we are updating our target/rating. Our new 12-month target is $32, reflecting IP’s offer price. Our rating is now Neutral. While there is some risk, particularly the DoJ review, we assume the transaction will close. Updating estimates for Bogalusa, delayed price increase We are lowering our 3Q11 EPS estimate to $0.17 from $0.28 reflecting the estimated $20 million drag associated with the issues at Bogalusa (mill was down for over 2 weeks following a discharge into a local river). We are reducing our 2012 EPS estimate to $1.60 from $1.90 to reflect a 1 quarter delay in expected containerboard/box price recovery and a more conservative outlook for the pace of Building Products recovery. Valuation Our new $32 price target (was $28) reflects the negotiated value of IP’s offer to acquire TIN. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$30.99 on 07 Sep 2011 12:42 EDT UBS 8
    • Morning Expresso - United States 8 September 2011CONSUMER Hain Celestial Group Rating: Neutral Target: US$34.00 Price: US$31.99 RIC: HAIN.O Prior: Unchanged Prior: Unchanged Mkt Cap: US$1.39bn BBG: HAIN US Food Products Analyst: David Palmer Tel: +1-212-713 9315 Organic Growth in FY12 Raising FY12 Estimates We are raising our FY12e EPS from $1.54 to $1.56 (+15% YOY, guidance $1.50 to $1.60, cons $1.55) in order to reflect better than expected organic sales growth largely driven by a 5% increase in prices as well as continued strength from recent acquisitions. Our new FY12 revenue growth forecast is now $1.24B (+10% YOY, cons $1.25B) and assumes 9pp of organic growth. Bifurcated Consumer Recovery Intact Despite macroeconomic uncertainty, we believe that Hain can maintain recent momentum as it benefits from the upper income consumer, while making further headway in the grocery channel. Measured channel trends of organic foods remain robust (+5.6 YOY, 12 weeks ending 8/6) and accelerating baseline trends—a measure of sustainable profit growth—are indicative of strong core demand. A Growth Story; Valuation a Roadblock We believe Hain can sustain recent top line momentum given: 1) exposure to upper income consumers, 2) solid baseline trends, 3) better than expected contribution from acquisitions, and 4) a 5% price increase largely taking effect in F2Q12. However, going forward it may be difficult for HAIN to duplicate the success of the Greek Gods/Sensible Portions acquisitions. We continue to wrestle with valuation (currently trading at 20x CY12e EPS vs. 14.5x for peers). Valuation: Neutral Rated; $34PT Our price target is based on a SOTP analysis and represents 21x our CY12e EPS. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$31.99 on 07 Sep 2011 18:42 EDT U.S. Hardlines Retail Retailers, Broadline Analyst: Michael Lasser Tel: +1-212-713 2440 Office Supply Sector - Muddling Along Recent indications suggest that demand has been mixed for the OS Sector All three office supply retailers provided an update today with each offering guarded commentary on recent demand trends. Specifically, ODP and OMX suggested that North American retail trends have been sluggish due in part to weak technology sales. Staples CEO characterized the Back-to-School season as ‘not as robust compared to prior years, but not a downer either.’ We think that these choppy conditions will likely persist for the foreseeable future. ODP’s NA Retail 3QTD comp is trending down -2%, but GM is up 100 bps While the company’s overall NA retail sales are running below our prior -1% est, its gross margin is running ahead of our expectation (we assumed 25 bps of NAR op margin expansion). The sales softness has been due to a few merchandising decisions like eliminating entry level laptops. Excluding this impact, ODP’s back-to-school retail comp (and its GM) is up 150 bps through August. OMX lowered its 3Q sales guidance, but maintained its 2H’11 outlook OMX now anticipates that its overall 3Q’11 sales will be down slightly YoY, vs. its prior expectation of flat. It still anticipates that its second half sales and op. margin will be up year-over-year. We are lowering our OMX price target to $6 (9x our CY’12 EPS est. of $0.70) based on a blend of a DCF and multiple analysis (was $8). Staples remains our preferred name in the sector SPLS offered the view that the OS market is stable and there is little risk of a double-dip recession on the horizon. Either way, we think SPLS is well positioned to manage through a sluggish environment and benefit if broader trends improve. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 7 September 2011 Unilever NV / PLC Rating: Neutral Target: €25.00 / 2200p Price: €23.37 RIC: UNc.AS Prior: Neutral (ST Buy) Prior: €24.50 / 2150p Mkt Cap: €65.8bn BBG: UNA NA Food Products Analyst: Alan Erskine Tel: +44-20-7568 4395 Remove ST Buy, maintain Neutral - Closer to fair value The best performing stock through the Q2 results season We introduced a Short-Term Buy rating on Unilever in early July, arguing that this was the preferred stock to own in the sector through the H1 results season. We anticipated that Unilever would ‘beat’ on Q2 organic sales growth (it was 7.1% versus consensus 5.5%) and that the H1 margin outturn (at down 20bps) would be no worse than the market was expecting. Removing the Short-Term Buy rating The stock is 1% higher than at 6th July (the European equity market is down 17%, Danone is down 9% and Nestlé (in Euros) is down 5%). Trading on a forward EV/Ebitda of 9.2x versus 9.3x for Nestle and Danone, we now judge Unilever to be fully up with events from a relative respective. The gap to best in class can’t be closed overnight That Unilever is weathering what is an exceptionally challenging year is a validation of the changes CEO Polman has made and of his claim that Unilever is now “fit to compete”. Having said that, we view a critical success factor in this industry to be consistency (in execution and in strategic direction), and in that sense it will take Unilever some time to close the gap with best in class. Valuation Our price target, which we are raising by 2% (from €24.50 to €25.0) as we roll forward our estimates is based on a forward EV/Ebitda multiple of 10x. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of €23.37 on 07 Sep 2011 17:05 BST UBS 9
    • Morning Expresso - United States 8 September 2011ENERGY Key Call: CONSOL Energy Rating: Buy Target: US$84.00 Price: US$45.56 RIC: CNX.N Prior: Unchanged Prior: US$90.00 Mkt Cap: US$10.3bn BBG: CNX US Coal Analyst: Shneur Z. Gershuni, CFA Tel: +1-212-713 3974 Changing Long Term Natural Gas Pricing Lowering Natural Gas Forecasts In coordination with our E&P team’s price deck change, we are reducing ‘11-12 NYMEX natural gas forecasts ~9% to $4.20/MMBtu & $4.50/MMBtu, and are lowering our normalized gas price to $5.50/MMBtu from $6.00/MMBtu on lower long term F&D forecasts due to faster than expected gas shale development. Why Are We Changing Our Forecast? According to our E&P analyst, Bill Featherston, production growth and drilling activity are exceeding prior expectations. The massive inventory of low cost natgas shale plays is driving stronger than expected production growth. The most recent EIA 914 data showed US gas production climbed 7.9% y/y in 2Q11 and 3.7% q/q. Domestic natgas volume growth will continue to be driven by still elevated drilling activities in several prolific shale gas plays as well as operational efficiency gains. This robust production growth places downward pressure on US gas prices. Estimates As a result of the price forecast change, we are lowering our 2011, 2012, and 2013 EPS estimates to $3.23, $3.40 and $4.05 from $3.32, $3.62 and $4.35, respectively. Valuation: Reiterate Buy Rating - 84% Upside Potential to Price Target We are lowering our NAV-derived price target to $84 from $90 primarily due to the impact of the lower long-term normalized natural gas price forecast. We maintain our Buy rating and would note roughly 84% upside potential to our revised price target. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$45.56 on 07 Sep 2011 16:42 EDT Encore Energy Rating: Buy Target: US$22.00 Price: US$19.33 RIC: ENP.N Prior: Neutral Prior: US$23.00 Mkt Cap: US$0.88bn BBG: ENP US Oil Companies, Secondary Analyst: Christopher P. Sighinolfi, CFA Tel: +1-212-713 2239 Upgrading to Buy on Valuation Following ~23% pullback, upgrading to Buy, from Neutral, on valuation ENP boasts an oil-focused production profile, strong hedge positions, and a new GP and management team (as of Dec. 2010) interested in once again growing its operations (as evidenced by increased drilling capex and recent acquistions). Given a ~23% pullback in unit price since May and a projected 9.0% distribution yield, we are upgrading to Buy, from Neutral, on valuation. SEC and Unitholder approval are final hurdles for VNR/ENP merger In July, VNR & ENP announced a definitive merger agreement in which ENP will become a wholly-owned subsidiary of VNR via a unit-for-unit exchange. In the deal, ENP unitholders will receive 0.75 VNR common units for each ENP LP unit. SEC and unitholder approval are the remaining hurdles and mgmt has stated an expectation deal closure in 4Q. At VNR’s closing price of $27.42, ENP’s deal-price is currently $20.56; add to this 75% of VNR’s $2.30 annual distribution and the deal implies a total return potential of ~14% based on ENP’s close of $19.54. Natural gas and crude oil price forecasts lowered – estimates trimmed We have modestly lowered our 2011-2013 EPU estimates on the back of reduced natural gas and crude oil price forecasts (see our sector note, Revising Natural Gas & Crude Oil Forecasts (9.8.11), for greater detail). As ENP employs a ‘floating’ distribution structure, we have also trimmed distribution projections accordingly. Valuation: Trimming price target to $22, from $23 We trimmed our DDM-derived PT to $22, from $23, as lower commodity forecasts crimped distribution projections; our DDM is featured on page 2. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$19.33 on 06 Sep 2011 19:42 EDT U.S. Natural Gas & Oil Forecasts Energy Analyst: Christopher P. Sighinolfi, CFA Tel: +1-212-713 2239 Revising Natural Gas & Crude Oil Forecasts Lowering US Natural Gas price forecasts We are trimming our 2011-14 natural gas composite spot forecasts (per MMBtu) to $4.15, $4.40, $4.90, and $5.40, from $4.40, $4.90, $5.40, and $5.90, respectively. We are also cutting our NYMEX natural gas forecasts (per MMBtu) for these periods to $4.20, $4.50, $5.00, and $5.50, from $4.55, $5.00, $5.50, and $6.00, respectively. Finally, our LT normalized forecast is being cut to $5.50, from $6.00. Lowering 2011 oil price forecast We are lowering our 2011 WTI crude oil forecast (per Bbl) to $92.75, from $95.20, while maintaining our 2012-2014 assumptions of $87.00, $90.00, and $92.00, respectively. We are also maintaining our LT normalized WTI forecast of $92.00. These slight 2H11 changes reflect the nearing end of the Libyan conflict (and prospect for Libyan production restart) as well as moderated UBS views of global GDP growth, now expected to be 3.3% in both 2011 and 2012. We believe a trading range of $85-$95/Bbl is justifiable based on long-term supply economics. US gas production remains resilient, rig count hovers in high 800s Though colder than normal 2010-2011 winter weather, a sharply warmer than normal summer and beneficial inter-fuel substitution have helped create a y/y deficit in natural gas storage, resilient US production, a persistently strong gas rig count, and the growth profiles of large US producers give cause for concern. Earnings estimate, price target, and ratings changes See Table 5 for EPS estimate, price target, and ratings changes for the commodity-sensitive names under coverage. Our top picks remain EP, EQT, LINE, and WMB. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 8 September 2011 UBS 10
    • Morning Expresso - United States 8 September 2011FINANCIALS NYSE Euronext Rating: Buy Target: US$48.00 Price: US$26.97 RIC: NYX.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$7.09bn BBG: NYX US Diversified Financial Analyst: Alex Kramm, CFA Tel: +1-212-713 4060 Strong Volumes Drive 3Q11 EPS Higher August exhibits broad-based strength across NYX’s diverse businesses NYX’s exchange businesses performed very well in August, with solid y/y and m/m growth: US cash equities +46% y/y, +51% m/m; US options +91% y/y, +39% m/m; European cash equities +70% y/y, +33% m/m), and European derivatives +53%, +35%m/m. Market share increased from July for US cash equities (28.1% vs. 26.5%) and US options (26.4% vs. 25.8%). Quarter-to-date volume running significantly ahead of our estimate Through August, NYX’s four exchanges have fared very well relative to our original estimates for the 3Q, with US cash equities leading the charge (+36% vs. UBSe). US options, Euronext, and Liffe have also outperformed significantly (+23%, +26%, and +16%, respectively, vs. UBSe). Raising estimates on strong volumes in all businesses After updating our model to reflect recent volume and pricing trends, we are raising our 3Q11 EPS estimate to $0.71 from $0.58 (2011 EPS to $2.74 from $2.61). Our new estimate reflects a decent step-down in volumes in September, which suggests incremental upside if the current strength persists. Valuation: Maintain Buy rating, $48 price target unchanged Our $48 price target is primarily based on the proposed Deutsche Börse merger and works out to a 16x multiple on our $3.05 2012 EPS estimate. We continue to see significant upside in NYX, our favorite US exchange stock. That said, uncertainty around the European anti-trust review, and regulatory noise (transaction tax, high-frequency trading) could limit near-term upside. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$26.97 on 07 Sep 2011 15:42 EDT Institutional Ownership Trends Insurance, Property & Casualty Analyst: Brian Meredith Tel: +1-203-719 2899 Slight Shift Toward Growth in 2Q11 Anticipation of improved pricing drove a move toward growth After P/C insurance stocks shifted more toward value and low turnover investors in recent years, the ownership profile for the group as a whole moved slightly in the other directions in 2Q11, as heavy catastrophe losses resulted in speculation of an improved pricing environment. All four of the P/C subgroups moved toward greater growth orientation in the quarter, although the shift was the largest for personal lines companies (led by ALL). For our coverage group, as of 6/30/11: (1) holders of RE and XL were the most value oriented and GLRE and RNR were the most growth oriented; and (2) holders of VR were characterized as highest turnover and CB the lowest. Value bias should remain for P&C insurance stocks We believe that pricing improvement will be focused in the catastrophe-exposed property insurance and reinsurance areas, while casualty and other commercial lines will remain competitive (albeit more disciplined). A lack of material improvement on the top line and continued pressure on ROEs likely will result in the general movement of growth-oriented investors away from P&C re/insurers over the next 12 months, in our view. The exception could be the property focused reinsurers that should benefit from improved demand and pricing during the coming 12 months. Assessing sentiment and volatility This report examines the investment management style and turnover characteristics of the top 100 institutional shareholders for P/C companies we cover. We think this data can be useful in assessing sentiment and potential volatility in a stock. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 7 September 2011 UBS 11
    • Morning Expresso - United States 8 September 2011HEALTHCARE Momenta Pharma Rating: Neutral Target: US$17.00 Price: US$16.38 RIC: MNTA.O Prior: Unchanged Prior: US$20.00 Mkt Cap: US$0.81bn BBG: MNTA US Pharmaceuticals Analyst: Ami Fadia Tel: +1-212-713 3242 Adjusting PT for Increased Macro Concerns What’s new? Updating valuation and estimates We are updating our valuation for Momenta to reflect the continued concerns about the equity markets and the resulting impact on equity risk premiums. This is mainly driven by the increasing macro pressures than any fundamental changes to the company. Separately, we are also pushing out the estimated Enoxaparin launch by Teva from 3Q11 to 4Q11. Further, we are taking the opportunity to switch from a TRx to an extended unit based market model for Enoxaparin (Table 1). Impact of changes: Lowering PT and increasing EPS for 2011/2012 We are raising the estimated WACC used for the DCF valuation from 12.5% to 13.5% which lowered our valuation from $20 to $17. Separately, the change in timing of Tevas Enoxaparin launch raised our EPS estimate for 2011/2012 by $1.51/$0.14, respectively. Thoughts on the stock: Expect MNTA to be range bound in the near term We believe investors will continue to look for clarity on competition for Enoxaparin and the outcome of the ongoing litigation on Copaxone. Further, we look for a potential biosimilars partnership deal which could provide visibility into the longer term growth potential for the company. Valuation: Maintaining Neutral rating and decreasing PT to $17 Our DCF-based price target uses cash flows projections through 2021, a WACC of 13.5% (12.5% prev.), and a terminal growth of 5%. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$16.38 on 06 Sep 2011 19:42 EDT UBS 12
    • Morning Expresso - United States 8 September 2011INDUSTRIALS US Electrical Equipment & Multi-Industry Industrial, Diversified Analyst: Jason Feldman Tel: +1-212-713 4309 Matching price targets for market valuation Adjusting price targets to reflect current market levels We are adjusting price targets on most stocks in our coverage universe. The two primary drivers of the changes are: (1) a lower market multiple for stocks valued using a relative valuation methodology, and (2) rolling over to using 2012 estimates where we had not already done so. Additional details are provided on page 2. We believe our estimates are still consistent with UBS economics forecasts One of the most consistent comments we have heard from investors in recent weeks is that sell side estimates are still too high. They may be. However, we continue to believe that our estimates are consistent with current forecasts from the UBS economics team (see page 2) that expect a modest acceleration in U.S. GDP, fixed investment, and industrial production in 2012. Rationale for their “no recession” base case includes (1) satisfactory credit accessibility; (2) oil price declines from their earlier peak; (3) stabilization of home prices; and (4) improvements in job quality. While our estimates reflect this “base case,” we acknowledge numerous sources of risk. For a stock-by-stock analysis of how earnings and stock valuations would fare in modest and severe recession scenarios, please see “What if” Grey or Black Skies Lie ahead? published August 16, 2011 by Jonathan Golub and the UBS U.S. Strategy Team which includes contributions from all U.S. stock analysts. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 7 September 2011 Hovnanian Rating: Neutral Target: US$2.00 Price: US$1.65 RIC: HOV.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$0.13bn BBG: HOV US Home Construction Analyst: David Goldberg Tel: +1-212-713 9427 Despite Improved Results, Concerns Linger F3Q EPS Demonstrate Improvements Hovnanian reported F2Q EPS of ($0.33), based on a normalized tax rate & ex the debt related charge, ahead of our ($0.39) est. The outperformance was primarily driven by better profitability, as operating margins ex charges came in ~200bps ahead of our forecast, +$0.04 to EPS. Additionally, land related impairments were $11.4mn (vs. our $15mn expectation), adding ~$0.02 to EPS. Operating Performance Solid But Uncertainty Persists Unit orders (ex JVs) +30% YOY, vs. our +20% est., as community count +10%. Concurrently, the cancellation rate -500bps YOY to 18%, closer to normal levels. Despite these improved results, we’d note that the co’s unrestricted cash balance fell ~$75mn seq., as it spent $105mn to purchase ~1,200 lots + develop land. Further, our channel checks suggest that the supply of attractively priced, well located finished lots in smaller communities continues to decline. In turn, our concerns about mgmt’s ability to execute its short term growth strategy persist. Adjusting EPS Estimates, Rating & PT Are Unchanged Given the outperformance this quarter and our expectation that the improvement in profitability will persist through FYE, we’re raising our F11E EPS to ($1.60) from ($1.75). Fwd yrs have been adjusted. That said, these changes are insufficient to impact our PT. Additionally, our Neutral rating is unchanged, as we believe the current valuation already reflects the liquidity constraints the company faces. Valuation: $2 PT Based on 0.6x Our Trough BV Management will host a call today @11am, Dial: 866.713.8564, ID#: 63039194. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$1.65 on 07 Sep 2011 18:42 EDT Layne Christensen Rating: Sell Target: US$26.00 Price: US$26.24 RIC: LAYN.O Prior: Unchanged Prior: US$27.00 Mkt Cap: US$0.52bn BBG: LAYN US Heavy Construction Analyst: Steven Fisher, CFA Tel: +1-212-713 8634 EPS beat driven by Latin American mining FQ2 EPS of $0.54 beat the Street of $0.46 driven by Minex FQ2 EPS of $0.54 beat the Street of $0.46. EPS was helped by better than expected Minex equity inc, a lower tax rate, and better than expected core Minex revs. Revs were +16% y/y (Street +5%) and op margins were 4.1% (pre- affiliate inc), vs. 4.7% in FQ2 2011. Incl affiliate inc, op margins were 6.8%, vs. 5.3% in FQ2 2011. Minex remains strong; Water to remain under pressure Minex strength continues with better than expected results in LATAM affiliates (copper/gold in Peru and Chile) as well as solid results in the core Minex business (better than expected income driven by revenues). However, Water margins were lower than expected due to pressure in municipal markets as well as project cost overruns (weather and other project delays). Mgmt expects the margin pressure in the municipal sector to remain “for some time.” Afghanistan work added $2.7m to FQ2 Water income, but we expect that contribution to decline sharply in FQ3. FQ2 beats, but concern about Water; FCPA investigation continues FQ2 beat our expectations due to the strong Minex results, but we are cautious on the balance of the business, particularly Water due to the noticeably lower margins and the negative outlook from mgmt. The continuing FCPA investigation led to termination of 3 employees; they were previously on “paid administrative leave.” Valuation: Trimming target to $26/sh, from $27; maintain Sell rating Trimming target to reflect lower cash, higher debt and lower peer P/Es. Target assumes 4.5-5x EBITDA on $132m FY13E EBITDA, $33m cash, $54m debt, 19.7m shares, averaged with a group P/E of 10-11x FY13E. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$26.24 on 07 Sep 2011 17:12 EDT UBS 13
    • Morning Expresso - United States 8 September 2011 Navistar Intl Rating: Buy Target: US$60.00 Price: US$39.12 RIC: NAV.N Prior: Unchanged Prior: US$85.00 Mkt Cap: US$2.84bn BBG: NAV US Land Transportation Equipment Analyst: Henry Kirn, CFA Tel: +1-212-713 4895 Lowering PT to $60, from $85 Reports adjusted 3Q EPS of $0.79 (cons: $1.30, UBSe: $0.80) Mfg sales increased 10% YoY to $3.5B ($121M above UBSe), driven by improved sales at Truck (+6% YoY), Engine (+44%) & Parts (+17%). Adjusted mfg profit declined to $157M from $278M in 3Q10, largely on lower military sales and higher commodity & fuel costs. On 8/10, CEO Ustian warned 3Q consensus was too high. Plans for $175M in share repurchases (5% of shares) using cash reserves NAV also noted “We are also evaluating additional return on capital options and look forward to announcing them early in 2012.” We are lowering our forward estimates Reflecting likely margin headwinds from supply chain constraints, sales mix to fleets and lower military contribution, we are lowering our FY11E, FY12E and FY13E EPS to $5.25, $7.25 and $8.50, from $5.75, $7.75 and $9.25, respectively. Valuation: Lowering price target to $60, from $85; Maintain Buy rating PT now reflects a 25% discount to the market on revised FY12E EPS (was a market multiple on FY11E, plus ~$2 of cash). Revised multiple is closer to in line with NAV’s historical relative valuation as investors shift focus to FY12 while given recent market volatility, the lumpiness of NAV’s military business may dampen the previous higher multiple we had expected investors to pay for shares. That said, we see shares as oversold and our Buy rating reflects an attractive valuation, direct exposure to a rebounding NA truck cycle & significant real optionality from expansionary businesses. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$39.12 on 07 Sep 2011 16:42 EDT US Aerospace Aerospace Analyst: David E. Strauss Tel: +1-212-713 6185 Aircraft Overtime Hours Highest Since ‘98 As way to gauge health of aero ramp We are monitoring average weekly overtime hours published by the Bureau of Labor Statistics (BLS) as a way to gauge the health of the aerospace production process as volumes ramp and 787 and 747-8 move into full production. We believe any significant move higher in overtime hours could signal production problems or supply chain issues. In July, overtime hours for the entire industry (aircraft, engines and parts manufacturers) averaged 5.4 per week, 15% higher from the prior year at 4.7, although slightly lower than the historical average for July. Overtime hours for aircraft subsector highest since 1998 However, average OT hours/week for the aircraft subsector that is more specific to Boeing are running higher at 6.8, 24% higher than the prior year and the highest they have been since 1998. Spike in OT hours indicated problems during last large ramp Aerospace overtime hours have generally averaged five to six hours per week for the last twenty years. However, during the last ramp of this magnitude, in the late 1990s, average weekly overtime hours spiked higher to 8-9 hours as Boeing and the aero suppliers grappled with production problems. Favor aftermarket names – GR/TDG/COL We continue to favor the aftermarket names over OE as we think the aftermarket can continue to come through strong despite slower economic/capacity growth on increased flying of out-of-warranty aircraft, while we view higher announced production rates at Airbus and Boeing as unsustainable. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 8 September 2011 UBS 14
    • Morning Expresso - United States 8 September 2011TECHNOLOGY HiSoft Technology Rating: Buy Target: US$21.00 Price: US$10.09 RIC: HSFT.O Prior: Unchanged Prior: Unchanged Mkt Cap: US$0.32bn BBG: HSFT US Diversified Technology Services Analyst: Arvind Ramnani Tel: +1-212-713 3517 Takeaways from management meetings Revenue growth of 45%+ in F11 reaffirmed; 25%+ growth in F12 We hosted HSFT management at a series of investor meetings earlier this week. Management reaffirmed revenue growth guidance of 45%+ for F11, and indicated that they are comfortable with 25%+ revenue growth for F12. However, if macro economic concerns persist, revenue growth could be impacted in F12. Based on recent client discussions, there has been no indication of project cancellations and/or delays in decision making. Adj. operating margins of 14% for 4QF11 and 14%-15% for F12 HSFT is confident of exiting F11 with adjusted operating margins of ~14%, and is targeting operating margins of 14%-15% for F12. The OM target is contingent on wage inflation in the high-single digit range – the risk to F12 margins is if wage inflation is in the 15%+ range. The three large offsets to margin pressure are price increases, productivity improvements and transitioning employees to Tier-2 cities. China market continues to be a key market HSFT continues to drive growth in China, and mgt is expecting to exit F11/F12 with ~20%/30% of revenues from China. Instrumental to this growth strategy is its focus on medium-sized accounts particularly in the financial services & ERP verticals, with project sizes of $0.5M-$1M. There are about 200 small/medium sized banks in China & targeting this customer base is attractive as the solutions are repeatable, thereby driving margins that are in-line with the company average. Valuation: Buy rating and $21 PT Our $21 PT is based on 18x C12E P/E and DCF. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$10.09 on 07 Sep 2011 16:42 EDT UBS 15
    • Morning Expresso - United States 8 September 2011UBS Key Calls - USLive Key Call Portfolio Stock Name RIC Rating Price Target Date of call Current Price Analyst Apple Inc. AAPL.O Buy US$510 2-Jun-11 US$383.93 Maynard Um Baker Hughes Inc. BHI.N Buy US$102 7-Jun-11 US$60.39 Angie Sedita Cardinal Health, Inc. CAH.N Buy US$51 18-Jan-11 US$42.62 Steven Valiquette Celgene Corporation CELG.O Buy US$71 9-Dec-10 US$60.26 Matthew Roden, PhD CONSOL Energy, Inc. CNX.N Buy US$84 4-Aug-11 US$45.56 Shneur Gershuni, CFA Deere & Co. DE.N Buy US$110 18-Jan-11 US$79.35 Henry Kirn, CFA Dow Chemical DOW.N Buy US$46.5 21-Mar-11 US$27.07 Andrew Cash Ford Motor Co. F.N Buy US$22 10-Jan-11 US$10.56 Colin Langan, CFA General Electric Co. GE.N Buy US$20 10-Jan-11 US$15.8 Jason Feldman Google Inc. GOOG.O Buy US$800 10-May-10 US$534.03 Brian Pitz Joy Global Inc. JOYG.O Buy US$112 28-Feb-11 US$83.11 Henry Kirn, CFA Prudential Financial Inc. PRU.N Buy US$77 19-Apr-10 US$48.73 Andrew Kligerman Qualcomm Inc. QCOM.O Buy US$70 26-Apr-11 US$51.69 Parag Agarwal SanDisk Corp. SNDK.O Buy US$62 21-Mar-11 US$37.635 Uche OrjiSource: Reuters, UBS. Prices as at market close on September 7, 2011. UBS 16
    • Morning Expresso - United States 8 September 2011Rating & PT ChangesKey Rating and Price Target Changes: US Company Name Directional Indicator/Rationale Reuters Code Current New New PT Prior Prior PT Share Price Rating Rating 3M Company Reiterate Buy, lower PT MMM.N US$80.57 Buy US$95 Buy US$103 Anadarko Petroleum Corp. Reiterate Buy, lower PT APC.N US$73.42 Buy US$96 Buy US$100 Apache Corporation Reiterate Buy, lower PT APA.N US$99.62 Buy US$141 Buy US$146 CenterPoint Energy Inc. Reiterate Buy, lower PT CNP.N US$19.61 Buy US$22 Buy US$21 Chesapeake Energy Corp. Maintain Neutral, lower PT CHK.N US$31.51 Neutral US$33 Neutral US$36 ConocoPhillips Maintain Neutral, lower PT COP.N US$67.31 Neutral US$64 Neutral US$77 Cooper Industries Inc. Reiterate Buy, lower PT CBE.N US$47.07 Buy US$61 Buy US$70 Danaher Corporation Reiterate Buy, lower PT DHR.N US$44.24 Buy US$58 Buy US$60 Devon Energy Corporation Upgrade to Buy, lower PT DVN.N US$66.38 Buy US$85 Neutral US$90 Eaton Corporation Maintain Neutral, lower PT ETN.N US$41.23 Neutral US$44 Neutral US$57 Emerson Electric Co. Maintain Neutral, lower PT EMR.N US$44.74 Neutral US$48 Neutral US$58 Encore Energy Partners LP Upgrade to Buy, lower PT ENP.N US$19.54 Buy US$22 Neutral US$23 Energen Corp. Reiterate Buy, lower PT EGN.N US$47.35 Buy US$67 Buy US$72 EOG Resources Maintain Neutral, lower PT EOG.N US$90.67 Neutral US$100 Neutral US$110 EQT Corporation Reiterate Buy, lower PT EQT.N US$62.09 Buy US$70 Buy US$72 ExxonMobil Corp. Upgrade to Buy, maintain PT XOM.N US$73.65 Buy US$90 Neutral US$90 FreightCar America Maintain Neutral, lower PT RAIL.O US$17 Neutral US$19 Neutral US$31 General Electric Co. Reiterate Buy, lower PT GE.N US$15.8 Buy US$20 Buy US$23 Hess Corp. Reiterate Buy, lower PT HES.N US$59.26 Buy US$83 Buy US$90 Honeywell International Inc. Maintain Neutral, lower PT HON.N US$47.03 Neutral US$50 Neutral US$60 Itron Inc. Maintain Neutral, lower PT ITRI.O US$38.18 Neutral US$42 Neutral US$50 Key Call: CONSOL Energy, Reiterate Buy, lower PT CNX.N US$45.56 Buy US$84 Buy US$90 Inc. UBS 17
    • Morning Expresso - United States 8 September 2011 Company Name Directional Indicator/Rationale Reuters Code Current New New PT Prior Prior PT Share Price Rating Rating Kinder Morgan Energy Maintain Neutral, lower PT KMP.N US$69.08 Neutral US$71 Neutral US$75 Partners Layne Christensen Reiterate Sell, lower PT LAYN.O US$26.24 Sell US$26 Sell US$27 Company LINN Energy, LLC Reiterate Buy, lower PT LINE.O US$36.9 Buy US$46 Buy US$47 Momenta Pharmaceuticals Maintain Neutral, lower PT MNTA.O US$16.92 Neutral US$17 Neutral US$20 Inc Murphy Oil Corporation Maintain Neutral, lower PT MUR.N US$52.63 Neutral US$57 Neutral US$68 National Fuel Gas Company Reiterate Buy, lower PT NFG.N US$62.13 Buy US$75 Buy US$80 Navistar International Reiterate Buy, lower PT NAV.N US$39.12 Buy US$60 Buy US$85 Newfield Exploration Co. Reiterate Buy, lower PT NFX.N US$49.86 Buy US$75 Buy US$81 Noble Energy, Inc. Reiterate Buy, lower PT NBL.N US$85.97 Buy US$111 Buy US$113 Occidental Petroleum Corp. Reiterate Buy, lower PT OXY.N US$84.54 Buy US$112 Buy US$114 OfficeMax Incorporated Maintain Neutral, lower PT OMX.N US$5.73 Neutral US$6 Neutral US$8 Pioneer Natural Resources Maintain Neutral, lower PT PXD.N US$77.13 Neutral US$85 Neutral US$96 Co. QEP Resources Inc. Reiterate Buy, lower PT QEP.N US$35.03 Buy US$50 Buy US$53 Quicksilver Resources Inc. Downgrade to Neutral, lower PT KWK.N US$9.61 Neutral US$11 Buy US$13 Rockwell Automation Inc. Maintain Neutral, lower PT ROK.N US$59.25 Neutral US$64 Neutral US$80 SandRidge Energy Inc Maintain Neutral, lower PT SD.N US$7.39 Neutral US$8 Neutral US$10 Southwestern Energy Upgrade to Buy, lower PT SWN.N US$37.6 Buy US$44 Neutral US$52 Company Spectra Energy Corp. Reiterate Buy, lower PT SE.N US$25.52 Buy US$30 Buy US$31 Stanley Black & Decker Reiterate Buy, lower PT SWK.N US$59.06 Buy US$77 Buy US$83 Temple-Inland Downgrade to Neutral, increase PT TIN.N US$30.99 Neutral US$32 Buy US$28 Tyco International Ltd. Reiterate Buy, lower PT TYC.N US$40.73 Buy US$46 Buy US$50 Ultra Petroleum Corp. Maintain Neutral, lower PT UPL.N US$32.9 Neutral US$35 Neutral US$45 Williams Cos Inc. Reiterate Buy, lower PT WMB.N US$26.47 Buy US$35 Buy US$37Source: Reuters, UBS. Prices as at market close on September 7, 2011. UBS 18
    • Morning Expresso - United States 8 September 2011Markets, Events and NewsflowToday’s Company Events Company Name Event Reuters code Rating PT Notes KiOR Inc Earnings Release KIOR.O Buy US$28 Patterson Cos Earnings Release PDCO.O Neutral US$32Source: Reuters, UBS. Prices as at market close on September 7, 2011.Today’s Macroeconomic Events: US Indicator Time (ET) UBS forecast Previous Consensus Jobless Claims (Sep 3)lvl 9:30 na na na Trade Balance (Jul)lvl 9:30 na -$53.1 bil -$49.7 bil Quarterly Services Survey (Q2) 11:00 na na na Flow of Funds Possible (Q2)qoq 13:00 na na na Consumer Credit (Jul)mom 16:00 na -$15.5 bil $4.00 bilSource: Bloomberg, UBS UBS 19
    • Morning Expresso - United States 8 September 2011Today’s UBS Hosted Corporate Roadshow: Company Event Location CenturyLink 1X1 meeting hosted by Batya Levi UKToday’s UBS Hosted Fieldtrip: Company Event Location NoneToday’s UBS Hosted Conference: Company Event Location Best of Americas Conference UBS Conference London UBS 20
    • Morning Expresso - United States 8 September 2011Latest Market Movements: Country/Region Market Latest Price/Last Close 1-day % Change YTD % Change Americas United States Dow Jones 11414.9 2.47 -1.40 United States S&P 500 1198.6 2.86 -4.69 United States Nasdaq 2548.9 3.04 -3.92 United States S&P VIX 33.38 -9.78 Europe Europe FTSE Eurofirst300 929.8 -0.18 -17.10 Belgium BEL 20 2176.9 0.37 -15.58 Germany DAX 5374.0 -0.58 -22.28 France CAC 3081.6 0.27 -19.01 Italy MIB 30 14715.8 0.48 -27.05 Netherlands AEX 280.7 -0.12 -20.83 Portugal PSI 20 6172.2 0.59 -18.66 Spain IBEX 8247.6 1.12 -16.35 Switzerland SMI 5496.4 -0.09 -14.60 UK FTSE 100 5304.7 -0.26 -10.09 Asia Hong Kong Hang Seng 19879.5 -0.84 -13.70 India BSE Sensex 17018.3 -0.27 -17.02 Japan Nikkei 225 8793.1 0.34 -14.04Source: UBS, Reuters. Indices in Americas as at market close on September 7, 2011. Indices in Europe and Asia as at 05:00 EDT on September 8, 2011Latest FX Movements: Name Currency Latest Price/Last Close 1-day % Change 1-month % Change YTD % Change Euro €/$ 1.409 -0.03% -0.6% 5.2% UK £/$ 1.599 0.29% -2.0% 2.5% Canada CAD/$ 1.017 0.67% 1.0% 1.4% Switzerland CHF/$ 1.165 0.43% -12.0% 8.8% China Yuan/$ 0.156 -0.04% 0.7% 3.1% Brazil BRL/$ 0.605 0.08% -1.7% 0.3% India INR/$ 0.022 -0.11% -2.6% -3.1% Mexico MXN/$ 0.080 0.43% -1.1% -1.0% Japan $/JPY 0.772 -0.38% -0.7% -4.9% Australia AUD/$ 1.065 1.54% 4.4% 4.1%Source: UBS, Reuters. Prices as at market close on September 7, 2011 UBS 21
    • Morning Expresso - United States 8 September 2011Latest Commodity Movements: Name Latest Price 1-day % Change 1-month % Change YTD % Change Gold ($/oz) 1840.70 1.27 6.91 28.35 Brent Crude spot, $/bbl 114.96 -0.73 10.81 22.19 WTI Crude spot, $bbl 88.82 -0.58 - - Natural Gas, $MMBTU 3.93 -0.20 -1.75 -6.87Source: UBS, Reuters. Prices as at market close September 8, 2011. UBS 22
    • Morning Expresso - United States 8 September 2011UBS Conferences and SeminarsFor the week of 5th to 9th September From To Event Location NoneUpcoming UBS Conferences and Seminars From To Event Location 8-Sep-2011 9-Sep-2011 Best of Americas Conference 2011 London 12-Sep-2011 13-Sep-2011 Global Transport Conference 2011 London 14-Sep-2011 15-Sep-2011 Global Paper and Forest Products Conference New York 19-Sep-2011 21-Sep-2011 Global Life Sciences Conference New York 27-Sep-2011 30-Sep-2011 Global Oil & Gas Conference London 28-Sep-2011 28-Sep-2011 UBS Business Development Company (BDC) Conference New York 15-Nov-2011 16-Nov-2011 Global Macro CTA & FX Conference 2011 Zurich 15-Nov-2011 17-Nov-2011 Global Technology and Services Conference New York 29-Nov-2011 01-Dec-2011 Global Real Estate CEO conference LondonRecent events From To Event Location 17-Aug-2011 17-Aug-2011 What If...Grey or Black Skies Lie Ahead? Conference Call 19-Aug-2011 19-Aug-2011 TV/Radio/Newspaper M&A Market Update Conference Call 19-Aug-2011 19-Aug-2011 Which Shade? Conference Call 22-Aug-2011 22-Aug-2011 Q2 UBS/Mercent eCommerce Update Conference Call State of the Life Insurance Industry Update and Outlook with 25-Aug-2011 25-Aug-2011 Conference Call Moody’s 25-Aug-2011 25-Aug-2011 MSFT: Top 10 Things To Watch for at BUILD Conference Conference Call*For further information on any of these events, please contact your UBS representative. Replay details may be available for recently concluded conference calls. UBS 23
    • Morning Expresso - United States 8 September 2011Recent UBS Event ab Conference Call Europe and Global Growth Concerns – What do they mean for Markets? Speakers: Larry Hatheway - UBS Chief Global Economist and Head of Global Asset Allocation Stephane Deo - Head of European Economic Research Jeffrey Palma - Chief Global Equity Strategist George Bory - Global Head of Credit Strategy Topics of Discussion: Recent changes to Global Asset Allocation European developments impact on risk assets Global growth profile resulting from systemic stresses Date & Time: Wednesday, September 7, 2011 7:00 New York // 12:00 London // 19:00 HK Dial-in details: Access Code: 21537690 800-897-4035 - US Toll Free 8008190031 - China 212-231-2902 - US Toll 800900141 - Hong Kong 08005280626 – UK 8001011500 - Singapore 0800563057 – Switzerland 0800902007 - France 900947643 – Spain 08001802196 - Germany 1800507915 – Australia 0018005146621 - Mexico 00531160866 – Japan 800785882 - Italy 020792230 – Sweden 80019903 - Norway Replay: Toll Free: 800-633-8284 Toll: 402-977-9140 Code: 21537690 UBS 24
    • Morning Expresso - United States 8 September 2011Further InformationMorning Expresso – United StatesWelcome to the Morning Expresso, an early morning summary of the key ideas and issues presented from UBS forthe day ahead. Its contents include: - key items from UBS’ United States Morning Meeting - highlighted recommendation and price target changes - today’s anticipated company, sector and macro-economic catalysts from the US Contextual Diary - company and client events, conferences and conference calls from UBS - overnight global market, forex and commodity movementsMorning Expresso is designed to give you all that you ‘need to know’ each morning.Data presented is accurate as at 06:00 EDT on Thursday, September 8, 2011.Contacts & FeedbackFor further details concerning today’s Morning Expresso – United States note, please visitwww.ubs.com/investmentresearch or speak to your UBS contact. This note is not intended to be static and it willevolve over time. Feedback welcomed on email toDL-USEquityProductManagement@ubs.com Statement of RiskForecasting earnings and corporate financial behavior is difficult because it isaffected by a wide range of economic, financial, accounting and regulatorytrends, as well as changes in tax policy. UBS 25
    • Morning Expresso - United States 8 September 2011 Analyst CertificationEach research analyst primarily responsible for the content of this researchreport, in whole or in part, certifies that with respect to each security or issuerthat the analyst covered in this report: (1) all of the views expressed accuratelyreflect his or her personal views about those securities or issuers and wereprepared in an independent manner, including with respect to UBS, and (2) nopart of his or her compensation was, is, or will be, directly or indirectly, relatedto the specific recommendations or views expressed by that research analyst inthe research report. UBS 26
    • Morning Expresso - United States 8 September 2011Required DisclosuresThis report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches andaffiliates are referred to herein as UBS.For information on the ways in which UBS manages conflicts and maintains independence of its research product;historical performance information; and certain additional disclosures concerning UBS research recommendations,please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance isnot a reliable indicator of future results. Additional information will be made available upon request. UBS Securities Co.Limited is licensed to conduct securities investment consultancy businesses by the China Securities RegulatoryCommission.UBS Investment Research: Global Equity Rating Allocations 1 2 UBS 12-Month Rating Rating Category Coverage IB Services Buy Buy 54% 39% Neutral Hold/Neutral 39% 35% Sell Sell 7% 14% 3 4 UBS Short-Term Rating Rating Category Coverage IB Services Buy Buy less than 1% 33% Sell Sell less than 1% 25%1:Percentage of companies under coverage globally within the 12-month rating category.2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided withinthe past 12 months.3:Percentage of companies under coverage globally within the Short-Term rating category.4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were providedwithin the past 12 months.Source: UBS. Rating allocations are as of 30 June 2011.UBS Investment Research: Global Equity Rating Definitions UBS 12-Month Rating Definition Buy FSR is > 6% above the MRA. Neutral FSR is between -6% and 6% of the MRA. Sell FSR is > 6% below the MRA. UBS Short-Term Rating Definition Buy: Stock price expected to rise within three months from the time the rating was assigned Buy because of a specific catalyst or event. Sell: Stock price expected to fall within three months from the time the rating was assigned Sell because of a specific catalyst or event. UBS 27
    • Morning Expresso - United States 8 September 2011KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not aforecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stocks price target and/or rating aresubject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect anychange in the fundamental view or investment case.Equity Price Targets have an investment horizon of 12 months.EXCEPTIONS AND SPECIAL CASESUK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management,performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell:Negative on factors such as structure, management, performance record, discount.Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment ReviewCommittee (IRC). Factors considered by the IRC include the stocks volatility and the credit spread of the respective companysdebt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating.When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece.Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are notregistered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained inthe NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by aresearch analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any,follows. UBS 28
    • Morning Expresso - United States 8 September 2011Company Disclosures Company Name Reuters 12-mo rating Short-term rating Price Price date 5a, 6a, 6b, 6c, 7, 16b, 18f 3M Company MMM.N Buy N/A US$80.57 07 Sep 2011 6b, 6c, 7, 16b Allstate Corp. ALL.N Buy N/A US$25.85 07 Sep 2011 4a, 5a, 6a, Anadarko Petroleum Corp. 6c, 7, 13, 16b APC.N Buy N/A US$73.42 07 Sep 2011 2a, 3b, 4a, 14, 16b, 18p AngloGold Ashanti ANGJ.J Buy N/A RCnt32,549 07 Sep 2011 2a, 4a, 5a, 6a, 6c, 7, Apache Corporation 16b APA.N Buy N/A US$99.62 07 Sep 2011 6c, 7, 16b, 18a Apple Inc. AAPL.O Buy N/A US$383.93 07 Sep 2011 8a, 8b, 16b Autodesk Inc. ADSK.O Buy N/A US$27.00 07 Sep 2011 2a, 4a, 5a, 6a, 6b, 6c, 7, Baker Hughes Inc. 13, 16b BHI.N Buy N/A US$60.39 07 Sep 2011 4a, 5a, 6a, 6b, 6c, 7, 8a, 16b, 18g Boeing Co. BA.N Neutral N/A US$64.90 07 Sep 2011 2a, 4a, 6a, 6c, 7, 16b, Cardinal Health, Inc. 18b, 22 CAH.N Buy N/A US$42.62 07 Sep 2011 6c, 7, 16b Celgene Corporation CELG.O Buy N/A US$60.26 07 Sep 2011 4a, 6a, 16b CenterPoint Energy Inc. CNP.N Buy N/A US$19.61 07 Sep 2011 4a, 6a, 16b Chesapeake Energy Corp. CHK.N Neutral N/A US$31.51 07 Sep 2011 6b, 7, 16b, 22 Chubb Corporation CB.N Buy N/A US$61.24 07 Sep 2011 Cognizant Technology Solutions 4a, 6a, 6c, 7, 13, 16b CTSH.O Buy N/A US$64.23 07 Sep 2011 Corp. 6a, 6b, 6c, 7, 16b, 22 ConocoPhillips COP.N Neutral N/A US$67.31 07 Sep 2011 4a, 5a, 6a, 16b CONSOL Energy, Inc. CNX.N Buy N/A US$45.56 07 Sep 2011 2a, 4a, 6a, 6c, 7, Cooper Industries Inc. 16b CBE.N Buy N/A US$47.07 07 Sep 2011 2a, 4a, 5a, 6a, 16b Danaher Corporation DHR.N Buy N/A US$44.24 07 Sep 2011 16b, 22 Deere & Co. DE.N Buy N/A US$79.35 07 Sep 2011 2a, 4a, 5a, Devon Energy Corporation 6a, 6c, 7, 16b, 22 DVN.N Buy N/A US$66.38 07 Sep 2011 5a, 6a, 6b, 6c, 7, 13, 16b, 22 Dow Chemical DOW.N Buy N/A US$27.07 07 Sep 2011 2a, 4a, 5a, 6a, 6c, 7, Eaton Corporation 16b, 18h ETN.N Neutral N/A US$41.23 07 Sep 2011 4a, 5a, 6a, 6b, 7, 13, 16b El Paso Corp. EP.N Buy N/A US$19.08 07 Sep 2011 4a, 6a, 6c, 7, 16b, Emerson Electric Co. 18i EMR.N Neutral N/A US$44.74 07 Sep 2011 16b Encore Energy Partners LP ENP.N Buy N/A US$19.54 07 Sep 2011 16b Energen Corp. EGN.N Buy N/A US$47.35 07 Sep 2011 2a, 4a, 6a, 16b, 22 EOG Resources EOG.N Neutral N/A US$90.67 07 Sep 2011 4a, 6a, 16b EQT Corporation EQT.N Buy N/A US$62.09 07 Sep 2011 5b European Goldfields EGUq.L Buy N/A 783p 07 Sep 2011 16b Everest Re Group, Ltd. RE.N Buy N/A US$81.56 07 Sep 2011 4a, 5a, 6b, 7, 16b, 18j ExxonMobil Corp. XOM.N Buy N/A US$73.65 07 Sep 2011 4a, 6a, 6b, 6c, 7, 13, 14, 16b, Ford Motor Co. 18c F.N Buy N/A US$10.56 07 Sep 2011 4a, 16b, 20 FreightCar America RAIL.O Neutral (CBE) N/A US$17.00 07 Sep 2011 4a, 5a, 6a, 6b, 6c, 7, General Electric Co. 16b, 18k, 22 GE.N Buy N/A US$15.80 07 Sep 2011 4b, 5b, 16b Goldcorp Inc. GG.N Buy N/A US$55.14 07 Sep 2011 2a, 4a, 6a, 6b, 6c, 7, 16b, 22 Goodrich Corp. GR.N Buy N/A US$88.26 07 Sep 2011 2a, 4a, 5a, 6a, 6b, 6c, 7, 16b, 18d Google Inc. GOOG.O Buy N/A US$534.03 07 Sep 2011 6c, 7, 16b Greenlight Capital Re Ltd GLRE.O Neutral N/A US$22.68 07 Sep 2011 16b Hain Celestial Group HAIN.O Neutral N/A US$31.99 07 Sep 2011 16b HCA Inc HCA.N Buy N/A US$19.84 07 Sep 2011 4a, 6a, 13, 16b Hess Corp. HES.N Buy N/A US$59.26 07 Sep 2011 HiSoft Technology International 2a, 4a, 16b HSFT.O Buy N/A US$10.09 07 Sep 2011 Ltd UBS 29
    • Morning Expresso - United States 8 September 2011 Company Name Reuters 12-mo rating Short-term rating Price Price date 4a, 6a, 16b HollyFrontier Corp HFC.N Buy N/A US$37.09 07 Sep 2011 2a, 4a, Honeywell International Inc. 5a, 6a, 6b, 6c, 7, 16b, 18l, 22 HON.N Neutral N/A US$47.03 07 Sep 2011 16b, 20 Hovnanian Enterprises HOV.N Neutral (CBE) N/A US$1.65 07 Sep 2011 13, 16b IAMGOLD Corp. IAG.N Buy N/A US$22.07 07 Sep 2011 4a, 6a, 16b Itron Inc. ITRI.O Neutral N/A US$38.18 07 Sep 2011 3d, 4a, 6a, 13, 16b, 20 Joy Global Inc. JOYG.O Buy (CBE) N/A US$83.11 07 Sep 2011 1, Kinder Morgan Energy Partners 2a, 4a, 5a, 6a, 6b, 6c, 7, 16b, 19b KMP.N Neutral (CBE) N/A US$69.08 07 Sep 2011 16b Layne Christensen Company LAYN.O Sell N/A US$26.24 07 Sep 2011 2a, 4a, 6a, 16b LINN Energy, LLC LINE.O Buy N/A US$36.90 07 Sep 2011 4a, 6c, 7, 16b Marathon Oil Corporation MRO.N Buy N/A US$26.51 07 Sep 2011 2a, Momenta Pharmaceuticals Inc 4a, 6a, 16b MNTA.O Neutral N/A US$16.92 07 Sep 2011 16b Murphy Oil Corporation MUR.N Neutral N/A US$52.63 07 Sep 2011 16b National Fuel Gas Company NFG.N Buy N/A US$62.13 07 Sep 2011 4a, 6a, 16b Navistar International NAV.N Buy N/A US$39.12 07 Sep 2011 13, 16b Newfield Exploration Co. NFX.N Buy N/A US$49.86 07 Sep 2011 4a, 5a, 6a, 6c, 7, Newmont Mining Corp. 16b NEM.N Buy N/A US$63.81 07 Sep 2011 2a, 4a, 6a, 6c, 7, 16b Noble Energy, Inc. NBL.N Buy N/A US$85.97 07 Sep 2011 4a, 6a, 13, 16b NYSE Euronext NYX.N Buy N/A US$27.23 07 Sep 2011 2a, 4a, 5a, Occidental Petroleum Corp. 6a, 16b, 18m OXY.N Buy N/A US$84.54 07 Sep 2011 16b, 20 Office Depot, Inc. ODP.N Neutral (CBE) N/A US$2.61 07 Sep 2011 16b, 20 OfficeMax Incorporated OMX.N Neutral (CBE) N/A US$5.73 07 Sep 2011 2b Osisko Mining Corporation OSK.TO Buy N/A C$14.15 07 Sep 2011 Perseus Mining Limited PRU.AX Buy N/A A$3.80 07 Sep 2011 2a, 4a, 16b Petropavlovsk POG.L Buy N/A 865p 07 Sep 2011 4a, Pioneer Natural Resources Co. 6a, 16b PXD.N Neutral N/A US$77.13 07 Sep 2011 16b Polyus Gold International Ltd POLGq.L Buy N/A US$3.51 07 Sep 2011 2a, 4a, 5a, 6a, Prudential Financial Inc. 6b, 6c, 7, 16b, 22 PRU.N Buy N/A US$48.73 07 Sep 2011 16b QEP Resources Inc. QEP.N Buy N/A US$35.03 07 Sep 2011 16b, 18e Qualcomm Inc. QCOM.O Buy N/A US$51.69 07 Sep 2011 4a, 6a, 16b, Quicksilver Resources Inc. 20 KWK.N Neutral (CBE) N/A US$9.61 07 Sep 2011 6b, 6c, RenaissanceRe Holdings Ltd. 7, 16b RNR.N Buy N/A US$66.74 07 Sep 2011 4a, 6a, 6b, Rockwell Automation Inc. 6c, 7, 16b, 18n ROK.N Neutral N/A US$59.25 07 Sep 2011 4a, 5a, 6a, 6b, 6c, 7, Rockwell Collins Inc. 8a, 16b, 18o COL.N Buy N/A US$48.99 07 Sep 2011 16b Salesforce.com CRM.N Buy N/A US$125.46 07 Sep 2011 13, 16b, 20 SanDisk Corp. SNDK.O Buy (CBE) N/A US$37.64 07 Sep 2011 2a, 4a, 6a, 16b SandRidge Energy Inc SD.N Neutral N/A US$7.39 07 Sep 2011 4a, Southwestern Energy Company 6a, 16b SWN.N Buy N/A US$37.60 07 Sep 2011 6a, 16b Spectra Energy Corp. SE.N Buy N/A US$25.52 07 Sep 2011 2a, 3a, 4a, 5a, Stanley Black & Decker 6a, 6b, 6c, 7, 16b SWK.N Buy N/A US$59.06 07 Sep 2011 5a, 16b Staples Inc. SPLS.O Buy N/A US$14.31 07 Sep 2011 3c, 13, 19a, 22 Temple-Inland TIN.N Neutral (CBE) N/A US$30.99 07 Sep 2011 2a, 4a, 6a, 6c, 7, TransDigm Group Inc. 16b TDG.N Buy N/A US$90.94 07 Sep 2011 UBS 30
    • Morning Expresso - United States 8 September 2011 Company Name Reuters 12-mo rating Short-term rating Price Price date 2a, 4a, 5a, 6a, 6b, Tyco International Ltd. 6c, 7, 16b TYC.N Buy N/A US$40.73 07 Sep 2011 16b, 20 Ultra Petroleum Corp. UPL.N Neutral (CBE) N/A US$32.90 07 Sep 2011 2a, 4a, 5a, 16b Unilever NV UNc.AS Neutral N/A €23.37 07 Sep 2011 2a, 4a, 5a, 14, 16b Unilever Plc ULVR.L Neutral N/A 2,049p 07 Sep 2011 4a, 6a, 16b, Valero Energy Corporation 22 VLO.N Buy N/A US$22.28 07 Sep 2011 4a, 6a, 16b Validus Holdings, LTD. VR.N Buy N/A US$25.67 07 Sep 2011 2a, 4a, Weatherford International Ltd. 5a, 6a, 16b WFT.N Buy N/A US$16.62 07 Sep 2011 13, 16b, 22 Williams Cos Inc. WMB.N Buy N/A US$26.47 07 Sep 2011 4a, 5a, 6a, 16b, 20, 22 XL Group plc XL.N Neutral (CBE) N/A US$20.24 07 Sep 2011 16a Zijin Mining Group - A 601899.SS Buy N/A Rmb5.31 07 Sep 2011Source: UBS. All prices as of local market close.Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricingdate1. UBS Securities LLC is acting as manager/co-manager, underwriter, placement or sales agent in regard to an offering of securities of this company/entity or one of its affiliates.2a. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates within the past 12 months.2b. UBS Securities Canada Inc or an affiliate has acted as manager/co-manager, underwriter or placement agent in regard to an offering of securities for this company/entity or one of its affiliates within the past 12 months.3a. UBS Limited is providing a fairness opinion to the the Board of Niscayah Group AB in relation to the offers it has received from Securitas AB and Stanley Black & Decker Inc3b. UBS Ltd is advising AngloGold Ashanti Ltd on its acquisition of a 19.79% holding in First Uranium Corp from Village Main Reef Ltd.3c. UBS Securities LLC is acting as advisor to International Paper on its announced agreement to acquire Temple Inland Inc.3d. UBS Securities LLC is acting as advisor to Joy Global Inc on the announced acquisition of a stake in International Mining Machinery.4a. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity.4b. Within the past 12 months, UBS Securities Canada Inc or an affiliate has received compensation for investment banking services from this company/entity.5a. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months.5b. UBS Securities Canada Inc or an affiliate expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months.6a. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been, provided.6b. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-investment banking securities-related services are being, or have been, provided.6c. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-securities services are being, or have been, provided.7. Within the past 12 months, UBS Securities LLC has received compensation for products and services other than investment banking services from this company/entity.8a. The equity analyst covering this company, a member of his or her team, or one of their household members has a long common stock position in this company.8b. The equity analyst covering this company, a member of his or her team, or one of their household members has a long options position in this company.13. UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of this company`s common equity securities as of last month`s end (or the prior month`s end if this report is dated less than 10 days after the most recent month`s end).14. UBS Limited acts as broker to this company. UBS 31
    • Morning Expresso - United States 8 September 201116a. UBS Securities (Hong Kong) Limited is a market maker in the HK-listed securities of this company.16b. UBS Securities LLC makes a market in the securities and/or ADRs of this company.18a. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common stock position in Apple, Inc.18b. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common stock position in Cardinal Health, Inc.18c. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common stock position in Ford Motor, Co.18d. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common stock position in Google, Inc.18e. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common stock position in Qualcomm Inc.18f. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in 3M Company.18g. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Boeing Co.18h. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Eaton Corp.18i. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Emerson Electric Co.18j. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Exxon Mobil Corp.18k. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in General Electric.18l. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Honeywell International.18m. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Occidental Petroleum Corp.18n. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Rockwell Automation Inc.18o. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Rockwell Collins Inc.18p. UBS South Africa (Pty) Limited acts as JSE sponsor to this company.19a. Because this company is an announced takeout candidate, UBS believes the security presents lower-than-normal risk. We have widened its rating band to +6%/-10% compared with +6%/-6%, respectively, under the normal rating system.19b. Because UBS believes this security presents lower-than-normal risk, its rating is deemed Buy if the FSR exceeds the MRA by 5% and Sell if the FSR is more than 5% below the MRA (compared with 6% and 6%, respectively, under the normal rating system).20. Because UBS believes this security presents significantly higher-than-normal risk, its rating is deemed Buy if the FSR exceeds the MRA by 10% (compared with 6% under the normal rating system).22. UBS AG, its affiliates or subsidiaries held other significant financial interests in this company/entity as of last month`s end (or the prior month`s end if this report is dated less than 10 working days after the most recent month`s end).Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report.For a complete set of disclosure statements associated with the companies discussed in this report, including information onvaluation and risk, please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention:Publishing Administration.Additional Prices: KiOR Inc, US$15.00 (07 Sep 2011); Patterson Cos Inc, US$28.68 (07 Sep 2011); Source: UBS. All prices asof local market close. UBS 32
    • Morning Expresso - United States 8 September 2011Global DisclaimerThis report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. In certain countries, UBS AG isreferred to as UBS SA.This report is for distribution only under such circumstances as may be permitted by applicable law. Nothing in this report constitutes a representation that any investment strategy orrecommendation contained herein is suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for informationpurposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. 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