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    Financial Pacific - Soft PHSI & Texas manufacturing (third party) Financial Pacific - Soft PHSI & Texas manufacturing (third party) Document Transcript

    • ab Global Equity Research Americas UBS Investment Research Equity Strategy Morning Expresso - United States Market Comment 30 August 2011 www.ubs.com/investmentresearch U.S. Equity Product Management 212-713-2400 Tuesday 30 August 2011 Morning Expresso This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 20. 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 30 August 2011Morning Meeting Agenda CB&I Rating: Buy Target: US$41.00 Price: US$34.03 RIC: CBI.N Prior: Not Rated Prior: Not Rated Mkt Cap: US$3.36bn BBG: CBI US Heavy Construction Analyst: Steven Fisher, CFA Tel: +1-212-713 8634 In the thick of energy markets; Initiate Buy Energy-driven E&C is in the thick of many aspects of LNG and oil & gas We initiate coverage of Chicago Bridge & Iron (CB&I or “CBI”) with a Buy rating. CBI is well positioned for growth in LNG, chemicals, refining, oil sands and upstream markets. UBS forecasts a normalized oil price of $95 Brent and $92 WTI, which we think is supportive of projects. Big backlog provides some visibility to earnings outlook Backlog is up roughly 140% since mid-2009, which gives some confidence in the earnings growth outlook. Backlog could fluctuate in the near term, however, major projects in LNG, oil sands, chemicals and refining could support further growth over the next 12-18 months. Execution has been a challenge but fixed price mix has changed CBI has had execution challenges in the past, most recently during the 2005- 2008 period. However, fixed price mix has declined from 90% lump sum in 2006, to 40% fixed price today, with that 40% a mix of lump sum and hybrid. Additionally, other than parts of Kearl, we do not believe CBI currently has large lump sum process contracts in its CBI Lummus segment. The fixed price risk is mostly in the Steel Plate Structures segment, which should carry lower execution risk. Valuation: Price target is $41 per share We have used a P/E multiple as our primary valuation, supported by EV/EBITDA and DCF. Our $41 target reflects a 13-14x P/E on our 2012E EPS of $3.05/sh. The hist range is 5-25x with a 14x avg. The stock is currently in line with the E&C group, but has better visibility to earnings growth, given the strong backlog. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$34.03 on 29 Aug 2011 18:42 EST UBS 2
    • Morning Expresso - United States 30 August 2011MACRO AND STRATEGY RESEARCH US Daily Economic Comment Economist: Maury N. Harris Tel: +1-212-713 2472 Conference Board confidence likely to drop Preview: Plunge in confidence in Aug, rising home prices through June likely (1) The Conference Board consumer confidence index, although weak, has not shown nearly the deterioration of the University of Michigan or Rasmussen consumer measures. We expect a decline in August (UBSe 51.0, cons 52.0, after 59.5). (2) Housing demand, supported at the beginning of the year by a pickup in distressed sales, has slackened in Q2. However, prices remain supported, with low rates and less of a drag from distressed sales. We forecast a 0.5%m/m increase in the S&P/Case Shiller home price index (cons 0.0%) in June, following no change in May. (3) Weekly store sales figures will also be released for the week of Aug 27. They softened a bit in the prior week after implying, earlier in August, about the same pace of spending growth as in July. The upcoming data could be boosted by storm preparations. (4) Chicago Fed President Evans, typically dovish, will speak with CNBC at 8:00am. Minneapolis Fed President Kocherlakota, one of the last FOMC meeting’s dissenters, will speak about “Economic outlook and a reconsideration of Leverage Incentives” at 12:15pm. The Aug 9 FOMC meeting minutes will be released at 2pm and will provide a bit more insight into the FOMC decision and dissents. Review: Texas mfg “largely unchanged”, PHSI -1.3%, strong spending (1) The general business activity index in the Dallas Fed manufacturing survey fell to -11.4 in August from -2.0 in July, but that headline exaggerated deterioration as “activity was largely unchanged” according to the Dallas Fed. (2) The pending home sales index fell 1.3%m/m in July (cons -1.0%, UBSe -0.5%). The decline only partly reversed the prior months 2.4% rise. (3) Consumer spending rose 0.8% in Jul (cons 0.5%, UBSe 0.7%), and income rose 0.3% (cons & UBSe 0.3%). PCE prices increased 0.4%, and core PCE prices increased 0.2%—in line with expectations Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 29 August 2011 US Economic Comment Economist: Maury N. Harris Tel: +1-212-713 2472 Soft PHSI & Texas manufacturing Pending home sales index, -1.3% in Jul, partly reversing +2.4% in Jun Pending home sales index fell 1.3%m/m in July (cons -1.0%, UBSe -0.5%). The decline only partly reverses the prior months 2.4% rise, and the index still gives the impression of a choppy, sideways trend. That said, realtors have been reporting an increase in cancellations—which if sustained mean that existing home sales will be weaker than suggested by the pending home sales index. (The pending home sales index, based on initially signed contracts, tends to lead existing home sales, based on contract closings, by a month or two.) Furthermore, the mortgage applications purchase index has fallen off in August. We suspect that drop is a temporary effect of market volatility in August, but it also suggests an effect on home sales. Dallas Fed manufacturing “largely unchanged” in Aug The general business activity index in the Dallas Fed manufacturing survey fell to Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 29 August 2011 European Equity Strategy Strategist: Karen Olney, CFA Tel: +44-20-7568 8944 Dividends for all risk appetites How do European equity yields compare to other asset classes? European equities offer a 12m forward yield of c.5%. This is more yield than US equities, AA corporate bonds, most government bonds and money markets by quite a wide margin on an absolute basis and versus history (see page 2). Are dividends a safer way to play value? We think so The chart below shows the performance of the key components of a value style from mid February (when value sold off) and shows that high dividend yields outperformed the market. Even in a black-sky world dividends look supported. If we go back to the 1970s they have fallen by less than 10% peak to trough in every recession except 2009. If we exclude the financials from the dividend cuts in 2009, the fall was only 12% - a quarter of the fall in earnings. See page 3. But avoid the highest yields which often flag distress The highest dividend yields look tempting (page 8). But our quant team show that the highest yields, the 10th decile of dividend yields, actually underperform the slightly lower 9th decile in periods of rising volatility (see chart 8). Dividends to order: relatively safer ones and those big on cash ‘Safer’ Basket: high yields, durable pay-out ratios and no dividend cuts in the past 10 years: Astra Zeneca, Lagardere, Sanofi, Roche, Wolters Kluwer, GlaxoSmithKline, Novartis, Reed Elsevier, ABB, Reckitt Benckiser, Pearson, WPP and Diageo. Cash rich basket: companies with cash on the books including: Electrolux, DSM, CapGemini, Akzo Nobel, Pearson and MAN (see page 7). Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 29 August 2011 UBS 3
    • Morning Expresso - United States 30 August 2011 Global Risk Radar Strategist: Jeffrey Palma Tel: +1-203-719 1135 Risk appetite rises; remains low Risk Appetite Indicator recovers from YTD low levels The UBS Equity Risk Appetite Indicator increased last week last week to -2.17 as of Friday’s close versus -2.48 the week prior, as the MSCI AC World Index increased by 2.5%. Credit & FX component falls The credit & FX component decreased as interest rate swap spreads widened considerably in the US and Euro zone. Corporate credit spreads also widened in the US. This was offset to some extent by lower FX volatility. Equity option volatility component increases The VIX Index decreased to 35.6 from 43.1 the week prior, which contributed to the rise in risk appetite. For reference, the high on the VIX for 2011 was 48, reached on August 8th. Equities positioning component also increases The equities positioning component increased marginally as cyclicals, especially the technology sector, outperformed defensives. On regional performance, US outperformed significantly while the UK was the worst performer. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 29 August 2011 UBS 4
    • Morning Expresso - United States 30 August 2011BASIC MATERIALS North American Metals Update Industrial Services Analyst: Shneur Z. Gershuni, CFA Tel: +1-212-713 3974 NLMK Announces $40/ton Hike Second Price Hike led by NLMK NLMK Indiana, NLMK Pennsylvania and Sharon Coatings group announced late last week a price increase of $40 per ton, effective immediately; following a $60/t hike announced three weeks ago. To support the hike, NLMK noted high raw material costs, tight margins, and lead times into October. Channel Checks- Most Buyers Doubt New Hike Sticks Our calls with steel buyers were mixed- most skeptical of the new hike but a couple expecting prices to head up from here (“the mills don’t have a choice”). All feel the hikes have arrested the most recent decline, most think about half of the original hike has stuck. Sentiment remains that the most recent hike is more about cementing the original $60/ton increase than further increasing prices. Despite Skepticism, Initial Hike Gained Some Traction Buyers were equally skeptical of the recent $60/ton hike. We continue to hear support, more broad as of late, that this first hike has partially stuck. Buyers are hearing spot HRC between $650-700 (depending on buyer and tonnage); higher than the $640 offers earlier this month. Steel Market Update, our official HRC source, has increased its index to $675 from a recent low of $650. Cost Pressure Adds Support Current pricing for HRC ($675 per SMU) is still below the UBS Generic Integrated Mill cost curve (Chart 1) at $740, or $710 cash costs; not unprecedented but rarely sustainable. The “Generic Margin” (HRC less Generic Cost Curve) appears low considering increasing industry utilization, seen in Chart 2. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 29 August 2011 UBS 5
    • Morning Expresso - United States 30 August 2011ENERGY PG&E Corp. Rating: Neutral Target: US$42.00 Price: US$42.15 RIC: PCG.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$15.6bn BBG: PCG US Electric Utilities Analyst: Jim von Riesemann Tel: +1-212-713-4260 Pipeline plan unveiled PCG files pipeline modernization and safety plan On Friday, PCG submitted its pipeline modernization plan to the CPUC that the company hopes to complete over two phases. The first phase is expected to be completed at a capital cost of $1.4B and is earmarked for high priority items (older pipe + densely populated areas) while phase 2 is for rural areas, newer pipe with a timeframe and cost still TBD. The California regulators are expected to begin hearings in November; a final decision is likely sometime in the 1H-2012. We see asymmetrical EPS risk / reward with PCG’s proposal In our view, this adds incremental regulatory risk to the PCG story. Based on our analysis, PCG’s proposed plan offers about $0.05 a share upside potential but perhaps as much as $0.10 a share in potential dilution to 2015 EPS. PCG does not have a tracking mechanism in place, the recovery of these costs is not assured, and the CPUC still appears to have great latitude in determining the allocation of who will bear the expenses, shareholders vs. customers. Our view of the CPUC continues to remain cautious in nature. Long-awaited NTSB report due tomorrow The National Transportation Safety Board is scheduled to present its final report and is expected to discuss the probable cause of the San Bruno accident and proposed safety recommendations beginning at 9:30 am (ET) on August 30. Valuation – Neutral rating remains as does $42 target price Our PT reflects a regulated group median P/E multiple on our 2013E. Our 2013E reflects an earned ROE of 10% at the utility based on current capital structure. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$42.15 on 29 Aug 2011 18:12 EST US Oil Service & Drilling Oil Drilling, Equipment & Services Analyst: Angie Sedita Tel: +1-212-713 3587 Angie’s Oil Service and Drilling Weekly HAL: Key takeaways following meetings with CFO, Mark McCollum We spent three days on the road with HAL last week. Investor interest was high. HAL’s positive commentary alleviated the worst of investor fears, in our view. In North America, the company has not seen any change in customer behavior at this time. In our view, the key will be E&P cash flows for 2012, and thus upstream CAPEX for 2012. Notably, HAL believed that even in a flat rig market in 2012 pressure pumping demand would still exceed supply given a severe shortage. Today, HAL is still adding incremental 24hr frac crews, signing term contracts, w/ the first free frac spread not available until Feb-‘12. Internationally, HAL continues to expect a “slow and steady” recovery in activity and pricing in 2012. Iraq, Libya, Algeria and Angola are still impacting Q3 international margins, but will likely improve in Q4 and 2012. Overall, we believe the sell-off is over done and still have confidence in NAM for 2012; however at $80/bbl (and below) we believe activity would decline from todays levels. See full note on page 4 for additional details. NE: Signed one year contract for moored deepwater rig in the GOM Noble’s fleet status last week was a modest positive, particularly given a new one year contract for the Amos Runner (4th gen EVA semi - 8,000 ft) in the Gulf of Mexico at a $360k rate vs our forecast of $250k. August has been a strong month for GOM permit issuances so far and although it is still too early to call a potential turnaround, we view this contract as a positive indication of operator demand in the GOM. NE maintained guidance for 2011 total fleet downtime of about 3% (implies about 650 days of downtime). Additionally, Noble has changed the format of the Fleet Status report to provide information in a more “consolidated and transparent manner”. See update on page 9 for additional details. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 29 August 2011 UBS 6
    • Morning Expresso - United States 30 August 2011FINANCIALS Bank of America Rating: Neutral Target: US$10.50 Price: US$7.76 RIC: BAC.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$78.6bn BBG: BAC US Banks, Ex-S&L Analyst: William Tanona, CFA Tel: +1-212-713 2325 Pulling levers available to shore up capital BofA completes sale of half its CCB stake As anticipated, BofA announced the sale of 13.1 billion shares of China Construction Bank (CCB), in a private transaction for $8.3 billion, a 10.9% discount to CCB’s closing price. BofA was carrying its CCB stake as available for sale, so the transaction will have a modest effect on book value, but will increase Tier 1 common equity by $3.5 billion. The sale represents slightly greater than half BofA’s total interest, and the bank will continue to own a 5% interest in CCB. Modest benefit to Basel III capital, may already be included in guidance We estimate the sale will have a ~20bps positive impact on the bank’s Basel III capital ratios. However, BofA has highlighted managing equity investments as part of its plans for meeting Basel III targets, suggesting this sale may have already been considered in management’s fully phased in Basel III guidance of 6.75%-7% for 12/31/12. BofA moving quickly, but concerns remain BofA has aggressively moved to ease capital concerns in recent weeks, and while these moves have been welcomed by investors, we believe questions will continue to weigh on the stock until further progress is made on resolving BofA’s large mortgage related liabilities. Valuation Reiterating our Neutral rating and $10.50 PT, which assumes BAC will trade at 0.8x our TBV estimate in 12 months (historical avg of 2.8x). We expect BAC could remain under pressure so long as questions about its capital position persist. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$7.76 on 26 Aug 2011 19:40 EDT UBS 7
    • Morning Expresso - United States 30 August 2011HEALTHCARE US Large Cap & Specialty Pharmaceuticals Pharmaceuticals Analyst: Marc Goodman Tel: +1-212-713 1342 Good News on Copaxone What’s new? District Court issues favorable claim constructions for Teva The US District Court for the Southern District of New York issued a favorable set of claim construction rulings in Teva’s patent infringement lawsuit against Sandoz/Momenta and Mylan/Natco regarding Copaxone. The Court adopted all relevant Teva claim interpretations while rejecting the interpretations set forth by Sandoz/Momenta and Mylan/Natco. The Court also denied Mylan’s motion for summary judgement that the patents were invalid for indefiniteness. The trial will start on September 7, 2011. Our takeaway: More good Copaxone news This is good news and in line with our legal consultant’s expectation. However, while as expected, this has been a significant investor concern and thus should be viewed positively by the investment community. Thoughts on TEVA/MNTA: For TEVA, we continue to believe that investors will choose to focus on the Copaxone litigation and watch from the sidelines. However, for investors with a long term view, we still believe this stock is undervalued. Regarding MNTA, we expect the stock to remain range-bound as investors continue to look for clarity surrounding the outcome of this litigation. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 29 August 2011 UBS 8
    • Morning Expresso - United States 30 August 2011INDUSTRIALS USDA Crop Progress Report Heavy Machinery Analyst: Henry Kirn, CFA Tel: +1-212-713 4895 Corn crop condition deteriorates further Corn crop at 54% in “good” or “excellent” condition Today, USDA reported 54% of the corn crop is in “good” or “excellent” condition, down from last week’s 57%, as well as last year’s 70%. See page 2 for a chart depicting this year’s corn crop condition compared with that of prior years. Corn, soybeans and wheat futures prices rose last week Corn prices increased 5% last week and are 78% above year-ago levels, while soybean prices rose 4% last week and are up 41% YoY. Wheat prices were 3% higher over the past week and are up 13% YoY. We see solid farm profitability as catalyst for farm equipment demand We note corn, soybean, and wheat prices remain well above historical averages. USDA forecasts farm cash net income to increase 8% YoY in 2011, and we see the strength in farm profitability as likely to drive strong farm equipment demand through 2012. We continue to favor Key Call Buy-rated DE for exposure to the NA ag cycle We remain bullish on the farm equipment cycle, as our channel checks indicate both improving demand and pricing. DE remains a UBS Key Call and our preferred way to play the farm equipment cycle as we continue to see beats over the next few quarters as a catalyst for outperformance. Additionally, we maintain our Buy ratings on AGCO and CNH as we expect strength in farm commodity prices as a positive catalyst. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 29 August 2011 UBS 9
    • Morning Expresso - United States 30 August 2011TECHNOLOGY Juniper Networks Rating: Neutral Target: US$24.00 Price: US$21.89 RIC: JNPR.N Prior: Unchanged Prior: US$31.00 Mkt Cap: US$12.0bn BBG: JNPR US Communications Technology Analyst: Nikos Theodosopoulos Tel: +1-212-713 3286 Lowering Estimates and Target Slightly Lower 2012 Growth Estimates on Tougher Macro We slightly lower our 2012 growth estimates for Juniper, now expecting CY12 revenue growth of ~13.5% vs. our prior 15% (Street consensus at 15%). Our lower estimates are the result of a slowing macro environment with the UBS economic’s team recently lowering its 2012 global GDP growth estimate to 3.3% from 3.8%. Juniper May Be Planning Deeper Workforce Reduction Following further industry checks, we believe Juniper may be planning a deeper workforce reduction than we previously anticipated, perhaps ~10% of its total headcount of around 9,300 as of quarter end 2Q11. To us the potential workforce reduction signals a greater focus on maintaining profitability, but also the risk of lower near-term company growth. Ramp of New Products Still Unclear The ramp of Juniper’s new products is still unclear, in our view, and unlikely until 2Q12. Importantly, we see Juniper’s new product launches as a likely catalyst for valuation/ multiple expansion, with more positive investor sentiment possibly delayed until visibility improves—note new QFabric, MobileNext and PTX. Valuation—Neutral Rating We now lower our Juniper price target to $24 based on ~16x our lowered CY12 EPS estimate of $1.53 ex options. Our lower estimates and multiple is reflective of a slower economic environment, likely lower near-term growth for Juniper, and fewer catalysts on the horizon with uncertainty on new product revenue ramps. Prior target of $31 was based on 20x our prior CY12 EPS of $1.55. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$21.89 on 29 Aug 2011 16:12 EDT Qlik Technologies Rating: Neutral Target: US$26.00 Price: US$24.45 RIC: QLIK.O Prior: Unchanged Prior: Unchanged Mkt Cap: US$1.89bn BBG: QLIK UW Software Analyst: Brent Thill Tel: +1-415-352 4694 We Caught Up With One of QLIK’s Competitors We spoke to the CEO of Jaspersoft, a Leading Private BI Vendor The Business Intelligence (BI) industry is highly fragmented beyond the top 5 incumbents. Over 45 vendors make up the remaining 28% market share, with MicroStrategy (MSTR) as the only vendor with >3% share (Gartner). While we don’t see heavy competition between vendors in the industry now, the landscape could change if vendors become more aggressive to grab market share. Jaspersoft vs. QLIK: Higher Growth (Off a Smaller Base) and Lower Cost Jaspersoft’s approach to tackling business intelligence (BI) has proved successful thus far, with 50%-60% annual sales growth from FY09-FY11. Jaspersoft leverages an open source business model to provide a more flexible, cost effective (~20% of the average BI vendor) way to help companies report and analyze data. Similar Customer Profiles, Different Pricing Structure (SaaS) Jaspersoft customers range from large, sophisticated organizations (US Nuclear Regulatory Commission, British Telecom, General Dynamics, McKesson) to smaller customers. Jaspersoft has 1,000+ subscribers, 14k paying in some form and 14M product downloads vs. QLIK’s 21k customers. While QLIK prices on a license basis, Jaspersoft uses a SaaS pricing model. Contracts are typically 1-3 years and are approximately 90% subscription and 10% services. Valuation: QLIK’s $26PT is based on 4.7x Forward NTM Sales We dont think competition from Jaspersoft will have a near term implication on QLIKs valuation, but would keep our eyes out for long term effects. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$24.45 on 26 Aug 2011 16:42 EDT UBS 10
    • Morning Expresso - United States 30 August 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$389.97 Maynard Um Baker Hughes Inc. BHI.N Buy US$102 7-Jun-11 US$58.79 Angie Sedita Cardinal Health, Inc. CAH.N Buy US$51 18-Jan-11 US$42.06 Steven Valiquette Celgene Corporation CELG.O Buy US$71 9-Dec-10 US$58.28 Matthew Roden, PhD Citigroup Inc C.N Buy US$56 3-May-11 US$31.29 William Tanona, CFA CONSOL Energy, Inc. CNX.N Buy US$87 4-Aug-11 US$44.72 Shneur Gershuni, CFA Deere & Co. DE.N Buy US$110 18-Jan-11 US$78.91 Henry Kirn, CFA Dow Chemical DOW.N Buy US$46.5 21-Mar-11 US$28.31 Andrew Cash Ford Motor Co. F.N Buy US$22 10-Jan-11 US$10.93 Colin Langan, CFA General Electric Co. GE.N Buy US$23 10-Jan-11 US$16.04 Jason Feldman Google Inc. GOOG.O Buy US$800 10-May-10 US$539.08 Brian Pitz Joy Global Inc. JOYG.O Buy US$112 28-Feb-11 US$80.82 Henry Kirn, CFA McDonalds Corp. MCD.N Buy US$97 9-Feb-11 US$90.79 David Palmer Prudential Financial Inc. PRU.N Buy US$77 19-Apr-10 US$50.16 Andrew Kligerman Qualcomm Inc. QCOM.O Buy US$70 26-Apr-11 US$50.92 Parag Agarwal SanDisk Corp. SNDK.O Buy US$62 21-Mar-11 US$37.39 Uche OrjiSource: Reuters, UBS. Prices as at market close on August 29, 2011. UBS 11
    • Morning Expresso - United States 30 August 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 CB&I Initiation of Coverage at Buy CBI.N US$34.03 Buy US$41 Not Rated Not Rated Juniper Networks Maintain Neutral, lower PT JNPR.N US$21.9 Neutral US$24 Neutral US$31Source: Reuters, UBS. Prices as at market close on August 29, 2011.Markets, Events and NewsflowToday’s Company Events Company Name Event Reuters code Rating PT Notes NoneSource: Reuters, UBS. Prices as at market close on August 29, 2011.Today’s Macroeconomic Events: US Indicator Time (ET) UBS forecast Previous Consensus Weekly ICSC Store Sales (Aug 27)wow 8:45 na -1.0% na Redbook Store Sales (Aug 27)mom 9:55 na 0.2% na S&P/Case Shiller National Home Prices (Q2)index 10:00 na 139.87 na S&P/Case Shiller Composite 20 Home Prices (Jun)mom 10:00 na -0.1% na Conference Board Confidence (Aug)index 11:00 na 59.5 53.0 Aug 9 FOMC Minutes 15:00 na na naSource: Bloomberg, UBS UBS 12
    • Morning Expresso - United States 30 August 2011Today’s UBS Hosted Corporate Roadshow: Company Event Location Mattel Inc 1X1 meeting hosted by Robert Carroll Mid Atlantic PepsiCo Inc. 1X1 meeting hosted by Kaumil Gajrawala Mid Atlantic / New YorkToday’s UBS Hosted Fieldtrip: Company Event Location NoneToday’s UBS Hosted Conference: Company Event Location Lighting Conference UBS Conference Frankfurt UBS 13
    • Morning Expresso - United States 30 August 2011Latest Market Movements: Country/Region Market Latest Price/Last Close 1-day % Change YTD % Change Americas United States Dow Jones 11539.3 2.26 -0.33 United States S&P 500 1210.1 2.83 -3.78 United States Nasdaq 2562.1 3.32 -3.42 United States S&P VIX 32.28 -9.30 Europe Europe FTSE Eurofirst300 943.1 1.33 -15.92 Belgium BEL 20 2217.3 0.67 -14.01 Germany DAX 5699.8 0.52 -17.56 France CAC 3179.1 0.79 -16.44 Italy MIB 30 15200.4 0.39 -24.65 Netherlands AEX 283.6 0.84 -20.01 Portugal PSI 20 6203.8 0.38 -18.25 Spain IBEX 8485.1 1.07 -13.94 Switzerland SMI 5459.8 0.24 -15.17 UK FTSE 100 5259.5 2.53 -10.85 Asia Hong Kong Hang Seng 20161.1 1.49 -12.48 India BSE Sensex 16549.5 0.81 -19.31 Japan Nikkei 225 8953.9 1.16 -12.46Source: UBS, Reuters. Indices in Americas as at market close on August 29, 2011. Indices in Europe and Asia as at 05:00 EDT on August 30, 2011Latest FX Movements: Name Currency Latest Price/Last Close 1-day % Change 1-month % Change YTD % Change Euro €/$ 1.452 0.16% 0.9% 8.5% UK £/$ 1.642 0.57% 0.0% 5.2% Canada CAD/$ 1.024 0.48% -2.2% 2.2% Switzerland CHF/$ 1.226 -1.16% -3.7% 14.5% China Yuan/$ 0.157 0.09% 0.9% 3.3% Brazil BRL/$ 0.628 0.75% -2.7% 4.3% India INR/$ 0.022 0.23% -4.0% -2.9% Mexico MXN/$ 0.080 0.02% -5.9% -1.0% Japan $/JPY 0.769 0.23% 0.1% -5.4% Australia AUD/$ 1.067 0.96% -2.9% 4.3%Source: UBS, Reuters. Prices as at market close on August 29, 2011 UBS 14
    • Morning Expresso - United States 30 August 2011Latest Commodity Movements: Name Latest Price 1-day % Change 1-month % Change YTD % Change Gold ($/oz) 1798.60 0.39 9.79 26.79 Brent Crude spot, $/bbl 112.34 0.41 -2.69 20.60 WTI Crude spot, $bbl 87.35 0.09 - - Natural Gas, $MMBTU 3.80 -0.57 -7.04 -6.16Source: UBS, Reuters. Prices as at market close August 30, 2011. UBS 15
    • Morning Expresso - United States 30 August 2011UBS Conferences and SeminarsFor the week of 29th to 2nd September From To Event Location NoneUpcoming UBS Conferences and Seminars From To Event Location 30-Aug-2011 30-Aug-2011 All Lighting Conference Frankfurt 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 16
    • Morning Expresso - United States 30 August 2011Recent UBS Event ab Expert Access Conference Call State of the Life Insurance Industry Update and Outlook with Moody’s Host: Andrew Kligerman Global Insurance Strategist and U.S. Life Insurance Analyst Speaker: Robert Riegel - Managing Director, Americas Insurance Joel Levine - SVP and Team Leader, U.S. Life Insurance Scott Robinson - SVP U.S. Life Insurance Ann Perry - VP Senior Credit Officer, U.S. Life Insurance Neil Strauss - VP Senior Credit Officer, U.S. Life Insurance Shachar Gonen - AVP Analyst, U.S. Life Insurance Wallace Enman - VP- Senior Credit Officer, Accounting Specialist Date & Time: Thursday, August 25, 2011 // 10:00 am ET Dial-in Details: Toll Free: 800-926-5431 Toll: 212-231-2922 Code: 21536439 Replay Details: Toll Free: 800-633-8284 Toll: 402-977-9140 Code: 21536439 UBS 17
    • Morning Expresso - United States 30 August 2011Recent UBS Event ab Expert Access Conference Call MSFT: Top 10 Things To Watch for at BUILD Conference Host: Brent Thill UBS Software Analyst Speaker: Mary-Jo Foley Topics of Discussion: Please join Brent Thill and guest speaker Mary Jo Foley for a discussion of the top ten things to look out for at Microsoft’s BUILD Conference (September 13-16 in Anaheim, CA). Date & Time: Thursday, August 25, 2011 // 3:00pm ET / 12:00pm PT Dial-in Details: Toll free: 877-833-5826 Toll: 615-800-6818 Code: 21536561 Replay Details: Toll free: 800-633-8284 Toll: 402-977-9140 Code: 21536561 UBS 18
    • Morning Expresso - United States 30 August 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 Tuesday, August 30, 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 19
    • Morning Expresso - United States 30 August 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 20
    • Morning Expresso - United States 30 August 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 21
    • Morning Expresso - United States 30 August 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 22
    • Morning Expresso - United States 30 August 2011Company Disclosures Company Name Reuters 12-mo rating Short-term rating Price Price date 5, 13, 15, 16, 22 ABB Ltd ABBN.VX Buy N/A CHF16.75 29 Aug 2011 13, 16 AGCO Corp. AGCO.N Buy N/A US$41.91 29 Aug 2011 16, 22 Akzo Nobel AKZO.AS Neutral N/A €33.38 29 Aug 2011 6c, 7, 16, 18a Apple Inc. AAPL.O Buy N/A US$389.97 29 Aug 2011 16 AstraZeneca AZN.L Buy N/A 2,812p 26 Aug 2011 2, 4, 5, 6a, 6b, 6c, 7, 13, Baker Hughes Inc. 16 BHI.N Buy N/A US$58.79 29 Aug 2011 2, 4, 5, 6a, 6b, 6c, Bank of America Corp. 7, 16, 22 BAC.N Neutral N/A US$8.39 29 Aug 2011 16 Capgemini CAPP.PA Buy N/A €27.95 29 Aug 2011 2, 4, 6a, 6c, 7, 16, Cardinal Health, Inc. 18b, 22 CAH.N Buy N/A US$42.06 29 Aug 2011 4, 5, 6a, 16 CB&I CBI.N Buy N/A US$34.03 29 Aug 2011 6c, 7, 16 Celgene Corporation CELG.O Buy N/A US$58.28 29 Aug 2011 2, 4, 5, 6a, 6b, 6c, 7, 16, 22 Citigroup Inc C.N Buy N/A US$31.29 29 Aug 2011 4, 6a, 6b, 6c, 7, 16, 20 CNH Global NV CNH.N Buy (CBE) N/A US$30.70 29 Aug 2011 4, 5, 6a, 16 CONSOL Energy, Inc. CNX.N Buy N/A US$44.72 29 Aug 2011 16, 22 Deere & Co. DE.N Buy N/A US$78.91 29 Aug 2011 3b, 4, 5, 6a, 14, 16 Diageo DGE.L Buy N/A 1,192p 26 Aug 2011 5, 6a, 6b, 6c, 7, 13, 16, 22 Dow Chemical DOW.N Buy N/A US$28.31 29 Aug 2011 4, 16 DSM DSMN.AS Suspended N/A €33.21 29 Aug 2011 16 Electrolux B ELUXb.ST Buy N/A SKr103.30 29 Aug 2011 4, 6a, 6b, 6c, 7, 13, 14, 16, Ford Motor Co. 18c F.N Buy N/A US$10.93 29 Aug 2011 4, 5, 6a, 6b, 6c, 7, 16, General Electric Co. 18f, 22 GE.N Buy N/A US$16.04 29 Aug 2011 4, 5, 14, 16, 18g GlaxoSmithKline GSK.L Buy N/A 1,289p 26 Aug 2011 2, 4, 5, 6a, 6b, 6c, 7, 16, 18d Google Inc. GOOG.O Buy N/A US$539.08 29 Aug 2011 13, 16, 22 Halliburton Co. HAL.N Buy N/A US$42.81 29 Aug 2011 3e, 4, 6a, 13, 16, 20 Joy Global Inc. JOYG.O Buy (CBE) N/A US$80.82 29 Aug 2011 5, 16, 18h Juniper Networks JNPR.N Neutral N/A US$21.90 29 Aug 2011 3c, 3d, 4, 5, 6a, 16, 22 Lafarge LAFP.PA Neutral N/A €28.14 29 Aug 2011 Lagardere LAGA.PA Buy N/A €23.11 29 Aug 2011 13, 16 MAN MANG.DE Neutral N/A €60.26 29 Aug 2011 6b, 7, 13, 16, 22 McDonalds Corp. MCD.N Buy N/A US$90.79 29 Aug 2011 2, 4, Momenta Pharmaceuticals Inc 6a, 16 MNTA.O Neutral N/A US$17.28 29 Aug 2011 5, 16 Noble Corporation NE.N Buy N/A US$32.59 29 Aug 2011 3a, 5, 13, 15, 16, 22 Novartis NOVN.VX Buy N/A CHF46.39 29 Aug 2011 16, 22 Pearson PSON.L Buy N/A 1,064p 26 Aug 2011 2, 4, 6a, 16 PG&E Corporation PCG.N Neutral N/A US$42.15 29 Aug 2011 2, 4, 6a, 6b, 6c, Prudential Financial Inc. 7, 16, 22 PRU.N Buy N/A US$50.16 29 Aug 2011 16 Qlik Technologies QLIK.O Neutral N/A US$25.60 29 Aug 2011 16, 18e Qualcomm Inc. QCOM.O Buy N/A US$50.92 29 Aug 2011 16 Reckitt Benckiser RB.L Buy N/A 3,207p 26 Aug 2011 5, 14, 16, 22 Reed Elsevier plc REL.L Buy N/A 486p 26 Aug 2011 5, 15, 16, 22 Roche ROG.VX Neutral N/A CHF137.90 29 Aug 2011 13, 16, 20 SanDisk Corp. SNDK.O Buy (CBE) N/A US$37.39 29 Aug 2011 5, 16 Sanofi SASY.PA Buy N/A €49.86 29 Aug 2011 16 Teva Pharmaceuticals TEVA.O Buy N/A US$40.59 29 Aug 2011 13, 16 Wolters Kluwer WLSNc.AS Buy N/A €12.88 29 Aug 2011 16 WPP WPP.L Neutral N/A 615p 26 Aug 2011 UBS 23
    • Morning Expresso - United States 30 August 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 pricingdate2. 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.3a. UBS AG is acting as agent on the announced share buy-back programme of Novartis AG3b. UBS AG is acting as Financial Adviser to Diageo PLC on the tender offer of Sichuan Swellfun Co Ltd3c. UBS AG, Australia Branch is acting as financial adviser to Boral Limited on the acquisition of Lafarge’s 50% interest in the joint venture Lafarge Boral Gypsum Asia, and will be receiving a fee for acting in this capacity.3d. UBS Limited is acting as advisor to Anglo American Plc on the creation of a 50:50 Joint Venture with Lafarge SA in connection with Anglo American Plcs business division Tarmac Quarry Materials and Lafarge SAs UK business.3e. UBS Securities LLC is acting as advisor to Joy Global Inc on the announced acquisition of a stake in International Mining Machinery.4. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity.5. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months.6a. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been, provided.6b. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-investment banking securities-related services are being, or have been, provided.6c. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-securities services are being, or have been, provided.7. Within the past 12 months, UBS Securities LLC has received compensation for products and services other than investment banking services from this company/entity.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.15. UBS AG, its affiliates or subsidiaries has issued a warrant the value of which is based on one or more of the financial instruments of this company.16. UBS Securities LLC makes a market in the securities and/or ADRs of this company.18a. 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 General Electric.18g. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in GlaxoSmithKline.18h. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Juniper Networks Inc.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). UBS 24
    • Morning Expresso - United States 30 August 2011Unless 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. UBS 25
    • Morning Expresso - United States 30 August 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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