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Financial Pacific - Lowes, long term gain or short-term pain (third party)
 

Financial Pacific - Lowes, long term gain or short-term pain (third party)

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    Financial Pacific - Lowes, long term gain or short-term pain (third party) Financial Pacific - Lowes, long term gain or short-term pain (third party) Document Transcript

    • ab Global Equity ResearchUBS Investment ResearchUS Morning Meeting Highlights - 16 August 2011 http://www.ubs.com/investmentresearchRating and Recommendation ChangesMotorola Mobility, MMI.N Amitabh Passi p.9Downgrading MMI to Neutral12-month rating: Prior: Buy => Neutral * CBE , FY11E US$0.59, FY12E US$1.56, PTPrior: US$31.00 => US$40.00, Market cap. US$11.2bnEstimate/Price Target RevisionsEstée Lauder, EL.N Nik Modi p.4Beyond The Numbers: Reiterate Buy12-month rating: Buy (Unchanged), FY11E US$3.69=>US$3.70, FY12EUS$4.42=>US$4.40, PT US$118.00, Market cap. US$20.2bnLowes, LOW.N Michael Lasser p.3Long-term gain, short-term pain?12-month rating: Buy (Unchanged), FY12E US$1.62=>US$1.60, FY13EUS$1.84=>US$1.76, PT Prior: US$26.00 => US$25.00, Market cap. US$25.9bnPfizer, PFE.N Marc Goodman p.6Pfizer Wins Viagra; Bumping Estimates12-month rating: Buy (Unchanged), FY12E US$2.26=>US$2.30, PT US$23.00,Market cap. US$147bnCompany UpdateBoeing, BA.N David E. Strauss p.7Tracking Dreamlifter Activity12-month rating: Neutral (Unchanged), FY11E US$4.30, FY12E US$5.50, PTUS$73.00, Market cap. US$45.7bnDanaher, DHR.N Jason Feldman p.8Agilent’s F3Q results consistent with outlook for DHR’s Test & Measurement unit12-month rating: Buy (Unchanged), FY11E US$2.80, FY12E US$3.40, PT US$60.00,Market cap. US$28.9bnGoogle Inc., GOOG.O Brian Pitz p.10Google to Acquire Motorola Mobility12-month rating: Buy (Unchanged), FY11E US$35.92, FY12E US$42.19, PTUS$800.00, Market cap. US$178bnHiSoft Technology, HSFT.O Arvind Ramnani p.9Solid June quarter results; guidance raised12-month rating: Buy (Unchanged), FY11E US$0.80, FY12E US$1.02, PT US$21.00,Market cap. US$0.36bnTransocean, RIG.N Angie Sedita p.5Acquiring Aker Drilling (4 Ultra-deep rigs)12-month rating: Buy (Unchanged), FY11E US$3.71, FY12E US$6.38, PT US$72.00,Market cap. US$18.3bnThis package has been prepared by UBS Securities LLC UBS 1ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 15*Under review (UR) and/or exception to core rating bands (CBE) - see page : 15UBS 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 16 August 2011Industry UpdateUtilities Julien Dumoulin-Smith p.12US Electric Utilities & IPPs - Examining the Possibilities in NJPharmaceuticals Marc Goodman p.6U.S. Pharmaceuticals - Weekly Rx TrackerBroadcasting John C. Hodulik, CFA p.3Telecommunications & Pay TV - Broadband makes up for weakening videoAdvanced Medical Devices Rajeev Jashnani, CFA p.7US Medical Devices - JNJ & ABT : weekly Rx for wk ending 8/5Heavy Machinery Henry Kirn, CFA p.8USDA Crop Progress Report - Corn crop condition still slightly below normalDiversified Financial William Tanona, CFA p.5US Brokers and Universal Banks - July Master Trust: early stage delinquencies beginto stabilizeSoftware Brent Thill p.10U.S. Software - 2012 Recession? We’ve Got You CoveredGlobal I/OTechnology Maynard J. Um p.12UBS Global I/O®:IT Hardware - Some Signs of Life in US Back to SchoolTechnology Gareth Jenkins p.11UBS Global I/O®: Telecom Equipment - Implications of Google’s acquisition of MMIEconomicsEconomics Maury N. Harris p.13US Economic Comment - Banks eased standards more broadly in JulEconomics Maury N. Harris p.14US Daily Economic Comment - Better SLOOS, flat HMI, NY mfg weakens UBS 2
    • US Morning Meeting Highlights 16 August 2011Consumer, Cyclical John C. Hodulik, CFA................. +1-212-713 4226Telecommunications & Pay TV. AnalystBroadband makes up for weakening video john.hodulik@ubs.com Video losses doubled vs. a year ago Batya Levi...................................+1-212-713 8824We estimate the industry’s video losses were 436K in 2Q, more than twice the 204K lost a year Analystago. Cable and satellite providers blamed the economy and increased competition for the batya.levi@ubs.comweaker than expected results. Telcos continued to improve penetration of homes passed (VZ at30%, AT&T at 16%), capturing a total of 7.3% market share vs. 5.6% a year ago. Satellite. Lisa L. Friedman.........................+1-212-713 2589providers gained 40 bps of share, reaching 33.5%, while cable’s share was 59.3%, down 200 Associate Analystbps yoy. lisa.friedman@ubs.com 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 invideo adds. While cord-cutting is likely impacting results at the margin, we believe the impact ofover-the-top is more prevalent in ARPU trends. Cable MSOs’ video ARPU growth deceleratedto 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 yearago. Cable leads in broadband; Data ARPU growth acceleratesBroadband subs grew 6.3% yoy in 2Q, in-line with the last four quarters. Cable continued totake 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 alsobenefiting from the improved mix of higher-speed subs, boosting ARPU growth to 2.5% from1.9% in 1Q. Cable VoIP adds slowed to 307K from 407K a year ago. This helped improve theannual declines in telco voice lines to 9.1% in 2Q from 9.4% in 1Q and 9.8% a year ago.- Michael Lasser................ +1-212-713 2440Lowes (LOW.N). AnalystLong-term gain, short-term pain? michael.lasser@ubs.com LOW 2Q was better than feared & provided more fodder for the debate Chris Weng....................... +1-212-713 2951Despite a difficult sales result (including a -0.3% comp decline vs. our flat est and the Associate Analystconsensus est of 1.2%), Lowe’s was able to achieve a decent profitability outcome for the chris.weng@ubs.com.quarter with EPS of $0.68 (ex. charges), which was ahead of our (and the consensus) estimateof $0.66. Price (15 Aug 2011).....................US$19.68 12-month rating...............Buy (Unchanged) Lowe’s is maintaining its more aggressive stance to close the gap with HD 12m price target..... Prior: US$26.00 =>As part of the strategy, LOW will expand its list of benchmark items that it prices competitively. US$25.00While this is likely to cause some incremental gross margin pressure in the near term, the Market cap................................. US$25.9bncompany expects that it will drive traffic gains and greater expense leverage over the long term. Full-Year EPS.We think the jury is still out on the cost-benefit analysis, but the market does not appear to be 2012E......................... US$1.62 => US$1.60ascribing a high probability of success based on the discounted valuation vs. HD. 2013E......................... US$1.84 => US$1.76 Several near-term factors should support the stockWe think there are several appealing factors for LOW’s near-term investment case: Thecompany has set a lower bar for 2H’11 by guiding to flat comps (note that comps are runningpositive 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 generatestrong expense leverage (2Q’11 op margin expanded 34 bps). Valuation: LOW trading at a 9% FCF yield & less than 6x ‘11E EBITDAIn our view, LOW’s attractive valuation should provide some potential downside support even asits gross margin outlook is more uncertain. Our $25 target is based on a blend of a DCF andmultiple analysis (equates to 14x our CY’12 EPS est of $1.76).- UBS 3
    • US Morning Meeting Highlights 16 August 2011Consumer, Non-Cyclical Nik Modi........................... +1-212-713 2204Estée Lauder (EL.N). AnalystBeyond The Numbers: Reiterate Buy nik.modi@ubs.com A Pattern Forming...Why Take Numbers Down to Take Them Up Again? Benjamin Schmid.............. +1-212-713 6268As we indicated in our “First Read” earlier today, Estée management has a history of providing Associate Analystextremely conservative initial fiscal year guidance (the company has managed to beat revenue, benjamin.schmid@ubs.comgross and operating margin targets as well as EPS by an average of 50% since 2009). Over thepast 2 years, consensus estimates for the following year have gone down post June Q results Price (15 Aug 2011)...................US$100.85.only to rise dramatically a few quarters later (see charts in body). While consensus may come 12-month rating...............Buy (Unchanged)down due to guidance of $4.00-$4.20, we estimate Estee can deliver FY12 EPS of $4.40. 12m price target........................ US$118.00 Market cap................................. US$20.2bn Did You Miss the EL Run…Sell Off Creates Entry PointLooking back to past 4Q reports, the stock has underperformed the market by close to 300 bps Full-Year EPS 2011E......................... US$3.69 => US$3.70(usually because of conservative guidance). Investors who took advantage of these one day sell 2012E......................... US$4.42 => US$4.40offs, 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 webelieve 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 beable to deliver high quality 10% EPS growth every year for the next 10 years. Valuation: $118 Price Target Derived via DCFOur target implies 24x our CY12 EPS of $4.83.- UBS 4
    • US Morning Meeting Highlights 16 August 2011Energy Angie Sedita.................... +1-212-713 3587Transocean (RIG.N). AnalystAcquiring Aker Drilling (4 Ultra-deep rigs) angie.sedita@ubs.com Total offer price $3.13 bil (incl cash + acq’d net debt + construction capex) Sasha Sanwal, CFA.......... +1-212-713 4907RIG will acquire Aker Drilling for a total consideration of $3.13 bil ($1.43 bil in cash + $800 mil Associate Analystassumed Aker debt + $900 mil in remaining CAPEX to complete the construction of the two sasha.sanwal@ubs.comnewbuild drillships). On a valuation basis RIG paid the construction costs of the rigs ($3.1 bil. Alston Mason.................... +1-212-713 8696construction costs); however, on a NAV basis we estimate a slight premium of 10%-12% to NAV Associate Analyst(still looks reasonable). alston.mason@ubs.com Aker brings 4 new high spec ultra-deepwater rigs + 2 optionsAker operates two harsh environment, ultra-deepwater, 6th gen semi-submersible rigs on long- Price (12 Aug 2011).....................US$57.26term contract in Norway (adds $1 bil in backlog). Aker also has two ultra-deepwater drillships 12-month rating...............Buy (Unchanged)under construction at the Daewoo Shipyard in Korea, expected to be delivered late-2013. The 12m price target.......................... US$72.00two drillships will cost $600 mil to build and are both uncontracted. The two harsh-environment Market cap................................. US$18.3bn.semis were constructed for $950 mil each. Aker also has two attractively priced drillship options Full-Year EPSat $600 mil with 25% due at signing and the remainder at completion, options expire Oct 11. 2011E............................................. US$3.71 2012E............................................. US$6.38 View deal as modest positive, adds high quality rigs to fleetWe view the deal as a modest positive given: 1) a seemingly reasonable valuation based onconstruction costs; 2) the high specification nature of the rig fleet; 2) greater exposure toattractive 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 ‘12EOur $72 price target is based on a 6.6x 2012E EV/EBITDA multiple.-Financial William Tanona, CFA................ +1-212-713 2325US Brokers and Universal Banks. AnalystJuly Master Trust: early stage delinquencies begin to stabilize william.tanona@ubs.com Credit card charge-offs should start to show signs of normalizing Brennan Hawken, CPA............. +1-212-713 9439July master trust filings show stabilizing early stage delinquencies, which means improvements Analystin charge-offs should begin to moderate in a few quarters. On average, 30-89 day delinquencies brennan.hawken@ubs.comwere 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 David Eads................................ +1-212-713 3630100 bps last month. Associate Analyst No change to our outlook for credit card losses david.eads@ubs.comGiven 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 moderateHalf 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 thepace of credit improvements should begin to slow. Sector attractive, but a long-term view is requiredWhile we continue to believe the sector has compelling upside potential over a two to three yeartime period, the near-term could remain extremely volatile given global macro stresses anduncertain economic growth. The group trades at 0.8x TBV, which we view as attractive giventhe group’s potential to generate low teens ROTE in a more normalized environment.- UBS 5
    • US Morning Meeting Highlights 16 August 2011Healthcare Marc Goodman................ +1-212-713 1342Pfizer (PFE.N). AnalystPfizer Wins Viagra; Bumping Estimates marc.goodman@ubs.com What’s new? District Court rules in Pfizer’s favor against Teva Ami Fadia.......................... +1-212-713 3242Pfizer initially sued Teva for patent infringement on the ‘012 patent in March 2010. On Friday, Analystthe US District Court in Virginia ruled that Teva did not show the ‘012 patent to be invalid for ami.fadia@ubs.com.obviousness nor for double-patenting, and that Pfizer did not commit inequitable conduct. Thus, Matthew Harrison.............. +1-212-713 2429the patent is valid and enforceable until October 2019 (excluding pediatric exclusivity). Associate Analyst Our takeaway: Upside to Pfizer, we had been expecting generics matthew.harrison@ubs.comThe fact that Pfizer will retain Viagra until 2019 is a substantial positive and counter to ourexpectations that Teva would enter sooner. We have updated our model to reflect patent Price (12 Aug 2011).....................US$18.21protection through 2019, which on its own represents an upside in EPS of ~$0.08-0.12 per year 12-month rating...............Buy (Unchanged).through 2016. For now, we assume 50% of this upside will flow to the bottom line, with the rest 12m price target.......................... US$23.00being reinvested in spending, resulting in an increase of ~$0.04-0.06 per year in our numbers. Market cap.................................. US$147bn Thoughts on the stock: Further upside in an already undervalued stock Full-Year EPS 2012E......................... US$2.26 => US$2.30We 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 majorcatalysts for the remainder of the year. Valuation: We maintain our Buy rating and $23 PT based on our DCFThe implied P/E multiple from our DCF is 10x our 2012E EPS of $2.30.- Marc Goodman......................... +1-212-713 1342U.S. Pharmaceuticals. AnalystWeekly Rx Tracker marc.goodman@ubs.com Issuing weekly Rx tracker for week ending August 05, 2011. Ami Fadia................................... +1-212-713 3242This report tracks the weekly Rx trends and the required growth rates to meet our sales Analystforecasts for upcoming quarters for key new launches and switches. ami.fadia@ubs.com Our takeaways for this week for specialty pharmaceuticalsFor AGN, Latisse (-11% Y/Y) declined as did CEPH’s Amrix (-85% Y/Y). FRX’s Bystolic (+34% Matthew Harrison....................... +1-212-713 2429Y/Y) and Savella (+20% Y/Y) grew while PFE’s Embeda (-100% Y/Y) continued to fall strongly Associate Analyst.(due to recalls on March 15). WPI’s Gelnique (+1% Y/Y) & Rapaflo (+95%) continued their matthew.harrison@ubs.comgrowth. Lastly, WCRX’s Actonel (-33% Y/Y) and Asacol (-12% Y/Y) continued to decline. Our takeaways for this week for large cap pharmaceuticalsFor 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 asexpected. Our takeaways for key switches we are watchingFor Asacol-Asacol HD, Asacol HD’s share increased to 25.1% of NRxs from 25.4% last weekwhile for Provigil/Nuvigil, Nuvigil’s share decreased to 47.9% of NRxs vs 48.5% last week. In theDPP-IV market, NRxs grew 25% Y/Y. Onglyza/Kombiglyze XR/Tradjenta gained modest sharewith Januvia/Janumet holding at 82.6% share vs 82.7% last week. Xifaxan’s NRxs increased0.4% Y/Y and the switch trend continued with 550mg now at 73.0% of NRxs vs 72.1% lastweek. Additionally, generic Concerta had 78.9% of NRxs (vs 77.1% last week).- UBS 6
    • US Morning Meeting Highlights 16 August 2011 Rajeev Jashnani, CFA.............. +1-212-713 9127US Medical Devices. AnalystJNJ & ABT : weekly Rx for wk ending 8/5 rajeev.jashnani@ubs.com JNJ: Zytiga, Stelara & novel anti-coagulant updates Nishit Verma............................... +1-212-713 2686Zytiga: absolute TRx / NRx were 856 / 422 (averages over the prior 4-wks: 762/ 404). Wkly Rx Associate Analystvolume has been relatively steady over the past few wks; we expect improvement after summer nishit.verma@ubs.commonths. Implied run rate currently stands at $235M. Stelara: TRx up 86%. Among sub-cuproducts, 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 immaterialat this level (<$5M). Product was approved for deep vein thrombosis in pts undergoing knee orhip 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 expectedbetter uptake. ABT: Humira growth solid; Niaspan declines may be manageableHumira: YOY TRx growth 11% (12-wk moving average: 12%) relative to sub-cu market growthof 8% (12-wk moving average: 9%). We model 3Q11 sales of $855M; current brandperformance suggests incremental sales upside of $30M (~$0.01-$0.02 benefit to EPS). Tricorfranchise: TRx volumes remain weak at -15% (12-wk moving average: -15%). That said, ABThas managed revs effectively w/ sales +1% in 2Q11 despite -14% in TRx, which we attribute topricing (+14% cumulatively) and lower performance rebates. Niaspan: YOY TRx declines seemto have moderated at -10%. Despite soft volumes, we think ABT can manage revs similar toTricor.-Industrial David E. Strauss..............+1-212-713 6185Boeing (BA.N). AnalystTracking Dreamlifter Activity david.strauss@ubs.com Watching flights into Paine Field in Everett Darryl Genovesi................ +1-212-713 4016We are tracking movements of Boeing’s modified 747 “Dreamlifter” fleet to gauge the progress Associate Analystof 787 production. Specifically, we are monitoring Dreamlifter flights into Snohomish County darryl.genovesi@ubs.comPaine Field Airport, adjacent to 787 production, to gauge the pace of shipments from the Ryan Thackston................ +1-212-713 3321structural suppliers. 787 structural components are delivered via the Dreamlifter fleet to Boeing Associate Analyst.in Everett, WA for final assembly. We are now also monitoring Dreamlifter deliveries into ryan.thackston@ubs.comCharleston associated with the opening of the second production line. Flights into Everett resume Price (15 Aug 2011).....................US$61.68We have tracked five Dreamlifter arrivals in total into Everett so far in August. This is well above 12-month rating......... Neutral (Unchanged)the prior month’s pace as Boeing has resumed component deliveries into Everett following a 12m price target.......................... US$73.00.roughly three-week pause, although still lower than levels seen in early 2010. We have also Market cap................................. US$45.7bntracked one flight into Charleston for the second production line so far in August. Full-Year EPS 2011E............................................. US$4.30 Need to see increase in Dreamlifter activity 2012E............................................. US$5.50We think the still slow pace of structural component deliveries reflects supply-chain problemsand rework necessary on early aircraft. Dreamlifter activity had been relatively consistent at15-20 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 Everettfive times. Valuation: Neutral Rating, $73 price targetOur $73 PT reflects our DCF analysis (10% WACC, 3% terminal growth rate).- UBS 7
    • US Morning Meeting Highlights 16 August 2011 Henry Kirn, CFA........................+1-212-713 4895USDA Crop Progress Report. AnalystCorn crop condition still slightly below normal henry.kirn@ubs.com Corn crop steady at 60% in “good” or “excellent” condition Eric Crawford..............................+1-212-713 8458Today, USDA reported 60% of the corn crop is in “good” or “excellent” condition, in line with last. Associate Analystweek’s 60%, but below last year’s 69%. See page 2 for a chart depicting this year’s corn crop eric.crawford@ubs.comcondition compared with that of prior years. Corn, soybeans and wheat futures prices rose last weekCorn 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 andare up 7% YoY. We see solid farm profitability as catalyst for farm equipment demandWe 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 farmprofitability 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 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 expectrecent strength in farm commodity prices to be a likely positive catalyst for shares.- Jason Feldman................ +1-212-713 4309Danaher (DHR.N) Analyst.Agilent’s F3Q results consistent with outlook for DHR’s Test & jason.feldman@ubs.comMeasurement unit Price (15 Aug 2011).....................US$44.72 Agilent’s F3Q results (July) relevant for DHR’s Test & Measurement unit 12-month rating...............Buy (Unchanged)We believe Agilent’s Electronic Measurement Group (EMG) is a good comp for DHR’s Tektronix 12m price target.......................... US$60.00business (Tek is roughly half of DHR’s T&M segment, which is ~1/5 of DHR sales pro forma for Market cap................................. US$28.9bn.BEC). Their product mix is similar, including key products like oscilloscopes and other electronic Full-Year EPStest & measurement equipment. 2011E............................................. US$2.80 Agilent expects +11% YoY sales growth in F4Q ending in October 2012E............................................. US$3.40At the mid-point, Agilent’s F4Q (October-end) sales guidance implies +11% YoY growth. Mgmt’soverall outlook was relatively positive; while softer vs last quarter, unless gov’t spending ismaterially cut, underlying demand is “expected to be roughly the same.” In F3Q, Agilentreported organic revenue growth of 19% YoY, and +14% YoY ex-FX (down slightly vs 21% YoYin 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 inF2Q. Agilent’s results/commentary consistent with DHR’s guidanceIn 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 growthacross DHR ex-FX). Valuation: Buy rating and $60 price targetPT reflects a ~45-50% premium to the market multiple on our 2011 EPS estimate.- UBS 8
    • US Morning Meeting Highlights 16 August 2011Technology Amitabh Passi................. +1-415-352 5537Motorola Mobility (MMI.N). AnalystDowngrading MMI to Neutral amitabh.passi@ubs.com Downgrade to Neutral on Google Takeout Offer Chelsea Shi.......................+1-415-352 4719We downgrade MMI to Neutral from Buy following the $40/share, all-cash, take out offer from Associate AnalystGoogle which we consider fair. As we had previously written, our $31 price target, based on a chelsea.shi@ubs.comsum-of-the parts analysis, gave no credit to the $8/share in DTAs MMI has. Ex-cash/DTAs thebusiness is being valued at 0.5x TTM sales or 0.4x 2012 sales @ $40/share. The deal also Price (12 Aug 2011).....................US$38.13.seems fair to CEO, Dr. Sanjay Jha, who has ~5.2m options and 0.9m RSUs outstanding (~4.6m 12-month rating...... Prior: Buy => Neutral *options at strike price of $35.37), and should be satisfactory to activist investor Carl Icahn. 12m price target..... Prior: US$31.00 => US$40.00 Many Questions Remain Unanswered – More from Google’s perspective Market cap................................. US$11.2bnWe believe many questions remain unanswered on the longer-term implications of this deal, Full-Year EPSespecially from Google’s perspective, and include whether MMI’s tax-free spin-off nature would 2011E............................................. US$0.59be affected by the deal; how cross-license agreements will be maintained under change of 2012E............................................. US$1.56control; impact to other Android OEM partners; Google’s longer-term HW aspirations for both *Exception to core rating bands - see.mobile devices and video infra. (does Google move to an integrated device model?). We don’t page 15anticipate any major regulatory roadblocks to prevent this deal from going through. Deal Bids Up Shares of Others Handset Players; Question Size of MovesOn 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 andremain sceptical of a take out of RIMM at current levels. Valuation: Downgrade to Neutral; Price Target to $40PT based on Google’s takeout offer price for MMI.- Arvind Ramnani...............+1-212-713 3517HiSoft Technology (HSFT.O). AnalystSolid June quarter results; guidance raised arvind.ramnani@ubs.com Strong June quarter results Diviya Nagarajan.............+91-22-6155 6072As we had anticipated in our preview note on 8/5, HSFT posted strong F2Q results. F2Q revs. Analystof $50.9M (+46.6% y/y and 14.8% q/q) was well ahead of UBSe/Street est. of $47.2M, and adj. diviya.nagarajan@ubs.comEPS of $0.18 was in-line with our ests & 0.01 ahead of St. ests. Employee headcount increasedby 464, from 5,946 in F1Q to 6,410 in F2Q. Revenue growth was driven by quicker than Price (12 Aug 2011).....................US$11.52expected recovery of its Japanese business (consistent with our checks) & strong growth from 12-month rating...............Buy (Unchanged).its domestic China business (+272% y/y). 2Q adj margins of 11.2% was 20bps ahead of our 12m price target.......................... US$21.00 Market cap................................. US$0.36bnestimates. Full-Year EPS Impressive guidance raise 2011E............................................. US$0.80F11 revenue guidance was upped to “at least” $212M (+44.6% y/y) from “at least” $194.5M 2012E............................................. US$1.02(+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-10clients; 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.- UBS 9
    • US Morning Meeting Highlights 16 August 2011 Brent Thill..................................+1-415-352 4694U.S. Software. Analyst2012 Recession? We’ve Got You Covered brent.thill@ubs.com Shelter from the Storm John Byun.................................. +1-415-352 4695To help us handicap the best performing software stocks should the economy enter into a Associate Analystrecession we screened our software coverage universe based on 4 criteria; 1) stocks that. john.byun@ubs.comoutperformed in 2008-09, 2) a recession scenario analysis on 2012E EPS, 3) exposure toEurope and public sector, and 4) current vs. trough valuations. Reid Menge................................ +1-415-352 4696 Software #1 Tech Sub-Sector in 2008-09 Recession Associate AnalystSoftware stocks are likely to outperform other areas of technology in a potential recession reid.menge@ubs.comsimilar 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 Nicole Hayashi........................... +1-415-352 5679form of maintenance or subscription-based business models. Associate Analyst nicole.hayashi@ubs.com Earnings and PT Scenario AnalysisWe 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 theeconomic climate. Top Recession Picks – Assumes Recession on Par with 2008-09Our top 3 ‘most preferred’ severe recession picks are ORCL, CHKP and INTU, with heaviermixes of recurring revenues, higher priority spend categories (e.g., security), and relativelybetter fundamentals in the last recession. Our top 3 ‘least preferred’ severe recession picks areADSK, ADBE and CTXS, with a lower mix of recurring revenues, companies more reliant onbetter environments to sell products, coupled with some valuation concerns.- Brian Pitz..........................+1-212-713 9310Google Inc. (GOOG.O). AnalystGoogle to Acquire Motorola Mobility brian.pitz@ubs.com MMI Acquisition to be Marginally Accretive by End-2011, Early-2012 Brian Fitzgerald................. +1-212-713 2851GOOG will acquire MMI for $40/share cash (63% premium to Aug 12 close) for total Analystconsideration of $12.5B. The deal has been approved by both companies’ boards and is brian.fitzgerald@ubs.com.expected be marginally accretive when it closes by end-2011 or early 2012. Android partners Timothy OShea.................+1-212-713 2140Samsung, HTC, LG, and Sony publically support the deal. Associate Analyst MMI’s Deep Patent Portfolio Likely the Primary Interest timothy.oshea@ubs.comGiven recent patent lawsuits, we believe GOOG’s primary interest is MMI’s deep patent portfolioconsisting of ~17,000 patents and 7,500 patent applications. Google will keep the OS open, and Price (15 Aug 2011)...................US$557.23believes this transaction should be positive for the ecosystem with all partners benefitting. 12-month rating...............Buy (Unchanged)Although GOOG does not anticipate regulatory or partner problems, it could address potential 12m price target........................ US$800.00concerns by spinning off MMI (but keeping patents), which will be run as a separate entity. We Market cap.................................. US$178bn.note GOOG’s mission statement is: To organize the world’s information and make it universally Full-Year EPSaccessible and useful. 2011E........................................... US$35.92 2012E........................................... US$42.19 Price Looks FairGOOG will pay $40 / share in cash, but will receive ~$11 / share cash and $8 / share fordeferred tax assets. Thus the value ascribed to the operating groups and patents is ~$21 /share, or ~$6.3B. On a TTM basis, GOOG is paying ~0.5x sales and 12x EBITDA (ex-cash,.DTAs). And forecasted improvements in mobile profitability per UBS Tech Analyst AmitabhPassi imply 0.4x ‘13 sales and 6.3x ‘13 EBITDA, a fair price in our view. Valuation: Attractive Entry PointAt ~10x 2012 Oper P/E (ex-cash) we view this as an attractive entry point. Our $800 PT isbased on a DCF (12% WACC, 3.5% LTGR). Our model is unchanged as we wait for an initialread on the regulatory environment.- UBS 10
    • US Morning Meeting Highlights 16 August 2011 Gareth Jenkins....................... +44-20-7567 3950UBS Global I/O®: Telecom Equipment. AnalystImplications of Google’s acquisition of MMI gareth.jenkins@ubs.com Input: Google to acquire MMI for $40/share, a 63% premium to last close Anuj Krishan...........................+44-20-7568 7105Google announced that it will acquire MMI for $40/share (63% premium) or total price of. Analyst$12.5bn (EV of c$9.5bn), which translates to 0.6x 2012E EV/sales and 14x EV/EBIT. The deal anuj.krishan@ubs.comis expected to close by end-2011 or early 2012. Output: risks for other Android OEMs? Unlikely as Google needs scale Amitabh Passi...........................+1-415-352 5537While MMI will be run as a separate business and Android will remain open, we believe this Analystdoes raise risks of conflict of interest as well as Google competing head on with other Android amitabh.passi@ubs.comOEMs. Having said that, Google needs scale and as such should be largely neutral for otherAndroid OEMs. Irrespective, Samsung, HTC may look to de-risk their OS strategy by Nicolas Gaudois....................... +82-2-3702 8801.emphasizing more on WP7, which will be positive for Microsoft, but will likely increase Analystcompetition for Nokia. nicolas.gaudois@ubs.com Output: Does Microsoft feel compelled to own hardware? Maynard J. Um..........................+1-212-713 3372We believe this will again raise questions of a handset acquisition by MSFT given integrated Analysthardware-software business models of Apple and now Google. We believe GOOG’s move is maynard.um@ubs.commotivated 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 Arthur Hsieh........................... +886-2-8722 7348strategic move. Analyst Output: highlights value of IP in the industry arthur.hsieh@ubs.comThe 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 Brian Pitz...................................+1-212-713 9310Gemalto, MediaTek, LGE, and Silitech. We also have Buy ratings on GOOG, MSFT, and Analystdowngrade MMI to Neutral from Buy on the back of this deal. brian.pitz@ubs.com- Brent Thill..................................+1-415-352 4694 Analyst brent.thill@ubs.com Brian Fitzgerald........................ +1-212-713 2851 Analyst brian.fitzgerald@ubs.com UBS 11
    • US Morning Meeting Highlights 16 August 2011 Maynard J. Um........................... +1-212-713 3372UBS Global I/O®:IT Hardware. AnalystSome Signs of Life in US Back to School maynard.um@ubs.com Recent retail checks indicate some increased PC sales activity Arthur Hsieh............................. +886-2-8722 7348Our recent checks suggest that the Back-To-School PC demand began to show better relative Analystsigns of life in late July & into August. While still too early to call a positive turn, the checks are. arthur.hsieh@ubs.comat least encouraging relative to prior data points & could result in some positive news for once ifthe trends are more broad-based. Patrick Chen............................ +886-2-8722 7388 Non-iPad Tablet Sell-through Still Appears to Be Lagging AnalystNon-iPad tablet sales appear to continue to lag based on our checks. Perhaps as evidence of patrick-p.chen@ubs.comthis, a number of vendors have reduced price – HP Touchpad & ViewSonic G-Tablet droppedby $100, Acer Iconia Tab A500 by $50 at Best Buy & Wal-Mart, & the Vizio 8 inch tablet by $50 Amitabh Passi............................ +1-415-352 5537.at Wal-Mart. Asus Transformer & Toshiba Thrive appear most popular of non-iPads (though AnalystiPad still dominates). amitabh.passi@ubs.com SKU count/avg ASP increase though largely due to higher DRAM configs Daniel Doddo..............................+1-212-713 7929The number of SKUs held by retailers generally increased month over month, though largely. Associate Analystdue to higher DRAM configurations of same models (4GB & 6GB). However, on a like-for-like daniel.doddo@ubs.comPC basis, ASPs have generally been flat to down $200 into the August Back-to-School push. Most & Least Preferreds Munjal Shah............................... +1-212-713 9440Across the PC Hardware companies, Apple, Dell & Lenovo are our most preferreds while Acer Associate Analystand Compal Electronics are our least preferreds given their respective end market exposures munjal.shah@ubs.comand momentum. While a further deceleration in the macro-economy would have impacts totransaction-based hardware companies, we maintain our view of enterprise & emerging marketsover developed consumer.-Utilities Julien Dumoulin-Smith............ +1-212-713 9848US Electric Utilities & IPPs. AnalystExamining the Possibilities in NJ julien.dumoulin-smith@ubs.com NJ BPU: Settlement discussions underway, but we remain doubtful Jim von Riesemann................. +1-212-713-4260Following the FERC’s conference on Minimum Offer Price Rules (MOPR), the NJ BPU and PJM Analysthave engaged in settlement discussions. Parties remain fixated on a solution for long term jim.vonriesemann@ubs.comprocurement under the RPM capacity auction (BPU suggests 10-yr contracts are a min.); anextended New Entry (NEPA) mechanism to 7-9 years remains a viable compromise in our view, Aileen Long................................ +1-212-713 3475allowing for new and incumbent generators to lock in capacity prices (election of this option Associate Analystmust be chosen ahead of a given auction, likely limiting use by existing generators). That said, aileen.long@ubs.comNJ’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 reservemargin and demand projections were too low. LCAPP #2: Coming soon, and with a twist that could improve its chancesWe believe a second (~1GW) LCAPP solicitation is likely forthcoming. While terms areambiguous, we anticipate the state to subsidize capacity through economic development funds,tax abatement, and municipal financing arrangements among other “options” being consideredby 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 fromDemocrats). While LCAPP #2 would supplement the original procurement, we believe thewinning bids under the original LCAPP SOCA agreements would never be developed, allowingfor these assets to be re-procured under the latest solicitation. As a consequence, we believe itconceivable (although certainly not definite) new capacity under LCAPP could clear the RPMmarket in MAAC at current levels.- UBS 12
    • US Morning Meeting Highlights 16 August 2011Economics Maury N. Harris.........................+1-212-713 2472US Economic Comment. EconomistBanks eased standards more broadly in Jul maury.harris@ubs.com Broader easing in July than in April, and stronger loan demand Drew T. Matus........................... +1-212-713-4448In the Feds senior loan officer opinion survey for July, banks reported easing standards on all Economisttypes of loans. For almost all categories of loans, the net percentage of banks easing lending drew.matus@ubs.comstandards 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 Samuel D. Coffin.......................+1-203-719 1252quarter. Business lenders cited "aggressive competition" as the reason for easing. EconomistThere was some net easing of residential mortgage standards, commercial real estate samuel.coffin@ubs.comstandards, C&I standards, and nonmortgage consumer loans standards. Although a smaller netpercentage of banks eased standards for small business loans (7.8% vs 13.5%) and for Kevin Cummins........................ +1-203-719 1676consumer credit cards (9.3% versus 20.5%) than had in the prior quarter, these were relatively Economistsmall steps backward within a broader expansion of bank credit easing.. kevin.cummins@ubs.comDemand for loans also strengthened, with the exception of residential mortgages. Also slightlysoft—demand by small businesses was fairly restrained. Broader easing is more supportive of Q3 growth and hiringThe net easing in lending standards and strengthening in loan demand suggests support forspending at the start of Q3. The survey ran from July 12 to 26—fairly recent although it missedthe grand finale of the Federal debt negotiations.We focus on the Senior Loan Officer Survey because lending standards tend to lead growthbroadly and hiring in particular. Also, the small business sector, key to hiring activity, dependsdisproportionately on banks for credit.The leading relationship with growth and hiring is probably partly causal (easier credit makes foreasier investment spending) and partly a function of an economic/business outlook shared bybanks and businesses. But the net of this report is that bank credit was boosting overall activitymore at the start of Q3 than it had been at the start of Q2. The pattern of recent easing appearshistorically consistent with private-sector job growth of about 200k per month—versus a 164kper month average year to date.- UBS 13
    • US Morning Meeting Highlights 16 August 2011 Maury N. Harris.........................+1-212-713 2472US Daily Economic Comment. EconomistBetter SLOOS, flat HMI, NY mfg weakens maury.harris@ubs.com Preview: IP +1.0%est. Steady single-family housing activity. Drew T. Matus........................... +1-203-719 8378(1) Motor vehicles, utilities, and mining probably pushed industrial and manufacturing production Economistto a solid rise in July. We forecast industrial production +1.0% (cons 0.5% after 0.2%) and drew.matus@ubs.commanufacturing +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 Samuel D. Coffin.......................+1-203-719 1252picked up. Despite slipping prices, sales indexes have shown some net re-acceleration recently Economist(see chart on page 4). samuel.coffin@ubs.com(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 Kevin Cummins........................ +1-203-719 1676multi-family. (Starts UBSe 595k, cons 600k, after 629k.). Economist(4) Falling natural gas and nonenergy petroleum prices probably weighed on import prices in kevin.cummins@ubs.comJuly (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.(2) The current activity index in the Empire State manufacturing survey fell to -7.7 in early Aug(cons & UBSe 0.0) from -3.8 in early Jul. The moderate inventory correction of the end of Q2and the supply disruptions related to Japan still appear to be weighing on output. Forwardindicators in the Empire survey generally dropped, with declines in new orders and the outlookfor activity and capex. However, the employment and shipments indexes picked up slightly.(3) In the Feds Senior Loan Officer Opinion Survey for July, banks reported easing standardson all types of loans. For almost all categories of loans, the net percentage of banks easinglending standards was larger at the start of Q3 than it had been at the start of Q2. Demand alsopicked up. The general improvement is corroborated by faster bank lending recently.(4) The housing market index was unchanged at 15 in early Aug, in line with consensus. Thatslittle changed from the recent trend. If anything, details were marginally improved, with presentsales index up to 16 from 15 and buyer traffic to 13 from 12. The data suggest no newdeterioration but a still weak new home sales pace.(5) Atlanta Fed President Lockhart remains “cautious” about further monetary accommodationand continues to expect re-acceleration in activity. But he emphasized that the Fed still hasplenty of tools to increase monetary stimulus if needed.- UBS 14
    • US Morning Meeting Highlights 16 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 15
    • US Morning Meeting Highlights 16 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 ratingAbbott Laboratories 4, 6a, 6c, 7, 8a, 16 ABT.N Buy N/A US$49.91 15 Aug 2011Acer Inc. 12 2353.TW Sell N/A NT$34.50 15 Aug 2011Adobe Systems Inc. 4, 6c, 7, 13, 16 ADBE.O Buy N/A US$24.10 12 Aug 2011AGCO Corp. 13, 16 AGCO.N Buy N/A US$40.25 12 Aug 2011Alcatel-Lucent 5, 6c, 7, 8a, 16, 18d ALUA.PA Buy N/A €2.63 15 Aug 2011Apple Inc. 6c, 7, 16, 18a AAPL.O Buy N/A US$383.41 15 Aug 2011AT&T Inc. 2, 4, 5, 6a, 6c, 7, 16 T.N Neutral N/A US$28.81 15 Aug 2011Autodesk Inc. 8a, 8b, 16 ADSK.O Buy N/A US$29.18 12 Aug 2011Boeing Co. 4, 5, 6a, 6b, 6c, 7, 8a, 16, 18e BA.N Neutral N/A US$62.70 15 Aug 2011Cablevision Systems 2, 4, 5, 6a, 16 CVC.N Neutral N/A US$19.13 15 Aug 2011Calpine Corporation 2, 4, 6a, 13, 16 CPN.N Buy N/A US$14.64 15 Aug 2011CenturyLink, Inc. 4, 5, 6a, 16, 22 CTL.N Buy N/A US$34.98 15 Aug 2011Check Point Software Technologies CHKP.O Buy N/A US$55.07 12 Aug 2011 16LtdCincinnati Bell Inc. 16 CBB.N Buy N/A US$3.10 15 Aug 2011Citrix Systems Inc. 16, 18f CTXS.O Neutral N/A US$60.75 12 Aug 2011CNH Global NV 4, 6a, 6b, 6c, 7, 16, 20 CNH.N Buy (CBE) N/A US$31.48 12 Aug 2011Comcast Corporation 4, 5, 6a, 6b, 6c, 7, 16 CMCSA.O Buy N/A US$21.27 15 Aug 2011Compal Electronics Inc. 2324.TW Sell N/A NT$29.95 15 Aug 2011Concur Technologies Inc 16 CNQR.O Neutral N/A US$38.10 12 Aug 2011Danaher Corporation 2, 4, 5, 6a, 16 DHR.N Buy N/A US$44.72 15 Aug 2011Deere & Co. 16, 22 DE.N Buy N/A US$74.97 12 Aug 2011Dell Inc. 2, 4, 6a, 6b, 6c, 7, 16 DELL.O Buy N/A US$15.50 15 Aug 2011DIRECTV Group Inc. 2, 4, 6a, 6b, 6c, 7, 16 DTV.O Buy N/A US$43.86 15 Aug 2011DISH Network Corp. 16 DISH.O Neutral N/A US$23.64 15 Aug 2011Ericsson 16 ERICb.ST Buy N/A SKr72.65 15 Aug 2011Estée Lauder 16 EL.N Buy N/A US$94.27 15 Aug 2011Exelon Corp. 4, 5, 6a, 6c, 7, 16 EXC.N Buy N/A US$42.24 15 Aug 2011Frontier Communications Corp 16 FTR.N Buy N/A US$7.19 15 Aug 2011Gemalto 16 GTO.PA Sell N/A €30.67 15 Aug 2011Google Inc. 2, 4, 5, 6a, 6b, 6c, 7, 16, 18b GOOG.O Buy N/A US$557.23 15 Aug 2011HiSoft Technology International Ltd HSFT.O Buy N/A US$10.62 12 Aug 20112, 4, 16HTC Corporation 2498.TW Buy N/A NT$827.00 15 Aug 2011Informatica Corporation 16 INFA.O Buy N/A US$48.83 12 Aug 2011Intuit Inc. 16 INTU.O Buy N/A US$42.39 12 Aug 2011Johnson & Johnson 16, 18g JNJ.N Buy N/A US$64.59 15 Aug 2011Lenovo Group Ltd 16 0992.HK Buy N/A HK$4.86 15 Aug 2011LG Electronics 16 066570.KS Neutral N/A Won64,800 12 Aug 2011Lowes Companies, Inc. 16 LOW.N Buy N/A US$19.68 15 Aug 2011 UBS 16
    • US Morning Meeting Highlights 16 August 2011Company DisclosuresCompany Name Reuters 12-month rating Short-term Price Price date ratingMediaTek Inc. 2454.TW Neutral N/A NT$266.50 15 Aug 2011Microsoft Corp. 4, 5, 6a, 6b, 6c, 7, 16, 18h, 22 MSFT.O Buy N/A US$25.10 12 Aug 2011MicroStrategy Inc. 16 MSTR.O Buy N/A US$122.62 12 Aug 2011 13, 16, 19 MMI.N Buy (CBE) N/A US$24.47 12 Aug 2011Motorola Mobility Holding IncNokia 4, 5, 6a, 6b, 6c, 7, 13, 16 NOK1V.HE Neutral N/A €4.09 15 Aug 2011Oracle Corporation 16, 18i ORCL.O Buy N/A US$27.39 12 Aug 2011Pfizer Inc. 6b, 6c, 7, 16, 22 PFE.N Buy N/A US$17.86 12 Aug 2011 4, 6a, PEG.N Buy N/A US$32.37 15 Aug 2011Public Service Enterprise Group6b, 7, 16Qlik Technologies 16 QLIK.O Neutral N/A US$29.17 12 Aug 2011Qualcomm Inc. 16, 18c QCOM.O Buy N/A US$50.50 12 Aug 2011Red Hat Inc. 4, 6a, 6b, 6c, 7, 16 RHT.N Buy N/A US$37.42 12 Aug 2011Research in Motion Limited 13, 16, 20 RIMM.O Neutral (CBE) N/A US$24.56 12 Aug 2011Samsung Electronics 16, 22 005930.KS Buy N/A Won707,000 12 Aug 2011Silitech Technology 3311.TW Neutral N/A NT$80.70 15 Aug 2011Sourcefire Inc 13, 16 FIRE.O Buy N/A US$28.39 12 Aug 2011Spirent Plc 4, 5, 14, 16 SPT.L Buy N/A 133p 15 Aug 2011SuccessFactors, Inc. 16 SFSF.N Buy N/A US$25.13 12 Aug 2011Symantec Corp. 2, 4, 6a, 6b, 7, 16 SYMC.O Buy N/A US$16.79 12 Aug 2011Time Warner Cable Inc. 2, 3, 4, 5, 6a, 16 TWC.N Buy N/A US$65.02 15 Aug 2011Transocean Ltd. 2, 4, 5, 6a, 6c, 7, 13, 16, 18j, RIG.N Buy N/A US$55.61 12 Aug 201122Verizon Communications 2, 4, 6a, 6c, 7, VZ.N Neutral N/A US$35.05 15 Aug 201116VMware, Inc 5, 16 VMW.N Buy N/A US$90.66 12 Aug 2011Windstream Corporation 16 WIN.O Neutral N/A US$12.10 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 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.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. UBS 17
    • US Morning Meeting Highlights 16 August 201113. 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 Google, 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 Qualcomm Inc.18d. 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.18e. 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.18f. 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.18g. 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.18h. 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.18i. 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.18j. 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.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: Home Depot Inc., US$31.47 (15 Aug 2011); Source: UBS. All prices as of local market close.Additional Prices: Bristol-Myers Squibb, US$27.97 (12 Aug 2011); Lilly (Eli) & Co., US$34.86 (12 Aug 2011); Merck & Co., US$31.34 (12Aug 2011); Pfizer Inc., US$17.86 (12 Aug 2011); Source: UBS. All prices as of local market close. UBS 18
    • US Morning Meeting Highlights 16 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. 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