Financial Pacific - Valuation provides attractive opportunity, d.r. horton (dhi.n) (third party)
Upcoming SlideShare
Loading in...5
×
 

Financial Pacific - Valuation provides attractive opportunity, d.r. horton (dhi.n) (third party)

on

  • 651 views

Visit our website for more information: http://www.investingpacific.com/...

Visit our website for more information: http://www.investingpacific.com/
Financial Pacific: “The Right Wave to Invest”
License CNV 319-03
In today’s global economy it is important to be fully aware of the intricacies of international investments and the opportunities that these have to offer. Financial Pacific offers proven overseas investment opportunities.
If you are interested in a reliable investment institution look no further because Financial Pacific provides: Wealth Management, Online Trading, Institutional Services and Corporate Finance. With cutting edge technology we are capable to support highly specialized derivatives instruments such as: CFDs, ETFs, CFDs on Commodities, ETCs, Futures and Options. In addition investors have access to a wide range of investment opportunities through: Structured Notes, Fixed Income, Reverse Convertibles, Preferred Stocks, and Institutional Hedge Funds.
Fully regulated by Comisión Nacional de Valores de Panama since 2003; allow us to provide you with the necessary tools to take advantage of the global markets.

Statistics

Views

Total Views
651
Views on SlideShare
651
Embed Views
0

Actions

Likes
0
Downloads
5
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    Financial Pacific - Valuation provides attractive opportunity, d.r. horton (dhi.n) (third party) Financial Pacific - Valuation provides attractive opportunity, d.r. horton (dhi.n) (third party) Document Transcript

    • ab Global Equity ResearchUBS Investment ResearchUS Morning Meeting Highlights - 31 August 2011 http://www.ubs.com/investmentresearchRating and Recommendation ChangesD.R. Horton, DHI.N David Goldberg p.3Valuation Provides Attractive Opportunity12-month rating: Prior: Neutral => Buy * CBE , FY11E US$0.04, FY12E US$0.40, PTUS$13.00, Market cap. US$3.77bnLennar, LEN.N David Goldberg p.4Valuation Provides Attractive Opportunity12-month rating: Prior: Neutral => Buy * CBE , FY11E US$0.38, FY12E US$0.75, PTUS$21.00, Market cap. US$2.71bnMeritage Corp., MTH.N David Goldberg p.5Upgrading to Neutral on Valuation12-month rating: Prior: Sell => Neutral * CBE , FY11E US$(0.05)=>US$(0.02), FY12EUS$0.70=>US$0.55, PT US$19.00, Market cap. US$0.60bnEstimate/Price Target RevisionsBeazer Homes, BZH.N David Goldberg p.5Despite EPS Revisions, We’re Optimistic12-month rating: Buy * (Unchanged) CBE , FY11E US$(1.55)=>US$(1.60), FY12EUS$(0.80)=>US$(0.90), PT US$5.50, Market cap. US$0.13bnJohnson & Johnson, JNJ.N Rajeev Jashnani, CFA p.10Benchmarking early Zytiga launch12-month rating: Buy (Unchanged), FY11E US$4.99, FY12E US$5.24, PT Prior:US$80.00 => US$74.00, Market cap. US$181bnKB Home, KBH.N David Goldberg p.6Reducing PT to Reflect Lower Profitability12-month rating: Neutral * (Unchanged) CBE , FY11E US$(1.55), FY12E US$0.00, PTPrior: US$11.00 => US$7.00, Market cap. US$0.52bnOReilly Automotive, ORLY.O Michael Lasser p.8Highlighting Its Consistency12-month rating: Buy (Unchanged), FY11E US$3.61, FY12E US$4.25, PT Prior:US$70.00 => US$73.00, Market cap. US$8.98bnCompany UpdateAOL, AOL.N Brian Fitzgerald p.13Reiterate Buy on New Initiatives Driving Growth and Attractive Valuation12-month rating: Buy (Unchanged), FY11E US$0.32, FY12E US$0.75, PT US$20.00,Market cap. US$1.36bnComcast Corporation, CMCSA.O John C. Hodulik, CFA p.7Revisiting the investment case12-month rating: Buy (Unchanged), FY11E US$1.54, FY12E US$1.93, PT US$30.00,Market cap. US$60.2bnThis package has been prepared by UBS Securities LLC UBS 1ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 17*Under review (UR) and/or exception to core rating bands (CBE) - see page : 17UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may havea conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making theirinvestment decision.
    • US Morning Meeting Highlights 31 August 2011PG&E Corp., PCG.N Jim von Riesemann p.14NTSB blames PCG for pipeline explosion12-month rating: Neutral (Unchanged), FY11E US$3.51, FY12E US$3.68, PTUS$42.00, Market cap. US$15.6bnValeant, VRX.N Marc Goodman p.9Adding to Canada OTC Biz12-month rating: Buy * (Unchanged) CBE , FY11E US$2.77, FY12E US$3.95, PTUS$63.00, Market cap. US$7.09bnVMware, VMW.N Brent Thill p.12Update from User Conference12-month rating: Buy (Unchanged), FY11E US$2.10, FY12E US$2.50, PT US$125.00,Market cap. US$39.0bnIndustry UpdateHome Construction David Goldberg p.6U.S. Homebuilding - More Stable Than You ThinkHeavy Machinery Henry Kirn, CFA p.11USDA 2011 Farm Income Forecast - USDA raises 2011 net farm income forecastAerospace David E. Strauss p.11U.S. Aerospace - Why Aftermarket Still Stands to Do WellEconomicsEconomics Maury N. Harris p.15US Daily Economic Comment - A more divided FOMCEconomics Maury N. Harris p.16US Economic Comment - Conference Board confidence plunges UBS 2
    • US Morning Meeting Highlights 31 August 2011Consumer, Cyclical David Goldberg............... +1-212-713 9427D.R. Horton (DHI.N). AnalystValuation Provides Attractive Opportunity david-i.goldberg@ubs.com Strategic Focus Well Aligned With Core Competency Susan Maklari................... +1-212-713 7971Since 7/19 DHI -11% vs. the S&P 500 -9%. In turn, it currently trades at 1.1x tang BV. Although Analystthis is above peers, we expect D.R. Horton to outperform in the early part of the cycle. Our view susan.maklari@ubs.comis based on the co’s: 1) operating strategy, focusing on sales growth, which should generate a.higher return on capital; & 2) robust liquidity, which will support growth as a recovery unfolds. As Price (30 Aug 2011).....................US$10.60such, we are upgrading DHI to Buy from Neutral. We maintain our $13 PT. 12-month rating...... Prior: Neutral => Buy * 12m price target.......................... US$13.00 Operating Acumen Offers Downside Protection Market cap................................. US$3.77bnAs the downturn has persisted, we’ve been impressed by D.R. Horton’s ability to rebuildprofitability, driven by mgmt’s: 1) efforts to continually reduce costs; 2) focus on driving volumes, Full-Year EPS 2011E............................................. US$0.04including emphasizing spec construction, without sacrificing profitability. In turn, we expect the 2012E............................................. US$0.40.company to be profitable in F11 despite the weak housing mkt. Further, we believe additionalBV erosion is unlikely, even if conditions stagnate for an extended period of time. *Exception to core rating bands - see page 17 Opportunities Arise as the New Home Market BottomsAlthough we acknowledge that macro indicators over the last few weeks could suggest weakernear term economic trends, we believe fundamentals in the new home market are at—ornear—a trough. While visibility for a turnaround remains limited, we believe current valuations.for selective builders offer attractive buying opportunities with minimal downside and significantupside potential. Valuation: $13 PT 1.2x Our Trough BV EstimateOur $13 PT is based on 1.2x our trough BV est., above the group average.- UBS 3
    • US Morning Meeting Highlights 31 August 2011 David Goldberg............... +1-212-713 9427Lennar (LEN.N). AnalystValuation Provides Attractive Opportunity david-i.goldberg@ubs.com Operating Strategy Limits Potential Downside Susan Maklari................... +1-212-713 7971Since 7/19 LEN -21% vs the S&P 500 -19%. In turn, it now trades at 1.0x tang BV, relatively in Analystline with peers, which we believe reflects an attractive buying opportunity. Specifically, we susan.maklari@ubs.comexpect the co to remain profitable even in a slow/no growth environment, driven by its operating.strength combined with opportunities generated by Rialto (Lennar’s distressed asset Price (30 Aug 2011).....................US$14.66subsidiary). As such, we’re upgrading LEN to Buy from Neutral; we maintain our $21 PT. 12-month rating...... Prior: Neutral => Buy * 12m price target.......................... US$21.00 Focusing On Rialto Overlooks Lennar’s Operating Acumen Market cap................................. US$2.71bnAlthough we view Rialto as an opportunistic vehicle to invest cash until the housing recoveryaccelerates, we believe investors are too focused on this segment and are underemphasizing Full-Year EPS 2011E............................................. US$0.38mgmt’s operating acumen. We’d note that the co has made considerable strides to reduce costs 2012E............................................. US$0.75and cycle times through the downturn; in turn its HB operations are again profitable despite the.challenging environment. Further, these efforts will drive accelerated EPS growth as housing *Exception to core rating bands - see page 17recovers. Opportunities Arise as the New Home Market BottomsWhile we acknowledge that macro indicators over the last few weeks could suggest weakernear term economic trends, we believe fundamentals in the new home market are at—ornear—a trough. Despite limited visibility for the timing of a turnaround, we believe current.valuations for selective builders offer attractive buying opportunites with minimal downside andsignificant upside potential. Valuation: $21 PT is Based on 1.1x Trough BV ForecastOur PT is 1.1x our trough BV est. (adj. for Rialto), slightly above the group avg.- UBS 4
    • US Morning Meeting Highlights 31 August 2011 David Goldberg............... +1-212-713 9427Meritage Corp. (MTH.N). AnalystUpgrading to Neutral on Valuation david-i.goldberg@ubs.com Recent Pull-back Leaves MTH Fairly Valued Susan Maklari................... +1-212-713 7971Since 2/18, MTH has declined ~31% ahead of the -27% group average and the S&P 500 down Analyst~10%. In turn, the stock now trades at 1.1x tang BV. As such, we believe MTH’s current susan.maklari@ubs.com.valuation fairly reflects fundamentals in the new home market; we are upgrading our rating toNeutral from Sell. Price (30 Aug 2011).....................US$18.75 12-month rating...... Prior: Sell => Neutral * More Defensive Operating Strategy Limits Downside 12m price target.......................... US$19.00Through the downturn, we expected Meritage’s more defensive strategy would outperform Market cap................................. US$0.60bnpeers. We expect this to hold true again, even in a slow/no growth environment, given its: 1)land light model, which focuses on optioning lots; 2) efforts to reposition its product, especially Full-Year EPS 2011E.................... US$(0.05) => US$(0.02).its Green Building initiatives; & 3) sufficient liquidity. In our opinion, this should limit further 2012E......................... US$0.70 => US$0.55downside. *Exception to core rating bands - see Despite Recent Weakness, We Continue to Expect a Gradual Recovery page 17Although conditions in the economy have become more uncertain recently, we continue tobelieve the new home market has already reached a trough. As such, we do not expect thesales pace or prices to decline meaningfully. This is reflected in our recent channel checks thatsuggest conditions have returned to normal seasonal patterns following the disruptions earlier in.Aug. That said, we believe investors should focus on those stocks that offer the most attractiverisk/reward. Valuation: $19 PT Based on 1.1x our Trough BV EstimateWe are revising our EPS est to reflect MTH’s 2Q results & our assumptions for the broaderhousing market. Our ‘11E EPS goes to ($0.02) from ($0.05); ‘12E is now $0.55 from $0.70. Fwdyears have also been adjusted.- David Goldberg............... +1-212-713 9427Beazer Homes (BZH.N). AnalystDespite EPS Revisions, We’re Optimistic david-i.goldberg@ubs.com Operating Strategy Remains Focused on Top Line Growth Susan Maklari................... +1-212-713 7971On their F3Q conf call, Beazer’s mgmt team discussed their strategy to drive revenue growth, Analystdespite underlying fundamentals. In turn, the co will focus on improving its sales pace to 2+ susan.maklari@ubs.comhomes/community from ~1.5, which it has realized over the last year, helping its cashgeneration and efforts to expand profitability. Additionally, mgmt will work to increase its Price (30 Aug 2011).......................US$2.19.community count at a modest rate annually. In our opinion, these two factors will help Beazer 12-month rating............ Buy * (Unchanged)thrive, even if conditions remain uncertain in the NT. 12m price target............................ US$5.50 Market cap................................. US$0.13bn Revising EPS Estimates to Reflect Economic BackdropDespite our belief that the new home market is at, or near, a trough, we’re reducing our EPS Full-Year EPS 2011E.................... US$(1.55) => US$(1.60)ests to reflect the potential impact from the more recent econ uncertainty. Our F11E goes to 2012E.................... US$(0.80) => US$(0.90).($1.60) from ($1.55); F12E is now ($0.90) from ($0.80). Fwd years have also been adjusted.These changes are insufficient to impact our PT. *Exception to core rating bands - see page 17 Maintain Buy Rating: We Expect Valuation Discount to NarrowWhile visibility into the timing for a turnaround in housing remains limited, we believe Beazerhas preserved substantial financing capacity, allowing it to weather the storm. Further, wecontinue to believe the co’s underperformance relative to peers will reverse over time given: 1).its improved liquidity position—which is enabling mgmt to increasingly focus on profitability, and2) greater operating discipline. As such, we maintain our Buy rating. Valuation: $5.50 PT is 1.0x our Trough BV EstimateOur price target is 1.0x our trough BV estimate, in line with the group avg.- UBS 5
    • US Morning Meeting Highlights 31 August 2011 David Goldberg............... +1-212-713 9427KB Home (KBH.N). AnalystReducing PT to Reflect Lower Profitability david-i.goldberg@ubs.com Although Concerns Are Likely Overdone, We Remain Cautious Susan Maklari................... +1-212-713 7971Since 7/19, KBH -29%, well ahead of the -19% group avg, driven by concerns around the Analystrobustness of its capital structure. Although these worries are likely overdone, we’re reducing susan.maklari@ubs.comour PT to $7 from $11, reflecting our view that profitability will remain below peers as new home.sales “bounce” along the bottom before eventually recovering. Our Neutral rating is unchanged Price (30 Aug 2011).......................US$6.74as we believe the current valuation appropriately reflects this potential underperformance. 12-month rating.......Neutral * (Unchanged) 12m price target..... Prior: US$11.00 => Why We Expect Underperformance In a “Flat” Housing Market US$7.00Despite our view that KB Home has sufficient liquidity to support its existing operations, we Market cap................................. US$0.52bnexpect profitability to trail better positioned peers. This view is based on: 1) mgmt’s commitment Full-Year EPSto a build-to-order model, which will likely lead to slower growth in a stable housing market; & 2) 2011E........................................... US$(1.55).the fact that >50% of KB’s adj tang BV comes from tax benefits (the DTA allowance is ~$11/sh), 2012E............................................. US$0.00which will inherently take longer to monetize, dragging ROE lower. *Exception to core rating bands - see Liquidity Becomes a Constraint Once Conditions Improve page 17Although KB’s liquidity affords flexibility [relative to the timing for a capital raise], we believe itwill constrain growth as housing recovers. While visibility around the structure of a future.transaction is limited, we believe concerns over dilution will continue to weigh on the stock,limiting upside. Valuation: $7 PT Based on 0.4x our Trough BV EstimateOur $7 PT is 0.4x our trough BV est., below the peer avg of 1.0x. Our target multiple has beenreduced from 0.7x previously, as we now forecast a lower ROE.- David Goldberg.........................+1-212-713 9427U.S. Homebuilding. AnalystMore Stable Than You Think david-i.goldberg@ubs.com We Believe Conditions in the New Home Market Have Bottomed Susan Maklari........................... +1-212-713 7971After declining by an avg of ~20% since mid July—vs. the S&P 500 -9%—the HB stocks now Analysttrade at 0.9x tang BV, at the low end of their range the last few years. Although we’d readily susan.maklari@ubs.comadmit that the recent macro news has increased the potential for further downside in the.broader housing market, we believe new homes are less susceptible to meaningful declines offcurrent levels. What Investors Are MissingWithin this report, we expand on this view that conditions for new homes have bottomed,focusing on the following: 1) mortgage underwriting; 2) foreclosure activity and overall supplylevels; & 3) the potential for increased government support. Additionally, we discuss how thepublic builders are positioning themselves to minimize their exposure to broader weakness and.how this is increasingly creating a bifurcation relative to existing homes. Finally, we highlight theearly indicators we focus on to predict the eventual turn. Upgrading LEN and DHI to Buy Reflecting Favorable Risk RewardAt the same time, signs of a turnaround have yet to materialize, leaving us cautious about thegroup generally. That said, the pullback has created attractive entry points for some buildersthat are better positioned to outperform even in a slow/no growth environment. Specifically,.we’re upgrading LEN & DHI to Buy from Neutral, as we believe these stocks offer compellingreward/risk profiles. Valuation: Our PT are Based on 1.0x Tangible Book ValueThe stocks currently trade at 0.9x tang BV (adjusted for deferred tax allowances).- UBS 6
    • US Morning Meeting Highlights 31 August 2011 John C. Hodulik, CFA..... +1-212-713 4226Comcast Corporation (CMCSA.O). AnalystRevisiting the investment case john.hodulik@ubs.com Comcast continues to be a top pick Batya Levi......................... +1-212-713 8824Comcast shares are down 6% since 2Q results on Aug. 3 given concern about the weak macro Analystenvironment and cord-cutting, which may lead to accelerating video losses. At the same time, batya.levi@ubs.comproduct maturation and wireless substitution are reducing voice adds. Still, we are encouraged Lisa L. Friedman............... +1-212-713 2589by Comcast’s strong metrics in broadband and Commercial, and believe the company’s Associate Analyst.investment in content through NBCU helps hedge against the disruptive impact of new lisa.friedman@ubs.comtechnologies such as over the top. Expect cable to continue to outperform Price (30 Aug 2011).....................US$21.32Comcast is the largest U.S. cable MSO and the only one to report accelerating revenue growth 12-month rating...............Buy (Unchanged)(ex-advertising) in 2Q. Given the company’s size and footprint, and its near-completion of the 12m price target.......................... US$30.00.DOCSIS 3.0 rollout to enable faster broadband speeds, we expect Comcast’s cable business to Market cap................................. US$60.2bncontinue to outperform. Full-Year EPS 2011E............................................. US$1.54 Cash returns to continue 2012E............................................. US$1.93We expect Comcast to complete its $7B repurchase authorization by YE11 and model anincremental $2.1B in buybacks in 2012E. The company’s gross leverage ratio was 2.2x at the.end of 2Q, within mgmt’s 2.0-2.5x target range, and we forecast gross leverage of 2.0x at YE12,even with a new buyback program. Valuation very attractive; Reiterate Buy rating and $30 PTComcast trades at 4.9x 2012E EBITDA on a proportionate basis (i.e. incl. its 51% stake inNBCU). Using the large-cap media average of 6.4x on 2012E for NBCU would equate to 4.7xEBITDA for Comcast cable vs. 5.3x for TWC and 5.7x for CVC. We reiterate our Buy rating and$30 PT based on DCF (9% WACC, 2% perp growth).- UBS 7
    • US Morning Meeting Highlights 31 August 2011 Michael Lasser................ +1-212-713 2440OReilly Automotive (ORLY.O). AnalystHighlighting Its Consistency michael.lasser@ubs.com During a volatile time, ORLYs story is a refreshing source of stability Chris Weng....................... +1-212-713 2951This consistency was reinforced from the companys analyst day where it discussed the Associate Analystdifferentiation of its model, its sales and profitability opportunities, and the development of its chris.weng@ubs.comfree cash flow engine. While these were similar messages that ORLY offered at the same event.last year, the company has backed up its message with strong performance since that time. We Price (30 Aug 2011).....................US$65.15expect this will continue. 12-month rating...............Buy (Unchanged) 12m price target..... Prior: US$70.00 => ORLY repeated its goal of having a 15% operating margin by 2013 US$73.00Though, we think this is conservative and it will probably be closer to 16% by that time. While Market cap................................. US$8.98bnmuch of the expansion will come from operating expense leverage, it still has room to improve Full-Year EPS.its gross margin from such factors as improving the efficiency of its new DCs and rolling out 2011E............................................. US$3.61price optimization. 2012E............................................. US$4.25 Growing FCF and more aggressive buybacks are underappreciatedORLY remains committed to deploying its excess free cash for repurchasing its shares.Management pointed out that the company only needs $20 mm to $30 mm of cash on its.balance sheet to manage its day-to-day operations. Anything above and beyond that will beused for buybacks. Valuation: Stock will be driven by strong EPS growth & a consistent P/EWe think ORLY’s shares will continue to garner a premium valuation and we reiterate our Buyrating on the stock. Our new $73 PT (up from $70) reflects 17.2x our CY’12 EPS estimate of$4.25. We think that ORLY is well situated to grow independent of the sector and rapidly scaleup its FCF.- UBS 8
    • US Morning Meeting Highlights 31 August 2011Healthcare Marc Goodman................ +1-212-713 1342Valeant (VRX.N). AnalystAdding to Canada OTC Biz marc.goodman@ubs.com What’s new? Valeant agrees to acquire Afexa Ami Fadia.......................... +1-212-713 3242Valeant will pay ~$76M to acquire Afexa which sells cold & flu treatments in Canada and had Analyst~C$40M in 2010 sales. Afexa had been previously approached by Paladin Labs with a hostile ami.fadia@ubs.com.bid and as a result of the Valeant offer Afexa has a 30-day go-shop period (ends 9/29/2011) Matthew Harrison.............. +1-212-713 2429with a $3.75M break-up fee for a superior offer. Associate Analyst Our takeaway: Should be $0.04-0.05 accretive (see Table 1) matthew.harrison@ubs.comWe like the deal as it appears to be an inexpensive (~2x 2010 sales) way to incr. OTC exposurein Canada. Afexa sales are highly seasonal due to the flu severity with revs of C$47.8M, Price (29 Aug 2011).....................US$44.66C$57.4M and C$38.4M in 2008, 2009 and 2010, resp. (2010 was impacted by the 2009 H1N1 12-month rating............ Buy * (Unchanged)scare). Thus, assuming sales can grow ~5% annually (should be reasonable through pricing 12m price target.......................... US$63.00alone), a stable GM of ~68%, flat SG&A+R&D of ~C$27M and ~C$12.5M in synergies (C$10M Market cap................................. US$7.09bn.in G&A is cut and ~C$2.5M of the ~C$13M S&M is cut) yields ~$0.05 accretion with an 8% tax Full-Year EPSrate. 2011E............................................. US$2.77 2012E............................................. US$3.95 Thoughts on the stock: Nice tuck-in; Highlights mgt. aggressivenessWe like the deal and believe it highlights that Valeant will continue to be aggressive on both *Exception to core rating bands - see page 17small and large deals. While investors are likely to remain focused on organic growth headinginto 3Q, the add’l $300M in share repurchase and the early closing of Sanitas should give mgt..plenty of EPS levers for 2011. While mgt. has an agreement with the Afexa board, given the go-shop we will wait for the acquisition to close before formally adding it to our model. Valuation: We maintain our Buy rating and PT of $63Based upon DCF and implies a P/E multiple of 14x our 2013E cash EPS of $4.38.- UBS 9
    • US Morning Meeting Highlights 31 August 2011 Rajeev Jashnani, CFA..... +1-212-713Johnson & Johnson (JNJ.N). 9127Benchmarking early Zytiga launch Analyst rajeev.jashnani@ubs.com Comparing Zytiga to other oral small molecule oncology drugsIMS sales for Zytiga were $16M in July, inline w/ $16M in June & above $6M in May (Zytiga was Nishit Verma......................+1-212-713 2686approved on 4/28 for chemo-expd prostate cancer). For 1st 3 mo’s, Zytiga IMS sales of $38M Associate Analystare tracking above Tarceva & Sutent, which both had sales of $18M in the 1st 3 mo’s (launched nishit.verma@ubs.comin 04 & 06). Tarceva & Sutent both had 1st FY US sales of $0.3B w/ ‘10 US sales of $0.5B /$0.3B (ww: $1.3B / $1.1B). That said, based on TRx data, Zytiga (6.5k) is tracking below initial Price (30 Aug 2011).....................US$65.77.Gleevec performance (9.6k; ‘10 US / ww sales of $1.3B / $4.3B). Notably, these simple 12-month rating...............Buy (Unchanged) 12m price target..... Prior: US$80.00 =>comparisons ignore differences in pt populations, pricing, etc. US$74.00 Maintaining Zytiga sales estimates Market cap.................................. US$181bnWe estimate ‘12 / ‘15 US Zytiga sales of $0.3B / $1.0B (ww: $0.6B / $2.0B). Initial IMS data on Full-Year EPSZytiga appears encouraging, especially considering that mkt opportunity for chemo-exp’d PC is 2011E............................................. US$4.99much smaller than the chemo-naïve opportunity (data in chemo-naïve expected in ~1H12). 2012E............................................. US$5.24Importantly, additional data points are needed to confirm correlation between IMS & actual.sales. 2Q11 actual Zytiga ww sales were ~$50M but delta relative to IMS data may be related toUS stocking & ex-US early access. Thoughts on competitive environmentOn the competitive landscape we recognize MDVN’s MDV3100 as a key upcoming competitor;docs we’ve consulted with expect efficacy similar to Zytiga but envision MDV3100 being used incombination w/ Provenge, facilitating earlier use (Zytiga is incompatible w/ Provenge due to.steroid co-administration). That said, multi-year survival for CRPC patients should facilitatesubstantial opportunity even for later lines of treatment. Valuation – reiterate Buy rating; DCF-based price target to $74 from $80JNJ currently trading at 12.6x 2012E EPS. Our revised target corresponds to 13x 2013E EPS.We lowered our target in light of lower market multiples.- UBS 10
    • US Morning Meeting Highlights 31 August 2011Industrial David E. Strauss.........................+1-212-713 6185U.S. Aerospace. AnalystWhy Aftermarket Still Stands to Do Well david.strauss@ubs.com We see more favorable aftermarket outlook Darryl Genovesi..........................+1-212-713 4016Many of those we speak with believe the aftermarket will be hard hit in a slow growth Associate Analystenvironment while OE will hold up. We believe the outlook for the aftermarket is more favorable. darryl.genovesi@ubs.comthan widely understood for three reasons: (1) positive fleet age dynamics, (2) still wide gapbetween flight hours and aftermarket volumes, and (3) initial 787 and 747-8 sparing. Ryan Thackston......................... +1-212-713 3321 Favorable fleet age dynamics Associate AnalystWe believe favorable fleet age dynamics can continue to drive solid aftermarket growth even in ryan.thackston@ubs.coma slow economic environment. We estimate that the in warranty fleet of the airlines, whichaccounts for one quarter of the total fleet, will grow at a slow 2-3% rate in 2011-12, well below4-5% in 2008-09. Combined with peak utilization rates and we estimate the in warranty fleet can.only contribute 1% capacity growth, leaving the airlines little opportunity to reduce usage of theirout of warranty aircraft that are key to the aftermarket. Wide gap between flight hours and aftermarket volumesAftermarket volumes are still below prior peak levels even though flight hours are 10-15%above. We believe this gap is indicative of limited airline spares restocking thus far. So even.though flight hour growth is likely to decelerate to low levels, we believe the aftermarket still hasroom to grow at a faster rate. Initial 747-8 & 787 sparingWe believe initial 747-8 and 787 sparing will benefit the aftermarket in 2012. We estimate initialsparing could add 100-200 bps to aftermarket growth.- Henry Kirn, CFA........................+1-212-713 4895USDA 2011 Farm Income Forecast. AnalystUSDA raises 2011 net farm income forecast henry.kirn@ubs.com USDA raises its forecast of 2011 farm income by roughly 9% Eric Crawford..............................+1-212-713 8458USDA raised its forecast of 2011 U.S. net farm income to $103.6B, up from $94.7B (+9%) in its Associate Analystinitial forecast on February 14. The revised 2011 net farm income forecast is now 31% above eric.crawford@ubs.comUSDA’s slightly revised 2010 net farm income forecast, with USDA noting “net farm income and.net cash income are both projected to exceed $100 billion for the first time in 2011. The 2011forecast of net farm income is the second highest inflation-adjusted value recorded since 1973.” Cash receipts revised 9% higher on higher livestock revenuesUSDA increased its forecast for 2011 livestock cash receipts by 12% to $163.8 billion. USDA.also increased its 2011 crop cash receipt forecast to $206.5 billion, up 6% from its initialforecast, and up 19% from 2010 levels. We see strong farm profitability as catalyst for farm equipment demandUSDA now forecasts farm cash net income to increase 16% YoY in 2011 (up from 8%.previously), and we see the strength in farm profitability as likely to drive strong farm equipmentdemand through 2012. We continue to favor Key Call Buy-rated DE for exposure to the NA ag cycleWe remain bullish on the farm equipment cycle, as our channel checks indicate both improvingdemand and pricing. DE remains a UBS Key Call and our preferred way to play the farmequipment cycle as we continue to see beats over the next few quarters as a catalyst foroutperformance. Additionally, we maintain our Buy ratings on AGCO and CNH as we expectstrength in farm commodity prices as a positive catalyst.- UBS 11
    • US Morning Meeting Highlights 31 August 2011Technology Brent Thill........................ +1-415-352 4694VMware (VMW.N). AnalystUpdate from User Conference brent.thill@ubs.com FQ3/FY11 On Track, Macro Headwinds Not Blowing in Vegas This Week Reid Menge.......................+1-415-352 4696No signs of macro slowdown at VMworld 2011. CFO reconfirmed FQ3 and FY11 guidance Associate Analystbased on customer and sales feedback over past 6 weeks (though we’d note FQ3 is heavily reid.menge@ubs.comback-end loaded with Europe on Holiday until Sept). With attendee count +12% y/y (+52% over2009) many of the product sessions were sold out. Customer and partner engagement show the Price (30 Aug 2011).....................US$90.71.increasing value of VMW’s product stack and vision. Interesting to note VMworld attendance is 12-month rating...............Buy (Unchanged)now 50% of Oracle OpenWorld attendance, yet VMW has only 25% of ORCL’s market cap. 12m price target........................ US$125.00 Market cap................................. US$39.0bn Encouraging Medium-Term OutlookBookings on a $4bn run rate (up 4x since 2007) represent only 13% of VMW’s own estimated Full-Year EPS 2011E............................................. US$2.102014 TAM of $30bn (and we think that’s low). Next-gen infrastructure management, application 2012E............................................. US$2.50development, end-user computing and hybrid cloud build-outs are nascent bookingscontributors and remain big revenue opps. Management attach rate remains low but productrevisions in next 12 months should act as a demand catalyst. License bookings growth in.emerging markets is outpacing overall with the virtualization journey in those regions juststarting. Positive Customer/Partner ToneWe spoke with numerous customers/partners who cited VMWs multi-dimensional ROI as a.reason for increased investment. Customers/partners appear satisfied with VMW’s proactiverevisions to the updated vSphere pricing model. Valuation: 23x FY12 FCF/sh, 36x PE (1.5x PEG), 8.0x EV/salesReiterate Buy, $125 PT based on 29x forward NTM FCF/share.- UBS 12
    • US Morning Meeting Highlights 31 August 2011 Brian Fitzgerald............... +1-212-713 2851AOL (AOL.N) Analyst.Reiterate Buy on New Initiatives Driving Growth and Attractive brian.fitzgerald@ubs.comValuation Brian Pitz...........................+1-212-713 9310 Reiterate Buy for AOL AnalystWe reiterate our Buy rating on AOL as we believe its Subscriber business (despite expectations brian.pitz@ubs.comfor 20%+ Y/Y declines in the next couple of years) remains a potent cash cow that will continue. Timothy OShea.................+1-212-713 2140to support investments in AOL’s Online Advertising business and help the company re-establish Associate Analystitself as a top player in the sector. timothy.oshea@ubs.com Subs Churn Moderating While New Initiatives Drive GrowthWe remain positive on AOL as we see increasing signs of a turnaround (i.e. first Y/Y ad rev Price (30 Aug 2011).....................US$12.81growth since 2Q08) along with decelerating Subs loss in the access business. Streamlined 12-month rating...............Buy (Unchanged)properties are driving improvement in engagement and monetization which we expect will lead 12m price target.......................... US$20.00 Market cap................................. US$1.36bnto above avg ad rev growth. TechCrunch expects record traffic in August. Notably, Project Devil.display ad impressions were up +100% Y/Y in 2Q; these ads generate a disproportionate Full-Year EPSamount of value. 2011E............................................. US$0.32 2012E............................................. US$0.75 Investment Thesis Outlined in Slide / Comment FormatTo highlight our investment thesis, we include easily digestible slides and comments starting on.page 2. Recent insider (AOL Directors) stock purchases and $250MM Stock Repurchaseprogram lend further support to our thesis. Valuation – Our SOTP Suggests AOL Looks Attractive at Current LevelsOur $20 price target is based on our DCF (12% WACC; 3.0% LTGR) and supported by ourSOTP valuation. AOL trades at ~16x our 2012E EPS vs. ’11-14 CAGR of 45% (PEG of 0.4 – thelowest among our Internet Advertising names).- UBS 13
    • US Morning Meeting Highlights 31 August 2011Utilities Jim von Riesemann........ +1-212-713-4260PG&E Corp. (PCG.N). AnalystNTSB blames PCG for pipeline explosion jim.vonriesemann@ubs.com Final NTSB report released; tone is decidedly negative Julien Dumoulin-Smith...... +1-212-713 9848The final NTSB report following the Sept 2010 San Bruno pipeline explosion states that the Analystoriginal work done on the pipeline in 1956 “did not meet generally accepted industry quality julien.dumoulin-smith@ubs.comcontrol and welding standards then in effect.” The NTSB also found that the 2008 sewer line Aileen Long....................... +1-212-713 3475installation near the rupture did not damage the pipeline, refuting claims that others may share Associate Analystsome liability. Also, the NTSB cited that PCG’s “response time was excessively long and aileen.long@ubs.com.contributed to the severity and extent…” which may pique more questions on insurancecoverage, in our view. Price (30 Aug 2011).....................US$41.93 All questions, no answers at this point 12-month rating......... Neutral (Unchanged)(1) What are the number of violations, the start date of those violations, and the potential fines/ 12m price target.......................... US$42.00penalties and is there a maximum limit; (2) Does PCG’s pipeline modernization plan (unveiled Market cap................................. US$15.6bnlast week) meet the compliance threshold; (3) What is the appropriate cost allocation between Full-Year EPS.shareholders and customers in order to bring PCG into compliance; (4) How will compliance be 2011E............................................. US$3.51measured and over what time period? 2012E............................................. US$3.68 The state and regulators appear to have great latitudeBased on our read of the report, the NTSB directs Gov Brown to make sure the CPUC has the.legal authority and ability to investigate, evaluate, and implement any and all pipeline safetyprocesses and procedures as well the ability to impose financial penalties for non-compliance. Valuation - $42 target; Neutral ratingOur price target reflects a group median P/E multiple on our 2013E.- UBS 14
    • US Morning Meeting Highlights 31 August 2011Economics Maury N. Harris.........................+1-212-713 2472US Daily Economic Comment. EconomistA more divided FOMC maury.harris@ubs.com Preview: Factory orders & inventories, ADP, Challenger on tap Drew T. Matus........................... +1-203-719 8378(1) Durables orders have already been reported up 4.0% in July, despite a 1.5% decline in core Economistcapex orders. We estimate a small rise in orders for nondurable goods and a 1.9% increase in drew.matus@ubs.comtotal factory orders. Inventories are worth watching: June showed a sharp slowing in inventoryinvestment. That correction may explain some of the recent weakness in factory surveys for Samuel D. Coffin.......................+1-203-719 1252August. However, with low inventory/shipment ratios, we doubt that the inventory correction will Economistlast long unless demand is weakening much more broadly than we forecast. (2) The ADP samuel.coffin@ubs.comprivate payrolls data are mostly useful for offering detail on small, medium, and large-sizedbusinesses that is absent from the official BLS payroll data. However, on a month-to-month Kevin Cummins........................ +1-203-719 1676basis, the ADP private payroll estimate is frustratingly unreliable as a predictor of private Economistpayrolls in the Employment Report: sometimes a +100k miss, as in June; sometimes a 40k miss. kevin.cummins@ubs.comin the opposite direction, as in July; and little to signal when the errors change direction. (3)Challenger layoffs and mortgage applications will also be reported. Review: Conference Board confidence index plunges in Aug(1) The Conference Board consumer confidence index plunged in Aug, falling to 44.4 (UBSe51.0, cons 52.0) from 59.2. Through July, it had not shown nearly as much weakness as theUniv of Michigan or Rasmussen measures. Now it does. The drop in the index mostly reflectedexpectations, although current labor market assessments also deteriorated a bit. (2) TheS&P/Case Shiller home price index slipped 0.1% in June (UBSe 0.5% cons 0.0%). ThroughJune, prices have fallen 4.5%y/y. However, they are no longer trending down: prices rose at a1.3% annual rate in the three months through June. (3) The FOMC minutes displayed a Fedmore uncertain about the outlook for growth and more aware of downside risks, although“participants did not anticipate a downturn.” Alternative policy responses were discussed, withsome FOMC members favoring more accommodative policy than was announced and somefavoring no change from the prior FOMC statement’s characterization of the policy outlook.- UBS 15
    • US Morning Meeting Highlights 31 August 2011 Maury N. Harris.........................+1-212-713 2472US Economic Comment. EconomistConference Board confidence plunges maury.harris@ubs.com Conference Board confidence plunges 14.8 pts to 44.4 in August Drew T. Matus........................... +1-212-713-4448The Conference Board consumer confidence index plunged in August, falling to 44.4 (UBSe Economist51.0, cons 52.0) from 59.2 in July (revised from 59.5). Through July, the Conference Board drew.matus@ubs.commeasure had not shown nearly as much weaknesss as the Univ of Michigan or Rasmussenmeasures. Now it does. The headline index was the lowest since Apr 2009. Samuel D. Coffin.......................+1-203-719 1252There was noticable discord among the components of the index: The expectations index fell Economist23.0 points. In contrast, the present situation index slipped only 2.4 points, and spending plans samuel.coffin@ubs.comfor appliances and vacations actually improved to the best levels since late last year. That said,there was some deterioration in household assessments of the current labor market, with a net Kevin Cummins........................ +1-203-719 167644.4% of respondents indicating jobs were hard to get versus 39.7% a month earlier. That Economistmeasure of labor market tightness has been moving roughly sideways—until this month kevin.cummins@ubs.comimproving marginally to average 37.7% in Q2 from 40.6% in Q1 and 41.7% in 2010.The resilience in retail sales in July—when most confidence measures began to deteriorateseriously—is a reminder that spending can deviate from confidence, as it appears to have so farin Q3. The decline in the Conference Board measure in August partly was catch-up toweakness already shown in other confidence measures (see charts on page 2), and itundoubtedly reflected households negative reactions to the debt deal and S&P downgrade in.late July/early August and the stock market sell off earlier this month. (The cutoff date for theConference Board survey was August 18th.) SP/CS index edges down 0.1% in JuneThe S&P/Case Shiller home price index slipped 0.1% in June (UBSe 0.5% cons 0.0%), and Maywas revised to -0.1% from 0.0%. Through June, prices have fallen 4.5%y/y. However, they are.no longer declining consistently, notwithstanding the slippage in June: prices rose at a 1.3%annual rate in the three months through June. Store sales still holding upIn the last week of August, store sales were affected by Hurricane Irene both positively andnegatively: negatively because of an interruption of back to school shopping; positively becauseof hurricane-related precautionary buying.- UBS 16
    • US Morning Meeting Highlights 31 August 2011Required DisclosuresThis package has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates arereferred to herein as UBS.This package contains summaries of UBS research content. For a complete copy of the non-summarized version, please contact your UBSsales representative.For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performanceinformation; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. Thefigures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additionalinformation will be made available upon request. UBS Securities Co. Limited is licensed to conduct securities investment consultancybusinesses by the China Securities Regulatory Commission.UBS Investment Research: Global Equity Rating AllocationsUBS 12-Month Rating Rating Category Coverage[1] IB Services[2]Buy Buy 54% 39%Neutral Hold/Neutral 39% 35%Sell Sell 7% 14%UBS Short-Term Rating Rating Category Coverage[3] IB Services[4]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 within the 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 provided within the past 12months.Source: UBS. Rating allocations are as of 30 June 2011.UBS Investment Research: Global Equity Rating DefinitionsUBS 12-Month Rating DefinitionBuy 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 fromBuy the time the rating was assigned because of a specific catalyst or event. Sell: Stock price expected to fall within three months fromSell the time the rating was assigned because of a specific catalyst or event.KEY DEFINITIONSForecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months.Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, theequity risk premium).Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stocks price target and/or rating are subject topossible 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 any change in thefundamental view or investment case.Equity Price Targets have an investment horizon of 12 months.EXCEPTIONS AND SPECIAL CASES UBS 17
    • US Morning Meeting Highlights 31 August 2011UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performancerecord, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors suchas structure, management, performance record, discount.Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC).Factors considered by the IRC include the stocks volatility and the credit spread of the respective companys debt. As a result, stocksdeemed 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, theywill be identified in the Company Disclosures table in the relevant research piece.Company DisclosuresCompany Name Reuters 12-month rating Short-term Price Price date ratingAGCO Corp. 13, 16 AGCO.N Buy N/A US$41.91 29 Aug 2011AOL Inc 13, 16 AOL.N Buy N/A US$15.31 30 Aug 2011Beazer Homes 4, 6a, 13, 16, 20 BZH.N Buy (CBE) N/A US$2.19 30 Aug 2011Cablevision Systems 2, 4, 5, 6a, 16 CVC.N Neutral N/A US$17.98 30 Aug 2011CNH Global NV 4, 6a, 6b, 6c, 7, 16, 20 CNH.N Buy (CBE) N/A US$30.70 29 Aug 2011Comcast Corporation 4, 5, 6a, 6b, 6c, 7, 16 CMCSA.O Buy N/A US$21.32 30 Aug 2011D.R. Horton Inc. 4, 5, 6a, 6b, 7, 16, 20 DHI.N Buy (CBE) N/A US$10.60 30 Aug 2011Deere & Co. 16, 22 DE.N Buy N/A US$78.91 29 Aug 2011DIRECTV Group Inc. 2, 4, 6a, 6b, 6c, 7, 16 DTV.O Buy N/A US$43.78 30 Aug 2011DISH Network Corp. 16 DISH.O Neutral N/A US$23.34 30 Aug 2011Johnson & Johnson 16, 18 JNJ.N Buy N/A US$65.77 30 Aug 2011KB Home 13, 16, 20 KBH.N Neutral (CBE) N/A US$6.74 30 Aug 2011Lennar 2, 4, 6a, 6b, 7, 16, 20, 22 LEN.N Buy (CBE) N/A US$14.66 30 Aug 2011Meritage Corporation 4, 16, 20 MTH.N Neutral (CBE) N/A US$18.75 30 Aug 2011OReilly Automotive, Inc. 16 ORLY.O Buy N/A US$65.15 30 Aug 2011PG&E Corporation 2, 4, 6a, 16 PCG.N Neutral N/A US$41.93 30 Aug 2011Time Warner Cable Inc. 2, 3, 4, 5, 6a, 16 TWC.N Buy N/A US$65.51 30 Aug 2011Toll Brothers 16, 20 TOL.N Buy (CBE) N/A US$17.18 30 Aug 2011Valeant Pharmaceuticals VRX.N Buy (CBE) N/A US$44.66 29 Aug 2011 16, 20InternationalVMware, Inc 5, 16 VMW.N Buy N/A US$90.71 30 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 stockpricing date2. 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 co-advisor to Insight Communications on its announced agreement to be acquired by Time Warner Cable.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). UBS 18
    • US Morning Meeting Highlights 31 August 201116. UBS Securities LLC makes a market in the securities and/or ADRs of this company.18. 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.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.ANALYST CERTIFICATIONEach research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to eachsecurity or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views aboutthose securities or issuers and were prepared in an independent manner, including with respect to UBS, and (2) no part of his or hercompensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analystin the research report.For a complete set of disclosure statements associated with the companies discussed in this report, including information on valuation and risk,please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention: Publishing Administration.Additional Prices: Beazer Homes, US$2.19 (30 Aug 2011); Pulte Homes, US$4.95 (30 Aug 2011); Ryland Group, US$11.86 (30 Aug2011); Standard Pacific Corp., US$2.71 (30 Aug 2011); Toll Brothers, US$17.18 (30 Aug 2011); Source: UBS. All prices as of localmarket close.Additional Prices: Beazer Homes, US$2.19 (30 Aug 2011); Pulte Homes, US$4.95 (30 Aug 2011); Ryland Group, US$11.86 (30 Aug2011); Standard Pacific Corp., US$2.71 (30 Aug 2011); Toll Brothers, US$17.18 (30 Aug 2011); Source: UBS. All prices as of localmarket close.Additional Prices: Beazer Homes, US$2.19 (30 Aug 2011); Hovnanian Enterprises, US$1.75 (30 Aug 2011); Lennar, US$14.66 (30 Aug2011); Meritage Corporation, US$18.75 (30 Aug 2011); Pulte Homes, US$4.95 (30 Aug 2011); Ryland Group, US$11.86 (30 Aug 2011);Standard Pacific Corp., US$2.71 (30 Aug 2011); Toll Brothers, US$17.18 (30 Aug 2011); Source: UBS. All prices as of local market close.Additional Prices: BE Aerospace Inc., US$35.22 (30 Aug 2011); Boeing Co., US$66.03 (30 Aug 2011); Goodrich Corp., US$87.89 (30Aug 2011); Honeywell International Inc., US$47.29 (30 Aug 2011); Precision Castparts Corp., US$165.66 (30 Aug 2011); RockwellCollins Inc., US$50.53 (30 Aug 2011); United Technologies Corp., US$73.76 (30 Aug 2011); Source: UBS. All prices as of local marketclose. UBS 19
    • US Morning Meeting Highlights 31 August 2011Global DisclaimerThis package 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 is referred to asUBS 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 or recommendation contained herein issuitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for information purposes, it does not constitute an advertisement and is not to beconstrued as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. No representation or warranty, either express or implied, is provided in relation to the accuracy,completeness or reliability of the information contained herein, except with respect to information concerning UBS AG, its subsidiaries and affiliates, nor is it intended to be a complete statement or summary of thesecurities, markets or developments referred to in the report. UBS does not undertake that investors will obtain profits, nor will it share with investors any investment profits nor accept any liability for any investment losses.Investments involve risks and investors should exercise prudence in making their investment decisions. The report should not be regarded by recipients as a substitute for the exercise of their own judgement. Pastperformance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Any opinions expressed in this reportare subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of UBS as a result of using different assumptions and criteria. Research will initiate, update andcease coverage solely at the discretion of UBS Investment Bank Research Management. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results.The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, synthesizing and interpreting market information.UBS is under no obligation to update or keep current the information contained herein. UBS relies on information barriers to control the flow of information contained in one or more areas within UBS, into other areas, units,groups or affiliates of UBS. The compensation of the analyst who prepared this report is determined exclusively by research management and senior management (not including investment banking). Analyst compensationis not based on investment banking revenues, however, compensation may relate to the revenues of UBS Investment Bank as a whole, of which investment banking, sales and trading are a part.The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors, and trading in these instruments isconsidered risky. Mortgage and asset-backed securities may involve a high degree of risk and may be highly volatile in response to fluctuations in interest rates and other market conditions. Past performance is notnecessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report. For investment advice, tradeexecution or other enquiries, clients should contact their local sales representative. Neither UBS nor any of its affiliates, nor any of UBS or any of its affiliates, directors, employees or agents accepts any liability for any lossor damage arising out of the use of all or any part of this report. For financial instruments admitted to trading on an EU regulated market: UBS AG, its affiliates or subsidiaries (excluding UBS Securities LLC and/or UBSCapital Markets LP) acts as a market maker or liquidity provider (in accordance with the interpretation of these terms in the UK) in the financial instruments of the issuer save that where the activity of liquidity provider iscarried out in accordance with the definition given to it by the laws and regulations of any other EU jurisdictions, such information is separately disclosed in this research report. UBS and its affiliates and employees mayhave long or short positions, trade as principal and buy and sell in instruments or derivatives identified herein.Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments. There is no representation that any transaction can or could have been effectedat those prices and any prices do not necessarily reflect UBSs internal books and records or theoretical model-based valuations and may be based on certain assumptions. Different assumptions, by UBS or any othersource, may yield substantially different results.United Kingdom and the rest of Europe: Except as otherwise specified herein, this material is communicated by UBS Limited, a subsidiary of UBS AG, to persons who are eligible counterparties or professional clients andis only available to such persons. The information contained herein does not apply to, and should not be relied upon by, retail clients. UBS Limited is authorised and regulated by the Financial Services Authority (FSA). UBSresearch complies with all the FSA requirements and laws concerning disclosures and these are indicated on the research where applicable. France: Prepared by UBS Limited and distributed by UBS Limited and UBSSecurities France SA. UBS Securities France S.A. is regulated by the Autorité des Marchés Financiers (AMF). Where an analyst of UBS Securities France S.A. has contributed to this report, the report is also deemed tohave been prepared by UBS Securities France S.A. Germany: Prepared by UBS Limited and distributed by UBS Limited and UBS Deutschland AG. UBS Deutschland AG is regulated by the Bundesanstalt furFinanzdienstleistungsaufsicht (BaFin). Spain: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities España SV, SA. UBS Securities España SV, SA is regulated by the Comisión Nacional delMercado de Valores (CNMV). Turkey: Prepared by UBS Menkul Degerler AS on behalf of and distributed by UBS Limited. Russia: Prepared and distributed by UBS Securities CJSC. Switzerland: Distributed by UBS AG topersons who are institutional investors only. Italy: Prepared by UBS Limited and distributed by UBS Limited and UBS Italia Sim S.p.A.. UBS Italia Sim S.p.A. is regulated by the Bank of Italy and by the CommissioneNazionale per le Società e la Borsa (CONSOB). Where an analyst of UBS Italia Sim S.p.A. has contributed to this report, the report is also deemed to have been prepared by UBS Italia Sim S.p.A.. South Africa: UBS SouthAfrica (Pty) Limited (Registration No. 1995/011140/07) is a member of the JSE Limited, the South African Futures Exchange and the Bond Exchange of South Africa. UBS South Africa (Pty) Limited is an authorisedFinancial Services Provider. Details of its postal and physical address and a list of its directors are available on request or may be accessed at http:www.ubs.co.za. United States: Distributed to US persons by either UBSSecurities LLC or by UBS Financial Services Inc., subsidiaries of UBS AG; or by a group, subsidiary or affiliate of UBS AG that is not registered as a US broker-dealer (a non-US affiliate), to major US institutional investorsonly. UBS Securities LLC or UBS Financial Services Inc. accepts responsibility for the content of a report prepared by another non-US affiliate when distributed to US persons by UBS Securities LLC or UBS FinancialServices Inc. All transactions by a US person in the securities mentioned in this report must be effected through UBS Securities LLC or UBS Financial Services Inc., and not through a non-US affiliate. Canada: Distributedby UBS Securities Canada Inc., a subsidiary of UBS AG and a member of the principal Canadian stock exchanges & CIPF. A statement of its financial condition and a list of its directors and senior officers will be providedupon request. Hong Kong: Distributed by UBS Securities Asia Limited. Singapore: Distributed by UBS Securities Pte. Ltd [mica (p) 039/11/2009 and Co. Reg. No.: 198500648C] or UBS AG, Singapore Branch. Pleasecontact UBS Securities Pte Ltd, an exempt financial advisor under the Singapore Financial Advisers Act (Cap. 110); or UBS AG Singapore branch, an exempt financial adviser under the Singapore Financial Advisers Act(Cap. 110) and a wholesale bank licensed under the Singapore Banking Act (Cap. 19) regulated by the Monetary Authority of Singapore, in respect of any matters arising from, or in connection with, the analysis or report.The recipient of this report represent and warrant that they are accredited and institutional investors as defined in the Securities and Futures Act (Cap. 289). Japan: Distributed by UBS Securities Japan Ltd to institutionalinvestors only. Where this report has been prepared by UBS Securities Japan Ltd, UBS Securities Japan Ltd is the author, publisher and distributor of the report. Australia: Distributed by UBS AG (Holder of AustralianFinancial Services License No. 231087) and UBS Securities Australia Ltd (Holder of Australian Financial Services License No. 231098) only to Wholesale clients as defined by s761G of the Corporations Act 2001. NewZealand: Distributed by UBS New Zealand Ltd. An investment adviser and investment broker disclosure statement is available on request and free of charge by writing to PO Box 45, Auckland, NZ. Dubai: The researchprepared and distributed by UBS AG Dubai Branch, is intended for Professional Clients only and is not for further distribution within the United Arab Emirates. Korea: Distributed in Korea by UBS Securities Pte. Ltd., SeoulBranch. This report may have been edited or contributed to from time to time by affiliates of UBS Securities Pte. Ltd., Seoul Branch. Malaysia: This material is authorized to be distributed in Malaysia by UBS SecuritiesMalaysia Sdn. Bhd (253825-x).India : Prepared by UBS Securities India Private Ltd. 2/F,2 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra (East), Mumbai (India) 400051. Phone: +912261556000 SEBIRegistration Numbers: NSE (Capital Market Segment): INB230951431 , NSE (F&O Segment) INF230951431, BSE (Capital Market Segment) INB010951437.The disclosures contained in research reports produced by UBS Limited shall be governed by and construed in accordance with English law.UBS specifically prohibits the redistribution of this material in whole or in part without the written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. Images may depictobjects or elements which are protected by third party copyright, trademarks and other intellectual property rights. © UBS 2011. The key symbol and UBS are among the registered and unregistered trademarks of UBS. Allrights reserved.ab UBS 20