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Financial Pacific - U.S. Broker and Universal Banks (third party)

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Financial Pacific - U.S. Broker and Universal Banks (third party) Financial Pacific - U.S. Broker and Universal Banks (third party) Document Transcript

  • ab Global Equity Research Americas UBS Investment Research Equity Strategy Morning Expresso - United States Market Comment 16 August 2011 www.ubs.com/investmentresearch U.S. Equity Product Management 212-713-2400 Tuesday 16 August 2011 Morning Expresso This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 18. 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 16 August 2011Morning Meeting Agenda Estée Lauder Rating: Buy Target: US$118.00 Price: US$100.85 RIC: EL.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$20.2bn BBG: EL US Cosmetics Analyst: Nik Modi Tel: +1-212-713 2204 Beyond The Numbers: Reiterate Buy A Pattern Forming...Why Take Numbers Down to Take Them Up Again? As we indicated in our “First Read” earlier today, Estée management has a history of providing extremely conservative initial fiscal year guidance (the company has managed to beat revenue, gross and operating margin targets as well as EPS by an average of 50% since 2009). Over the past 2 years, consensus estimates for the following year have gone down post June Q results only to rise dramatically a few quarters later (see charts in body). While consensus may come down due to guidance of $4.00-$4.20, we estimate Estee can deliver FY12 EPS of $4.40. Did You Miss the EL Run…Sell Off Creates Entry Point Looking back to past 4Q reports, the stock has underperformed the market by close to 300 bps (usually because of conservative guidance). Investors who took advantage of these one day sell offs, experienced significant outperformance (19%/27% outperformance over 180/360 days). We continue to believe the stock sell off today was due to FY12 EPS guidance, which we believe is conservative. What is Long Term EPS Power at Estee Lauder? Driven by accelerated category growth, share gains, white space expansion, positive price/mix, operating leverage and incremental cost savings, we estimate 13-14% EPS growth through 2015. We expect the company to be the next “10 in 10” story. That is, the company would be able to deliver high quality 10% EPS growth every year for the next 10 years. Valuation: $118 Price Target Derived via DCF Our target implies 24x our CY12 EPS of $4.83. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$100.85 on 12 Aug 2011 19:39 EDT US Brokers and Universal Banks Diversified Financial Analyst: William Tanona, CFA Tel: +1-212-713 2325 July Master Trust: early stage delinquencies begin to stabilize Credit card charge-offs should start to show signs of normalizing July master trust filings show stabilizing early stage delinquencies, which means improvements in charge-offs should begin to moderate in a few quarters. On average, 30-89 day delinquencies were stable, while 90+ day delinquencies dropped 9 bps m/m. Default rates fell m/m for JPMorgan and ticked up modestly for BofA and Citigroup (up 17 bps for each) after falling over 100 bps last month. No change to our outlook for credit card losses Given overall credit trends in credit card master trust data, we remain comfortable with our quarterly loss estimates for our coverage universe (5.15% for JPM, 6.59% for BAC and 9.10% for Citi). Delinquency trends indicate NCO improvements should start to moderate Half of the master trust filings we analyze showed a modest uptick in 30-59 day delinquencies. While this data can be noisy, moderating improvements in early stage delinquencies imply the pace of credit improvements should begin to slow. Sector attractive, but a long-term view is required While we continue to believe the sector has compelling upside potential over a two to three year time period, the near-term could remain extremely volatile given global macro stresses and uncertain economic growth. The group trades at 0.8x TBV, which we view as attractive given the group’s potential to generate low teens ROTE in a more normalized environment. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 15 August 2011 UBS Global I/O®:IT Hardware Technology Analyst: Maynard J. Um Tel: +1-212-713 3372 Some Signs of Life in US Back to School Recent retail checks indicate some increased PC sales activity Our recent checks suggest that the Back-To-School PC demand began to show better relative signs of life in late July & into August. While still too early to call a positive turn, the checks are at least encouraging relative to prior data points & could result in some positive news for once if the trends are more broad-based. Non-iPad Tablet Sell-through Still Appears to Be Lagging Non-iPad tablet sales appear to continue to lag based on our checks. Perhaps as evidence of this, a number of vendors have reduced price – HP Touchpad & ViewSonic G-Tablet dropped by $100, Acer Iconia Tab A500 by $50 at Best Buy & Wal-Mart, & the Vizio 8 inch tablet by $50 at Wal-Mart. Asus Transformer & Toshiba Thrive appear most popular of non-iPads (though iPad still dominates). SKU count/avg ASP increase though largely due to higher DRAM configs The number of SKUs held by retailers generally increased month over month, though largely due to higher DRAM configurations of same models (4GB & 6GB). However, on a like-for-like PC basis, ASPs have generally been flat to down $200 into the August Back-to-School push. Most & Least Preferreds Across the PC Hardware companies, Apple, Dell & Lenovo are our most preferreds while Acer and Compal Electronics are our least preferreds given their respective end market exposures and momentum. While a further deceleration in the macro-economy would have impacts to transaction-based hardware companies, we maintain our view of enterprise & emerging markets over developed consumer. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 15 August 2011 UBS 2
  • Morning Expresso - United States 16 August 2011 U.S. Software Software Analyst: Brent Thill Tel: +1-415-352 4694 2012 Recession? We’ve Got You Covered Shelter from the Storm To help us handicap the best performing software stocks should the economy enter into a recession we screened our software coverage universe based on 4 criteria; 1) stocks that outperformed in 2008-09, 2) a recession scenario analysis on 2012E EPS, 3) exposure to Europe and public sector, and 4) current vs. trough valuations. Software #1 Tech Sub-Sector in 2008-09 Recession Software stocks are likely to outperform other areas of technology in a potential recession similar to 2008-09. Compared to the rest of technology, software companies tend to be more resilient with revenue and profit less cyclical due to higher levels of recurring revenue in the form of maintenance or subscription-based business models. Earnings and PT Scenario Analysis We examined the 2012E revenue, earnings and PT sensitivities of our coverage universe under mild and severe recession scenarios representing 2 different magnitudes of deterioration in the economic climate. Top Recession Picks – Assumes Recession on Par with 2008-09 Our top 3 ‘most preferred’ severe recession picks are ORCL, CHKP and INTU, with heavier mixes of recurring revenues, higher priority spend categories (e.g., security), and relatively better fundamentals in the last recession. Our top 3 ‘least preferred’ severe recession picks are ADSK, ADBE and CTXS, with a lower mix of recurring revenues, companies more reliant on better environments to sell products, coupled with some valuation concerns. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 15 August 2011 Motorola Mobility Rating: Neutral Target: US$40.00 Price: US$38.13 RIC: MMI.N Prior: Buy Prior: US$31.00 Mkt Cap: US$11.2bn BBG: MMI US Diversified Technology Services Analyst: Amitabh Passi Tel: +1-415-352 5537 Downgrading MMI to Neutral Downgrade to Neutral on Google Takeout Offer We downgrade MMI to Neutral from Buy following the $40/share, all-cash, take out offer from Google which we consider fair. As we had previously written, our $31 price target, based on a sum-of-the parts analysis, gave no credit to the $8/share in DTAs MMI has. Ex-cash/DTAs the business is being valued at 0.5x TTM sales or 0.4x 2012 sales @ $40/share. The deal also seems fair to CEO, Dr. Sanjay Jha, who has ~5.2m options and 0.9m RSUs outstanding (~4.6m options at strike price of $35.37), and should be satisfactory to activist investor Carl Icahn. Many Questions Remain Unanswered – More from Google’s perspective We believe many questions remain unanswered on the longer-term implications of this deal, especially from Google’s perspective, and include whether MMI’s tax-free spin-off nature would be affected by the deal; how cross-license agreements will be maintained under change of control; impact to other Android OEM partners; Google’s longer-term HW aspirations for both mobile devices and video infra. (does Google move to an integrated device model?). We don’t anticipate any major regulatory roadblocks to prevent this deal from going through. Deal Bids Up Shares of Others Handset Players; Question Size of Moves On the back of this deal, shares of other handset makers such as Nokia and RIMM have reacted favourably. We think the scarcity premium diminishes with each IP-related deal and remain sceptical of a take out of RIMM at current levels. Valuation: Downgrade to Neutral; Price Target to $40 PT based on Google’s takeout offer price for MMI. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$38.13 on 15 Aug 2011 17:42 EDT UBS Global I/O®: Telecom Equipment Technology Analyst: Gareth Jenkins Tel: +44-20-7567 3950 Implications of Google’s acquisition of MMI Input: Google to acquire MMI for $40/share, a 63% premium to last close Google announced that it will acquire MMI for $40/share (63% premium) or total price of $12.5bn (EV of c$9.5bn), which translates to 0.6x 2012E EV/sales and 14x EV/EBIT. The deal is expected to close by end-2011 or early 2012. Output: risks for other Android OEMs? Unlikely as Google needs scale While MMI will be run as a separate business and Android will remain open, we believe this does raise risks of conflict of interest as well as Google competing head on with other Android OEMs. Having said that, Google needs scale and as such should be largely neutral for other Android OEMs. Irrespective, Samsung, HTC may look to de-risk their OS strategy by emphasizing more on WP7, which will be positive for Microsoft, but will likely increase competition for Nokia. Output: Does Microsoft feel compelled to own hardware? We believe this will again raise questions of a handset acquisition by MSFT given integrated hardware-software business models of Apple and now Google. We believe GOOG’s move is motivated more by IP rather than an integrated model and for MSFT we believe it is likely to continue to focus on its software strategy and wait and watch on the success of WP7 before any strategic move. Output: highlights value of IP in the industry The value of IP comes to the fore again and we believe will lend valuation support to NOK, ERIC, ALU. In handsets our preference is for AAPL, QCOM, SEC, Spirent; least preferred are Gemalto, MediaTek, LGE, and Silitech. We also have Buy ratings on GOOG, MSFT, and downgrade MMI to Neutral from Buy on the back of this deal. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 15 August 2011 UBS 3
  • Morning Expresso - United States 16 August 2011Google Inc. Rating: Buy Target: US$800.00 Price: US$557.23 RIC: GOOG.O Prior: Unchanged Prior: Unchanged Mkt Cap: US$178bn BBG: GOOG US Internet Services Analyst: Brian Pitz Tel: +1-212-713 9310 Reiterate Buy: Well Positioned for Growth We reiterate our Buy on UBS Key Call GOOG as the core search business remains intact and adjacent / emerging businesses like mobile, display advertising, and social are accelerating. We believe the stock is cheap as investors remain concerned about perceived frivolous spending, the FTC investigation, and recent management changes. But we feel these concerns are overblown given GOOG’s positioning in big, rapidly growing markets. Core Search Intact as Emerging Businesses Accelerate Google remains the leader in global search as CPC growth and paid click growth accelerate. And the company is focusing investment in key multi-billion dollar opportunities: 1) Android has ~40% market share and GOOG sees ~2.7B AdMob ad requests daily, up 3.5x Y/Y; 2) Display is on a ~$3.5B run rate; and 3) Google+ has 25MM users in its first month; the social platform could improve ad targeting as GOOG benefits from the social graph. Investment Thesis Outlined in Slide / Comment Format To highlight our investment thesis, we include easily digestible slides and comments starting on page 2. Also note, we believe the pending MMI acquisition is a positive for Google and Android. Please see today’s companion note entitled “Google to Acquire Motorola Mobility” for details on the $12.5B acquisition. Valuation Represents Attractive Entry Point At ~10x 2012 Op P/E (ex-cash) we view this as a trough valuation representing an attractive entry point. Our $800 PT is based on a DCF (12% WACC, 3.5% LTGR). Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$557.23 on 15 Aug 2011 18:42 BST UBS 4
  • Morning Expresso - United States 16 August 2011MACRO AND STRATEGY RESEARCH US Daily Economic Comment Economist: Maury N. Harris Tel: +1-212-713 2472 Better SLOOS, flat HMI, NY mfg weakens Preview: IP +1.0%est. Steady single-family housing activity. (1) Motor vehicles, utilities, and mining probably pushed industrial and manufacturing production to a solid rise in July. We forecast industrial production +1.0% (cons 0.5% after 0.2%) and manufacturing +0.6%, but manuf. ex autos up a softer 0.2%. (2) The ICSC store sales measure softened in the first week of August. The Redbook index picked up. Despite slipping prices, sales indexes have shown some net re-acceleration recently (see chart on page 4). (3) After a surge in multi-family starts in June, we forecast a partial reversal in July, with single-family starts little changed. Permits likely followed a similar pattern, albeit with a smaller swing in multi-family. (Starts UBSe 595k, cons 600k, after 629k.) (4) Falling natural gas and nonenergy petroleum prices probably weighed on import prices in July (UBSe 0.0%, cons -0.1%, after -0.5%). Review: Empire -7.7 after -3.8. Improved lending. HMI unchanged at 15. (1) The S&P 500 rose 2.2% on Monday and has fully reversed the weakening of last week. Even so, it remains down 9.1% from the July average. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 15 August 2011 US Economic Comment Economist: Maury N. Harris Tel: +1-212-713 2472 Banks eased standards more broadly in Jul Broader easing in July than in April, and stronger loan demand In the Feds senior loan officer opinion survey for July, banks reported easing standards on all types of loans. For almost all categories of loans, the net percentage of banks easing lending standards was larger at the start of Q3 than it had been at the start of Q2. For example, 21.8% of banks on net reported easing standards for large business C&I loans, up from 16.4% the prior quarter. Business lenders cited "aggressive competition" as the reason for easing. There was some net easing of residential mortgage standards, commercial real estate standards, C&I standards, and nonmortgage consumer loans standards. Although a smaller net percentage of banks eased standards for small business loans (7.8% vs 13.5%) and for consumer credit cards (9.3% versus 20.5%) than had in the prior quarter, these were relatively small steps backward within a broader expansion of bank credit easing. Demand for loans also strengthened, with the exception of residential mortgages. Also slightly soft—demand by small businesses was fairly restrained. Broader easing is more supportive of Q3 growth and hiring The net easing in lending standards and strengthening in loan demand suggests support for spending at the start of Q3. The survey ran from July 12 to 26—fairly recent although it missed the grand finale of the Federal debt negotiations. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 15 August 2011 UBS 5
  • Morning Expresso - United States 16 August 2011COMMUNICATION Telecommunications & Pay TV Broadcasting Analyst: John C. Hodulik, CFA Tel: +1-212-713 4226 Broadband makes up for weakening video Video losses doubled vs. a year ago We estimate the industry’s video losses were 436K in 2Q, more than twice the 204K lost a year ago. Cable and satellite providers blamed the economy and increased competition for the weaker than expected results. Telcos continued to improve penetration of homes passed (VZ at 30%, AT&T at 16%), capturing a total of 7.3% market share vs. 5.6% a year ago. Satellite providers gained 40 bps of share, reaching 33.5%, while cable’s share was 59.3%, down 200 bps yoy. Video ARPU still growing, but at a slower rate—OTT to blame? We believe the lackluster housing market continues to be the main reason for the weakness in video adds. While cord-cutting is likely impacting results at the margin, we believe the impact of over-the-top is more prevalent in ARPU trends. Cable MSOs’ video ARPU growth decelerated to 3.9% from 4.6% in 1Q, resulting in just 0.7% video revenue growth, half of the 1Q rate. We estimate total industry video revenues grew 5.2% yoy, down from 5.7% in 1Q and 6.5% a year ago. Cable leads in broadband; Data ARPU growth accelerates Broadband subs grew 6.3% yoy in 2Q, in-line with the last four quarters. Cable continued to take a majority of the flow share, capturing 84% in 2Q vs. 66% in 1Q and over 100% a year ago. We expect this trend to continue with cable garnering 75% of flow share in 2012. Cable is also benefiting from the improved mix of higher-speed subs, boosting ARPU growth to 2.5% from 1.9% in 1Q. Cable VoIP adds slowed to 307K from 407K a year ago. This helped improve the annual declines in telco voice lines to 9.1% in 2Q from 9.4% in 1Q and 9.8% a year ago. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 15 August 2011 UBS 6
  • Morning Expresso - United States 16 August 2011CONSUMER Lowes Rating: Buy Target: US$25.00 Price: US$19.68 RIC: LOW.N Prior: Unchanged Prior: US$26.00 Mkt Cap: US$25.9bn BBG: LOW US Retailers, Broadline Analyst: Michael Lasser Tel: +1-212-713 2440 Long-term gain, short-term pain? LOW 2Q was better than feared & provided more fodder for the debate Despite a difficult sales result (including a -0.3% comp decline vs. our flat est and the consensus est of 1.2%), Lowe’s was able to achieve a decent profitability outcome for the quarter with EPS of $0.68 (ex. charges), which was ahead of our (and the consensus) estimate of $0.66. Lowe’s is maintaining its more aggressive stance to close the gap with HD As part of the strategy, LOW will expand its list of benchmark items that it prices competitively. While this is likely to cause some incremental gross margin pressure in the near term, the company expects that it will drive traffic gains and greater expense leverage over the long term. We think the jury is still out on the cost-benefit analysis, but the market does not appear to be ascribing a high probability of success based on the discounted valuation vs. HD. Several near-term factors should support the stock We think there are several appealing factors for LOW’s near-term investment case: The company has set a lower bar for 2H’11 by guiding to flat comps (note that comps are running positive QTD). Also, we expect LOW should see less of a drag from soft appliance trends. This caused a ~50 bps comp drag in 2Q’11. Lastly, we believe Lowe’s should continue to generate strong expense leverage (2Q’11 op margin expanded 34 bps). Valuation: LOW trading at a 9% FCF yield & less than 6x ‘11E EBITDA In our view, LOW’s attractive valuation should provide some potential downside support even as its gross margin outlook is more uncertain. Our $25 target is based on a blend of a DCF and multiple analysis (equates to 14x our CY’12 EPS est of $1.76). Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$19.68 on 15 Aug 2011 18:42 EDT UBS 7
  • Morning Expresso - United States 16 August 2011ENERGY Transocean Rating: Buy Target: US$72.00 Price: US$57.26 RIC: RIG.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$18.3bn BBG: RIG US Oil Drilling, Equipment & Services Analyst: Angie Sedita Tel: +1-212-713 3587 Acquiring Aker Drilling (4 Ultra-deep rigs) Total offer price $3.13 bil (incl cash + acq’d net debt + construction capex) RIG will acquire Aker Drilling for a total consideration of $3.13 bil ($1.43 bil in cash + $800 mil assumed Aker debt + $900 mil in remaining CAPEX to complete the construction of the two newbuild drillships). On a valuation basis RIG paid the construction costs of the rigs ($3.1 bil construction costs); however, on a NAV basis we estimate a slight premium of 10%- 12% to NAV (still looks reasonable). Aker brings 4 new high spec ultra-deepwater rigs + 2 options Aker operates two harsh environment, ultra-deepwater, 6th gen semi-submersible rigs on long-term contract in Norway (adds $1 bil in backlog). Aker also has two ultra-deepwater drillships under construction at the Daewoo Shipyard in Korea, expected to be delivered late-2013. The two drillships will cost $600 mil to build and are both uncontracted. The two harsh-environment semis were constructed for $950 mil each. Aker also has two attractively priced drillship options at $600 mil with 25% due at signing and the remainder at completion, options expire Oct 11. View deal as modest positive, adds high quality rigs to fleet We view the deal as a modest positive given: 1) a seemingly reasonable valuation based on construction costs; 2) the high specification nature of the rig fleet; 2) greater exposure to attractive and steady Norway market; 3) the strong free cash flow position of RIG; 4) Transocean’s unwillingness to build without contract and thus a method to expand the fleet; 5) the well priced options for two more ultra-deepwater rigs. Valuation: Maintain Buy Rating – RIG trading at 12% disc to peers on ‘12E Our $72 price target is based on a 6.6x 2012E EV/EBITDA multiple. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$57.26 on 15 Aug 2011 17:12 EDT US Electric Utilities & IPPs Utilities Analyst: Julien Dumoulin-Smith Tel: +1-212-713 9848 Examining the Possibilities in NJ NJ BPU: Settlement discussions underway, but we remain doubtful Following the FERC’s conference on Minimum Offer Price Rules (MOPR), the NJ BPU and PJM have engaged in settlement discussions. Parties remain fixated on a solution for long term procurement under the RPM capacity auction (BPU suggests 10-yr contracts are a min.); an extended New Entry (NEPA) mechanism to 7-9 years remains a viable compromise in our view, allowing for new and incumbent generators to lock in capacity prices (election of this option must be chosen ahead of a given auction, likely limiting use by existing generators). That said, NJ’s insistence on nearer term solutions outside of RPM likely prevent an amenable resolution; unconvincingly, the BPU suggested in meetings that reliability was threatened as PJM’s reserve margin and demand projections were too low. LCAPP #2: Coming soon, and with a twist that could improve its chances We believe a second (~1GW) LCAPP solicitation is likely forthcoming. While terms are ambiguous, we anticipate the state to subsidize capacity through economic development funds, tax abatement, and municipal financing arrangements among other “options” being considered by the BPU, designed specifically to allow bidders to apply for an exemption under the MOPR. Enabling legislation is needed and would likely be approved (albeit with slimmer support from Democrats). While LCAPP #2 would supplement the original procurement, we believe the winning bids under the original LCAPP SOCA agreements would never be developed, allowing for these assets to be re-procured under the latest solicitation. As a consequence, we believe it conceivable (although certainly not definite) new capacity under LCAPP could clear the RPM market in MAAC at current levels. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 16 August 2011 UBS 8
  • Morning Expresso - United States 16 August 2011HEALTHCARE Pfizer Rating: Buy Target: US$23.00 Price: US$18.21 RIC: PFE.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$147bn BBG: PFE US Pharmaceuticals Analyst: Marc Goodman Tel: +1-212-713 1342 Pfizer Wins Viagra; Bumping Estimates What’s new? District Court rules in Pfizer’s favor against Teva Pfizer initially sued Teva for patent infringement on the ‘012 patent in March 2010. On Friday, the US District Court in Virginia ruled that Teva did not show the ‘012 patent to be invalid for obviousness nor for double-patenting, and that Pfizer did not commit inequitable conduct. Thus, the patent is valid and enforceable until October 2019 (excluding pediatric exclusivity). Our takeaway: Upside to Pfizer, we had been expecting generics The fact that Pfizer will retain Viagra until 2019 is a substantial positive and counter to our expectations that Teva would enter sooner. We have updated our model to reflect patent protection through 2019, which on its own represents an upside in EPS of ~$0.08-0.12 per year through 2016. For now, we assume 50% of this upside will flow to the bottom line, with the rest being reinvested in spending, resulting in an increase of ~$0.04-0.06 per year in our numbers. Thoughts on the stock: Further upside in an already undervalued stock We believe PFE is undervalued and the Viagra win is substantial upside to our existing numbers. We look for Apixaban data at ESC and Tofacitinib data at ACR to be the major catalysts for the remainder of the year. Valuation: We maintain our Buy rating and $23 PT based on our DCF The implied P/E multiple from our DCF is 10x our 2012E EPS of $2.30. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$18.21 on 15 Aug 2011 12:42 EDT US Medical Devices Advanced Medical Devices Analyst: Rajeev Jashnani, CFA Tel: +1-212-713 9127 JNJ & ABT : weekly Rx for wk ending 8/5 JNJ: Zytiga, Stelara & novel anti-coagulant updates Zytiga: absolute TRx / NRx were 856 / 422 (averages over the prior 4-wks: 762/ 404). Wkly Rx volume has been relatively steady over the past few wks; we expect improvement after summer months. Implied run rate currently stands at $235M. Stelara: TRx up 86%. Among sub-cu products, mkt share in derm stands at 19.1% (+90 bps relative to 4-wk average; +440 bps YTD). Xarelto: posted TRx of 406, 231 & 96 over the past 3 wks. Implied annual run rate is immaterial at this level (<$5M). Product was approved for deep vein thrombosis in pts undergoing knee or hip replacement surgery on 7/1; key upcoming event is FDA a-fib panel on 9/8. Notably, in the novel anti-coagulant space, Pradaxa penetration is still hovering in 7-8% range; we expected better uptake. ABT: Humira growth solid; Niaspan declines may be manageable Humira: YOY TRx growth 11% (12-wk moving average: 12%) relative to sub-cu market growth of 8% (12-wk moving average: 9%). We model 3Q11 sales of $855M; current brand performance suggests incremental sales upside of $30M (~$0.01-$0.02 benefit to EPS). Tricor franchise: TRx volumes remain weak at -15% (12-wk moving average: -15%). That said, ABT has managed revs effectively w/ sales +1% in 2Q11 despite -14% in TRx, which we attribute to pricing (+14% cumulatively) and lower performance rebates. Niaspan: YOY TRx declines seem to have moderated at -10%. Despite soft volumes, we think ABT can manage revs similar to Tricor. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 15 August 2011 U.S. Pharmaceuticals Pharmaceuticals Analyst: Marc Goodman Tel: +1-212-713 1342 Weekly Rx Tracker Issuing weekly Rx tracker for week ending August 05, 2011 This report tracks the weekly Rx trends and the required growth rates to meet our sales forecasts for upcoming quarters for key new launches and switches. Our takeaways for this week for specialty pharmaceuticals For AGN, Latisse (-11% Y/Y) declined as did CEPH’s Amrix (-85% Y/Y). FRX’s Bystolic (+34% Y/Y) and Savella (+20% Y/Y) grew while PFE’s Embeda (-100% Y/Y) continued to fall strongly (due to recalls on March 15). WPI’s Gelnique (+1% Y/Y) & Rapaflo (+95%) continued their growth. Lastly, WCRX’s Actonel (-33% Y/Y) and Asacol (-12% Y/Y) continued to decline. Our takeaways for this week for large cap pharmaceuticals For MRK, Dulera (+6% sequential) and Saphris (+102% Y/Y) grew. BMY’s Orencia (- 24% Y/Y) declined. LLY’s Effient grew (+126% Y/Y). For NVO, Victoza (+104% Y/Y) increased. Lastly, PFE’s Chantix (-16% Y/Y), Lipitor (-4% Y/Y) and Lyrica (-1% Y/Y) continued to decline as expected. Our takeaways for key switches we are watching For Asacol-Asacol HD, Asacol HD’s share increased to 25.1% of NRxs from 25.4% last week while for Provigil/Nuvigil, Nuvigil’s share decreased to 47.9% of NRxs vs 48.5% last week. In the DPP-IV market, NRxs grew 25% Y/Y. Onglyza/Kombiglyze XR/Tradjenta gained modest share with Januvia/Janumet holding at 82.6% share vs 82.7% last week. Xifaxan’s NRxs increased 0.4% Y/Y and the switch trend continued with 550mg now at 73.0% of NRxs vs 72.1% last week. Additionally, generic Concerta had 78.9% of NRxs (vs 77.1% last week). Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 15 August 2011 UBS 9
  • Morning Expresso - United States 16 August 2011INDUSTRIALS Boeing Rating: Neutral Target: US$73.00 Price: US$61.68 RIC: BA.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$45.7bn BBG: BA US Aerospace Analyst: David E. Strauss Tel: +1-212-713 6185 Tracking Dreamlifter Activity Watching flights into Paine Field in Everett 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 resume We have tracked five Dreamlifter arrivals in total into Everett so far in August. This is well above the prior month’s pace as Boeing has resumed component deliveries into Everett following a roughly three-week pause, although still lower than levels seen in early 2010. We have also tracked one flight into Charleston for the second production line so far in 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$61.68 on 15 Aug 2011 10:12 EDT Danaher Rating: Buy Target: US$60.00 Price: US$44.72 RIC: DHR.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$28.9bn BBG: DHR US Industrial, Diversified Analyst: Jason Feldman Tel: +1-212-713 4309 Agilent’s F3Q results consistent with outlook for DHR’s Test & Measurement unit Agilent’s F3Q results (July) relevant for DHR’s Test & Measurement unit We believe Agilent’s Electronic Measurement Group (EMG) is a good comp for DHR’s Tektronix business (Tek is roughly half of DHR’s T&M segment, which is ~1/5 of DHR sales pro forma for BEC). Their product mix is similar, including key products like oscilloscopes and other electronic test & measurement equipment. Agilent expects +11% YoY sales growth in F4Q ending in October At the mid-point, Agilent’s F4Q (October-end) sales guidance implies +11% YoY growth. Mgmt’s overall outlook was relatively positive; while softer vs last quarter, unless gov’t spending is materially cut, underlying demand is “expected to be roughly the same.” In F3Q, Agilent reported organic revenue growth of 19% YoY, and +14% YoY ex-FX (down slightly vs 21% YoY in F2Q). EMG revenues grew 24% YoY on an organic basis in F3Q, down slightly vs 26% in F2Q. Europe was weak (unsurprisingly) and declined 1% organically in F3Q vs +19% YoY in F2Q. Agilent’s results/commentary consistent with DHR’s guidance In DHR’s 2Q (June-end vs. July-end for Agilent) the T&M segment had organic sales growth of ~13.5% (+9.5% core, excluding +4% from FX). We believe Agilent’s results are consistent with overall expectations for T&M, as well as DHR’s formal FY2011 guidance (+6-8% organic growth across DHR ex-FX). Valuation: Buy rating and $60 price target PT reflects a ~45-50% premium to the market multiple on our 2011 EPS 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$44.72 on 15 Aug 2011 18:42 EDT USDA Crop Progress Report Heavy Machinery Analyst: Henry Kirn, CFA Tel: +1-212-713 4895 Corn crop condition still slightly below normal Corn crop steady at 60% in “good” or “excellent” condition Today, USDA reported 60% of the corn crop is in “good” or “excellent” condition, in line with last week’s 60%, but below last year’s 69%. 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 74% above year-ago levels, while soybean prices rose 3% last week and are up 30% YoY. Wheat prices were 9% higher over the past week and are up 7% 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 recent strength in farm commodity prices to be a likely positive catalyst for shares. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 15 August 2011 UBS 10
  • Morning Expresso - United States 16 August 2011TECHNOLOGY HiSoft Technology Rating: Buy Target: US$21.00 Price: US$11.52 RIC: HSFT.O Prior: Unchanged Prior: Unchanged Mkt Cap: US$0.36bn BBG: HSFT US Diversified Technology Services Analyst: Arvind Ramnani Tel: +1-212-713 3517 Solid June quarter results; guidance raised Strong June quarter results As we had anticipated in our preview note on 8/5, HSFT posted strong F2Q results. F2Q revs. of $50.9M (+46.6% y/y and 14.8% q/q) was well ahead of UBSe/Street est. of $47.2M, and adj. EPS of $0.18 was in-line with our ests & 0.01 ahead of St. ests. Employee headcount increased by 464, from 5,946 in F1Q to 6,410 in F2Q. Revenue growth was driven by quicker than expected recovery of its Japanese business (consistent with our checks) & strong growth from its domestic China business (+272% y/y). 2Q adj margins of 11.2% was 20bps ahead of our estimates. Impressive guidance raise F11 revenue guidance was upped to “at least” $212M (+44.6% y/y) from “at least” $194.5M (+32.7%) well above UBSe/St’s estimates of $200.2M/$197.9M. EPS guidance was upped to $0.80-$0.84 from $0.76-$0.80, above UBSe/St.’s estimates of $0.79/$0.78. F3Q revenue guidance of $56M-$57M is well above UBSe/St’s $51.3M/$50.7M and EPS guidance of $0.22-$0.23 is in-line with UBSe of $0.22 and slightly above Street estimates of $0.21. Key questions for 6:00pm ET call today (Dial-in 800-860-2442) 1) Impact of macro headwinds on demand trends; 2) How much of a buffer (in terms of a potential double-dip recession) does 2011 guidance have; 3) Spending pattern among top-10 clients; 4) Update on Japan business. Valuation: Buy rating and $21 PT (based on 18x C12 P/E and DCF) We will review our model after the 6pm ET call. Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$11.52 on 15 Aug 2011 17:12 EDT UBS 11
  • Morning Expresso - United States 16 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$383.41 Maynard Um Baker Hughes Inc. BHI.N Buy US$102 7-Jun-11 US$64.57 Angie Sedita Cardinal Health, Inc. CAH.N Buy US$51 18-Jan-11 US$41.6 Steven Valiquette Celgene Corporation CELG.O Buy US$71 9-Dec-10 US$55.74 Matthew Roden, PhD Citigroup Inc C.N Buy US$56 3-May-11 US$31.27 William Tanona, CFA CONSOL Energy, Inc. CNX.N Buy US$74 4-Aug-11 US$42.37 Shneur Gershuni, CFA Deere & Co. DE.N Buy US$115 18-Jan-11 US$76.5 Henry Kirn, CFA Dow Chemical DOW.N Buy US$46.5 21-Mar-11 US$30.08 Andrew Cash Ford Motor Co. F.N Buy US$22 10-Jan-11 US$11.35 Colin Langan, CFA General Electric Co. GE.N Buy US$23 10-Jan-11 US$16.39 Jason Feldman Google Inc. GOOG.O Buy US$800 10-May-10 US$557.23 Brian Pitz Joy Global Inc. JOYG.O Buy US$112 28-Feb-11 US$81.98 Henry Kirn, CFA McDonalds Corp. MCD.N Buy US$97 9-Feb-11 US$86.82 David Palmer Prudential Financial Inc. PRU.N Buy US$77 19-Apr-10 US$52.5 Andrew Kligerman Qualcomm Inc. QCOM.O Buy US$70 26-Apr-11 US$51.26 Parag Agarwal SanDisk Corp. SNDK.O Buy US$62 21-Mar-11 US$38.2 Uche OrjiSource: Reuters, UBS. Prices as at market close on August 15, 2011. UBS 12
  • Morning Expresso - United States 16 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 Lowes Companies, Inc. Reiterate Buy, lower PT LOW.N US$19.68 Buy US$25 Buy US$26 Motorola Mobility Holding Downgrade to Neutral, increase PT MMI.N US$38.13 Neutral US$40 Buy US$31 IncSource: Reuters, UBS. Prices as at market close on August 15, 2011.Markets, Events and NewsflowToday’s Company Events Company Name Event Reuters code Rating PT Notes Analog Devices Earnings Release ADI.N Neutral US$43 Dell Earnings Release DELL.O Buy US$18.7 Dicks Sporting Good Earnings Release DKS.N Buy US$41 Evergreen Solar Earnings Release ESLR.O Suspended #N/A Home Depot Earnings Release HD.N Buy US$38 Perrigo Earnings Release PRGO.O Buy US$100 Photronics Inc. Earnings Release PLAB.O Buy US$11.5Source: Reuters, UBS. Prices as at market close on August 15, 2011. UBS 13
  • Morning Expresso - United States 16 August 2011Today’s Macroeconomic Events: US Indicator Time (ET) UBS forecast Previous Consensus Weekly ICSC Store Sales (Aug 13)wow 8:45 na -0.5% na Redbook Store Sales (Aug 13)mom 9:55 na 0.7% na Housing Starts (Jul)lvl 9:30 na 629 k 610 k Import Prices (Jul)mom 9:30 na -0.5% -0.1% Industrial Production (Jul)mom 9:30 na 0.2% 0.4% Capacity Utilization (Jul)% 9:30 na 76.7% 76.9%Source: Bloomberg, UBSToday’s UBS Hosted Corporate Roadshow: Company Event Location NoneToday’s UBS Hosted Fieldtrip: Company Event Location NoneToday’s UBS Hosted Conference: Company Event Location None UBS 14
  • Morning Expresso - United States 16 August 2011Latest Market Movements: Country/Region Market Latest Price/Last Close 1-day % Change YTD % Change Americas United States Dow Jones 11482.9 1.90 -0.82 United States S&P 500 1204.5 2.18 -4.23 United States Nasdaq 2555.2 1.88 -3.68 United States S&P VIX 31.87 -12.34 Europe Europe FTSE Eurofirst300 952.6 -1.72 -15.08 Belgium BEL 20 2227.7 -2.14 -13.61 Germany DAX 5863.0 -2.64 -15.20 France CAC 3167.3 -2.22 -16.75 Italy MIB 30 15544.7 -2.16 -22.94 Netherlands AEX 287.8 -2.02 -18.84 Portugal PSI 20 6207.4 -1.95 -18.20 Spain IBEX 8554.1 -1.78 -13.24 Switzerland SMI 5256.6 -1.28 -18.33 UK FTSE 100 5274.2 -1.43 -10.61 Asia Hong Kong Hang Seng 20188.6 -0.35 -12.36 India BSE Sensex 16902.3 0.37 -17.59 Japan Nikkei 225 9107.4 0.23 -10.96Source: UBS, Reuters. Indices in Americas as at market close on August 15, 2011. Indices in Europe and Asia as at 05:00 EDT on August 16, 2011Latest FX Movements: Name Currency Latest Price/Last Close 1-day % Change 1-month % Change YTD % Change Euro €/$ 1.444 1.37% 2.1% 7.9% UK £/$ 1.638 0.61% 1.5% 5.0% Canada CAD/$ 1.020 0.65% -2.8% 1.8% Switzerland CHF/$ 1.276 -0.72% 4.0% 19.2% China Yuan/$ 0.156 -0.02% 1.1% 3.1% Brazil BRL/$ 0.629 1.32% -1.1% 4.4% India INR/$ 0.022 0.12% -1.8% -1.4% Mexico MXN/$ 0.082 0.66% -4.0% 0.9% Japan $/JPY 0.768 0.18% -2.9% -5.4% Australia AUD/$ 1.050 1.27% -1.3% 2.6%Source: UBS, Reuters. Prices as at market close on August 15, 2011 UBS 15
  • Morning Expresso - United States 16 August 2011Latest Commodity Movements: Name Latest Price 1-day % Change 1-month % Change YTD % Change Gold ($/oz) 1779.20 1.21 9.58 23.31 Brent Crude spot, $/bbl 108.83 -0.98 -8.34 15.64 WTI Crude spot, $bbl 86.70 -1.34 - - Natural Gas, $MMBTU 3.98 -0.94 -7.13 -1.18Source: UBS, Reuters. Prices as at market close August 16, 2011. UBS 16
  • Morning Expresso - United States 16 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 16, 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 17
  • Morning Expresso - United States 16 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 18
  • Morning Expresso - United States 16 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 19
  • Morning Expresso - United States 16 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 20
  • Morning Expresso - United States 16 August 2011Company Disclosures Company Name Reuters 12-mo rating Short-term rating Price Price date 4, 6a, 6c, 7, 8a, 16 Abbott Laboratories ABT.N Buy N/A US$49.91 15 Aug 2011 12 Acer Inc. 2353.TW Sell N/A NT$34.50 15 Aug 2011 4, 6c, 7, 13, 16 Adobe Systems Inc. ADBE.O Buy N/A US$24.65 15 Aug 2011 13, 16 AGCO Corp. AGCO.N Buy N/A US$40.84 15 Aug 2011 5, 6c, 7, 8a, 16, 18f Alcatel-Lucent ALUA.PA Buy N/A €2.63 15 Aug 2011 6c, 7, 16, 18a Apple Inc. AAPL.O Buy N/A US$383.41 15 Aug 2011 2, 4, 5, 6a, 6c, 7, 16 AT&T Inc. T.N Neutral N/A US$28.81 15 Aug 2011 8a, 8b, 16 Autodesk Inc. ADSK.O Buy N/A US$30.09 15 Aug 2011 2, 4, 5, 6a, 6b, 6c, 7, 13, Baker Hughes Inc. 16 BHI.N Buy N/A US$64.57 15 Aug 2011 2, 4, 5, 6a, 6b, 6c, Bank of America Corp. 7, 16, 22 BAC.N Neutral N/A US$7.76 15 Aug 2011 4, 5, 6a, 6b, 6c, 7, 8a, 16, 18g Boeing Co. BA.N Neutral N/A US$62.70 15 Aug 2011 2, 4, 6a, 6c, 7, 16, Cardinal Health, Inc. 18b, 22 CAH.N Buy N/A US$41.60 15 Aug 2011 6c, 7, 16 Celgene Corporation CELG.O Buy N/A US$55.74 15 Aug 2011 Check Point Software 16 CHKP.O Buy N/A US$56.73 15 Aug 2011 Technologies Ltd 2, 4, 5, 6a, 6b, 6c, 7, 16, 22 Citigroup Inc C.N Buy N/A US$31.27 15 Aug 2011 16, 18h Citrix Systems Inc. CTXS.O Neutral N/A US$62.02 15 Aug 2011 4, 6a, 6b, 6c, 7, 16, 20 CNH Global NV CNH.N Buy (CBE) N/A US$32.78 15 Aug 2011 Compal Electronics Inc. 2324.TW Sell N/A NT$29.95 15 Aug 2011 4, 5, 6a, 16 CONSOL Energy, Inc. CNX.N Buy N/A US$42.37 15 Aug 2011 2, 4, 5, 6a, 16 Danaher Corporation DHR.N Buy N/A US$44.72 15 Aug 2011 16, 22 Deere & Co. DE.N Buy N/A US$76.50 15 Aug 2011 2, 4, 6a, 6b, 6c, 7, 16 Dell Inc. DELL.O Buy N/A US$15.50 15 Aug 2011 5, 6a, 6b, 6c, 7, 13, 16, 22 Dow Chemical DOW.N Buy N/A US$30.08 15 Aug 2011 16 Ericsson ERICb.ST Buy N/A SKr72.65 15 Aug 2011 16 Estée Lauder EL.N Buy N/A US$94.27 15 Aug 2011 4, 6a, 6b, 6c, 7, 13, 14, 16, Ford Motor Co. 18c F.N Buy N/A US$11.35 15 Aug 2011 16 Gemalto GTO.PA Sell N/A €30.67 15 Aug 2011 4, 5, 6a, 6b, 6c, 7, 16, General Electric Co. 18i, 22 GE.N Buy N/A US$16.39 15 Aug 2011 2, 4, 5, 6a, 6b, 6c, 7, 16, 18d Google Inc. GOOG.O Buy N/A US$557.23 15 Aug 2011 HiSoft Technology International 2, 4, 16 HSFT.O Buy N/A US$11.52 15 Aug 2011 Ltd HTC Corporation 2498.TW Buy N/A NT$827.00 15 Aug 2011 16 Intuit Inc. INTU.O Buy N/A US$43.13 15 Aug 2011 16, 18j Johnson & Johnson JNJ.N Buy N/A US$64.59 15 Aug 2011 3, 4, 6a, 13, 16, 20 Joy Global Inc. JOYG.O Buy (CBE) N/A US$81.98 15 Aug 2011 16 Lenovo Group Ltd 0992.HK Buy N/A HK$4.86 15 Aug 2011 16 LG Electronics 066570.KS Neutral N/A Won64,800 12 Aug 2011 16 Lowes Companies, Inc. LOW.N Buy N/A US$19.68 15 Aug 2011 6b, 7, 13, 16, 22 McDonalds Corp. MCD.N Buy N/A US$86.82 15 Aug 2011 MediaTek Inc. 2454.TW Neutral N/A NT$266.50 15 Aug 2011 4, 5, 6a, 6b, 6c, 7, 16 Merck & Co. MRK.N Buy N/A US$32.13 15 Aug 2011 4, 5, 6a, 6b, 6c, 7, 16, 18k, 22 Microsoft Corp. MSFT.O Buy N/A US$25.51 15 Aug 2011 13, 16, Motorola Mobility Holding Inc 19 MMI.N Neutral (CBE) N/A US$38.13 15 Aug 2011 4, 5, 6a, 6b, 6c, 7, 13, 16 Nokia NOK1V.HE Neutral N/A €4.09 15 Aug 2011 16, 18l Oracle Corporation ORCL.O Buy N/A US$27.64 15 Aug 2011 6b, 6c, 7, 16, 22 Pfizer Inc. PFE.N Buy N/A US$18.34 15 Aug 2011 2, 4, 6a, 6b, 6c, Prudential Financial Inc. 7, 16, 22 PRU.N Buy N/A US$52.50 15 Aug 2011 UBS 21
  • Morning Expresso - United States 16 August 2011 Company Name Reuters 12-mo rating Short-term rating Price Price date 16, 18e Qualcomm Inc. QCOM.O Buy N/A US$51.26 15 Aug 2011 16, 22 Samsung Electronics 005930.KS Buy N/A Won707,000 12 Aug 2011 13, 16, 20 SanDisk Corp. SNDK.O Buy (CBE) N/A US$38.20 15 Aug 2011 Silitech Technology 3311.TW Neutral N/A NT$80.70 15 Aug 2011 4, 5, 14, 16 Spirent Plc SPT.L Buy N/A 133p 15 Aug 2011 2, 4, 5, 6a, 6c, 7, 13, 16, Transocean Ltd. 18m, 22 RIG.N Buy N/A US$57.26 15 Aug 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.3. 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.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.12. Directors or employees of UBS AG, its affiliates or subsidiaries are directors of 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.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 Alcatel-Lucent.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 Citrix Systems Inc. UBS 22
  • Morning Expresso - United States 16 August 201118i. 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.18j. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Johnson & Johnson.18k. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Microsoft Corp.18l. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Oracle Corporation.18m. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Transocean Inc.19. 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.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: Analog Devices Inc., US$32.08 (15 Aug 2011); Dicks Sporting Goods, Inc., US$32.92 (15 Aug 2011);Evergreen Solar Inc., US$0.18 (15 Aug 2011); Home Depot Inc., US$31.47 (15 Aug 2011); International Rectifier Corp.,US$23.62 (15 Aug 2011); iSoftStone Holdings Ltd, US$11.46 (15 Aug 2011); NetApp Inc, US$44.31 (15 Aug 2011); Perrigo,US$88.38 (15 Aug 2011); PetSmart, Inc., US$41.86 (15 Aug 2011); Photronics Inc., US$6.19 (15 Aug 2011); Staples Inc.,US$13.70 (15 Aug 2011); Source: UBS. All prices as of local market close. UBS 23
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