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November 15, 2010
The Goldman Sachs Group, Inc.
This document contains comments related to the following stocks: Advanced Energy Industries, Inc. (AEIS) Advanced Micro Devices, Inc. (AMD) Aeroflot (AFLT.RTS) Agilent Technologies (A) Altera Corp. (ALTR) Amazon.com Inc. (AMZN) Analog Devices, Inc. (ADI) Applied Materials, Inc. (AMAT) Aruba Networks, Inc. (ARUN) Atmel Corporation (ATML) Autodesk Inc. (ADSK) Bally Technologies, Inc. (BYI) BE Aerospace, Inc. (BEAV) Best Buy Company, Inc. (BBY) Bill Barrett Corp. (BBG) BJ's Wholesale Club, Inc. (BJ) BMC Software, Inc. (BMC) The Boeing Company (BA) Boise Inc. (BZ) BRF-Brasil Foods S.A. (BRFS3.SA) Broadcom Corporation (BRCM) Buckeye GP Holdings L.P. (BGH) Buckeye Partners, L.P. (BPL) CA, Inc. (CA) Cardinal Health, Inc. (CAH) Cathay Pacific (0293.HK) Cemig (CMIG4.SA) CESP (CESP6.SA) Charles River Laboratories (CRL) Chesapeake Midstream Partners, L.P. (CHKM) China Eastern Airlines (H) (0670.HK) Citrix Systems Inc. (CTXS) Costco Wholesale (COST) Covance Inc. (CVD) Dollar Tree Stores, Inc. (DLTR) Domtar Corp. (UFS) Eletrobras (ELET3.SA) Enterprise GP Holdings L.P. (EPE) EXCO Resources, Inc. (XCO) For further product information, contact: New York Investment Research (212) 902-1000 Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S. Global Investment Research
Americas: Energy: Oil: Trading update: Bullish oil correlations, bullish liquids shale players Americas: Energy: Oil & Gas - E&P: Reiterate Buy on QEP, CL-Buy on NFX; KWK now Neutral Global: Transportation: What happens when 1bn Chinese fly? Americas: Healthcare Services: CROs: Continued solid clinical bookings with 3Q; reiterate CL-Buy on PRXL
1 2 3 4
Key Data Changes
Investment List Removals
Company Quicksilver Resources, Inc. Ticker KWK Investment List Removals Americas Sell List
Company International Flavors & Fragrances Inc. Ticker IFF Rating/ Coverage view N/N Price Target $57.00 Current Year $3.43 Next Year $3.67 Fiscal y/e Dec
Rating and price target changes
Company Agilent Technologies Aruba Networks, Inc. Enterprise GP Holdings L.P. Forest Oil Corp. International Flavors & Fragrances Inc. Newfield Exploration Quicksilver Resources, Inc. Research In Motion Ltd. SandRidge Energy, Inc. Rating/ Coverage view Ticker New Old A ARUN EPE FST IFF NFX KWK RIMM SD N/N B/N N/N N/N N/N B/N ↑ N/N S/N N/N unch unch unch unch -unch S/N unch unch Price Target New Old Estimates % chg Current Year Next Year Fiscal y/e 8.6% 9.1% 4.8% 2.9% -5.7% 15.4% 11.1% (16.7%) $2.00 $0.14 $1.74 $1.78 $3.43 $4.71 $0.72 $5.74 $0.12 $2.47 $0.32 $2.04 $2.19 $3.67 $5.58 $0.42 $5.51 $0.12 Dec Jul Dec Dec Dec Dec Dec Feb Dec
↑ $38.00 $35.00 ↑ $24.00 $22.00 ↑ $65.00 $62.00 ↑ $35.00 $34.00 $57.00 --
↑ $74.00 $70.00 ↑ $15.00 $13.00 ↑ $50.00 $45.00 ↓ $5.00 $6.00
Company Agilent Technologies Bill Barrett Corp. Rating/ Ticker Coverage view A BBG N/N N/N Current Year New Old % chg 2.2% (4.1%) New ↑ $2.00 $1.96 ↓ $2.29 $2.39 Next Year Old % chg 5.0% 10.2% ↑ $2.47 $2.36 ↑ $2.15 $1.95 Fiscal y/e Dec Dec
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Forest Oil Corp. (FST) FormFactor, Inc. (FORM) General Mills, Inc. (GIS) ICON plc (ADR) (ICLR) Intel Corp. (INTC) International Flavors & Fragrances Inc. (IFF) International Game Technology (IGT) International Paper Company (IP) International Rectifier Corp. (IRF) Intersil Corp. (ISIL) Intuit, Inc. (INTU) Kendle International Inc. (KNDL) KLA-Tencor (KLAC) Lam Research Corp. (LRCX) The Estee Lauder Companies Inc. (EL) Linear Technology Corp. (LLTC) LSI Corp. (LSI) Marvell Technology Group Ltd. (MRVL) Maxim Integrated Products (MXIM) McKesson Corp. (MCK) Microchip Technology Inc. (MCHP) Micron Technology Inc. (MU) MKS Instruments, Inc. (MKSI) National Semiconductor Corp. (NSM) Newfield Exploration (NFX) Nordstrom, Inc. (JWN) Northeast Utilities (NU) Novellus Systems Inc. (NVLS) Nvidia Corp. (NVDA) NXP Semiconductors N.V. (NXPI) ON Semiconductor Corp. (ONNN) Oracle Corp. (ORCL) Owens & Minor, Inc. (OMI) Parexel International Corp. (PRXL) Patterson Companies, Inc. (PDCO) Pharmaceutical Product Dev. (PPDI) PMC-Sierra, Inc. (PMCS) Precision Castparts Corp. (PCP) PSS World Medical, Inc. (PSSI) QEP Resources, Inc. (QEP) Quicksilver Resources, Inc. (KWK) Research In Motion Ltd. (RIMM) Rolls-Royce (RR.L) Ross Stores, Inc. (ROST) Saks Inc. (SKS) salesforce.com, Inc. (CRM) SanDisk Corporation (SNDK) SandRidge Energy, Inc. (SD) Sappi Ltd. (ADR) (SPP) Sears Holdings Corp. (SHLD) Semtech Corporation (SMTC) Shanghai Int'l Airport (600009.SS) SIA Engineering (SIAE.SI) Spirit AeroSystems Holdings, Inc. (SPR) STEC, Inc. (STEC) Suburban Propane Partners, L.P. (SPH) SuccessFactors, Inc. (SFSF) Taleo Corporation (TLEO)
Buckeye GP Holdings L.P. Buckeye Partners, L.P. Chesapeake Midstream Partners, L.P. Enterprise GP Holdings L.P. EXCO Resources, Inc. International Flavors & Fragrances Inc. Northeast Utilities NXP Semiconductors N.V. QEP Resources, Inc. Quicksilver Resources, Inc. Research In Motion Ltd. SandRidge Energy, Inc. Suburban Propane Partners, L.P. Ultra Petroleum Wisconsin Energy Corp.
BGH BPL CHKM EPE XCO IFF NU NXPI QEP KWK RIMM SD SPH UPL WEC
N/N N/N N/N N/N NR N/N NR B/A B/N N/N S/N N/N N/N N/N B/N
-(1.1%) (2.9%) (7.5%) 1.5% -(0.6%) 5.7% (2.3%) -0.2%
↑ $2.08 $2.07 $3.80 $1.45 unch unch
0.7% --(9.2%) --(2.0%) -(0.3%) (1.8%) 2.5%
Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Feb Dec Sep Dec Dec
↓ $3.51 $3.55 ↓ $1.36 $1.40 ↓ $1.74 $1.88 ↑ $0.73 $0.72 $3.43 --
↓ $2.04 $2.25 $0.97 $3.67 unch --
↓ $2.05 $2.07 ↑ $1.38 $1.30 ↓ $1.46 $1.49 $0.72 unch
↓ $2.31 $2.36 $2.75 unch
↓ $1.91 $1.92 ↓ $0.42 $0.43 ↑ $5.51 $5.38
↑ $5.74 $5.72
↓ $0.12 $0.36 (65.2%) ↓ $0.12 $0.19 (36.4%) ↓ $3.95 $4.05 ↑ $2.32 $2.30 ↓ $3.87 $3.94 (2.5%) 0.6% (1.7%) $4.15 unch -(2.9%) 0.6%
↓ $3.21 $3.31 ↑ $4.18 $4.16
Americas: Paper & Forest Products: Printing Paper: Preliminary data show volumes turn negative in Oct. 5
Americas: Retail: Amazon widens leads in Toys and CE, but Wal-Mart makes its move Americas: Gaming: Takeaways from Bally and IGT pre-G2E analyst events Americas: Retail: Broadlines: With even fewer beat & raises likely in week 2, see limited upside 6 7 8
BRF-Brasil Foods S.A. (BRFS3.SA): 3Q2010 in line, but not firing from all cylinders yet; stay neutral United States: Food: Actions are louder than words; the promo heat's still on International Flavors & Fragrances Inc. (IFF): Initiate on IFF at Neutral - 2010 was zesty, but 2011 could be milder Americas: Consumer Products: Cosmetics: US Prestige cosmetics: Industry sales up 7%; EL up 4% in October 9 10 11 12
Americas: Managed Care: A frontline perspective on 2011 pricing and product trends Agilent Technologies (A): Beats 4Q2010 on stronger electronic measurement sales Americas: Healthcare Services: Distributors: Upcoming Distributor Events in November and December 2010 13 14 15
salesforce.com, Inc. (CRM): Bookings growth likely to remain strong; Social proliferating; Buy Americas: Communications Technology: GS CommTech Weekly: Previews for QCOM, FFIV, and ARUN; raising RIMM EPS and PT Americas: Technology: Semiconductors: GS US Semi Weekly: Inventory database; AMAT, MRVL previews Americas: Technology: Software: The Weekly Catalyst: CRM, ADSK, INTU; Techtonics and CIO wrap 16 17 18 19
(XLNX) Utilities Northeast Utilities (NU): Data Update: Updating estimates after 3Q2010 reporting CESP (CESP6.SA): First Take: Adjusted EBITDA grows 17% yoy and beats consensus Cemig (CMIG4. Inc. (TXN) The TJX Companies. 3Q neutral Eletrobras (ELET3.SA): First Take: Adjusted EBITDA in line with consensus.Target Corporation (TGT) Teradyne.SA): First Take: Neutral 3Q. maintaining CL Buy 20 21 22 23 24 25 Other Latin America Weekly Kickstart: Picking sectors by inflation exposure 26 Reports Published . (WEC) XILINX Corp. Inc. (TJX) Ultra Petroleum (UPL) Varian Semi Equipment Assoc. Inc. (TER) Texas Instruments Inc. good operating performance but on one-offs Americas: Utilities: Diversified: Pipeline & MLP Essentials: Plethora of data points over next 8 days Wisconsin Energy Corp. Inc. (VMW) Wal-Mart Stores. (VSEA) Verigy Ltd. (WEC): Updating estimates for WEC post 3Q. (VRGY) VMware. (WMT) Wisconsin Energy Corp.
and RDC. Pavan Hoskote (New York): pavan. (212) 357-0931 Goldman Sachs & Co. Siddharth Ramtri (New York): siddharth. though all are Neutral rated.su@gs. CL-Buy on NFX.com. Given the sharp $16/bbl increase from September 1 lows of just under $72/bbl to the November 11 high of nearly $88/bbl. RDC For investors focused on SMID-cap equities (under $7. (917) 343-9044 Goldman Sachs & Co. (212) 357-9301 Goldman Sachs & Co. PXP.Americas Morning Summary November 15. (212) 902-6787 Goldman Sachs & Co. Integrated/domestic oils at key inflection point on shale strategies One of our key themes for integrated and domestic oil companies in 2010 has been the potential for companies to get credit for North America unconventional resource expansion strategies. PXP. (917) 343-5385 Goldman Sachs & Co. 1 Americas: Energy: Oil & Gas .firstname.lastname@example.org. We came away more positive on the Granite Wash (TX/OK) and on potential Rockies liquids exploration catalysts. We believe the second half of 2010 is shaping up to be a pivotal inflection point in terms of integrated oils making solid progress with unconventional resource strategies. Rockies exploration in focus We met in Denver with Forest Oil.murti@gs. OIS. SLB. ESV. Bullish oil macro data consistent with our “grind higher” call Oil macro data this past week remained constructive—via US inventory draws and a bullish IEA report—and consistent with our view that WTI spot crude oil prices will trade in a higher $85-$95/bbl band in the coming six months. CFA (New York): brian. The jury is still out on whether Exxon/XTO and Conoco/Burlington make sense. ESV. Our Top 10 Buy-rated favorites include CNQ. KWK now Neutral Brian Singer. though Neutral-rated Hess also appears well positioned. NFX.hoskote@gs. A “risk-off” day on November 12 knocked nearly $3/bbl off the spot WTI crude oil price.E&P: Reiterate Buy on QEP.ramtri@gs. PBR. We continue to see Buy-rated Murphy Oil as best positioned on this theme. Will Su (New York): will. SU We have updated our analysis of energy sector share price correlations to two-year WTI strip oil (using weekly returns since 2004) and are highlighting our Top 10 Buy-rated equities across the Energy sector favorably leveraged to our constructive crude oil view. bullish liquids shale players Arjun N.com. HP. OXY. OXY. We reiterate our Buy ratings on QEP. Murti (New York): arjun. we highlight five equities that have a high correlation with crude oil prices.5 billion market cap.com. following a long stretch where the business was dominated by E&Ps. and SU. with liquids upside in 2012 Goldman Sachs Global Investment Research . Bill Barrett and QEP Resources.com. While Conviction Buy Occidental Petroleum has interesting California “shale” acreage. 2010 Focus Items Americas: Energy: Oil: Trading update: Bullish oil correlations. investors should take advantage of inevitable oil price volatility to add to positions. Chevron entered the fray with the announcement of its Atlas Energy acquisition last week. Joe Citarrella (New York): joe.com. (212) 902-8259 Goldman Sachs & Co. In our email@example.com@gs. Top 10 oils: CNQ. 2 Denver trip: Non-Rockies production. QEP: Not well known and undervalued. SLB. PBR. NBR. OIS. we are not surprised to see a pullback. CL-Buy on Newfield Exploration and Neutral ratings on FST and BBG.). sending it a hair below $85/bbl. NFX.com. (212) 855-0470 Goldman Sachs & Co. HP. including FST. MUR. Five SMID-cap oils: FST. HAL. HAL. Andre Benjamin (New York): andre. it is a smaller driver of our recommendation and hence we do not associate Oxy as much with this theme. as our core expectation is for a continued “grind higher” over the coming year. NBR. MUR.
Perry (London): david. as long as gas sentiment remains poor. While we prefer NFX among Granite Wash players (and raise our price target to $74 from $70 on Granite Wash upside). Airports are well positioned to benefit China’s plan to add 90 airports by 2020 implies sufficient capacity to handle 1bn pax/yr. We also update estimates for QEP. (212) 902-9610 Goldman Sachs & Co. 2010 We have increased confidence in 2012 liquids upside from: (1) processing NGLs. Global: Transportation: What happens when 1bn Chinese fly? Tom Kim (Hong Kong): tom.wang@gs. (212) 357-0954 Goldman Sachs & Co. for QEP.com. even in China.C. XCO We upgrade KWK to Neutral from Sell and raise our 6-month target price to $15 from $13 to add an M&A component to our new price target methodology with a potential M&A ranking of 1 (high probability. China fleet to double by 2022E Goldman Sachs Global Investment Research . up 3.kim@gs. +852-2978-6631 Goldman Sachs (Asia) L. rising consumption in China could drive domestic and outbound int’l air travel.C. Quicksilver Resources and EXCO Resources to reflect 3Q results/other adjustments.com. CFA (New York): noah. +44(20)7552-2958 Goldman Sachs International Hugo Scott-Gall (London): hugo.L. Noah Poponak.com. Chun-Yai Wang (New York): chun-yai.scott-gall@gs. +852-2978-0856 Goldman Sachs (Asia) L.L. Secular growth should stem from the multiplier effect of faster-than-avg. Ultra Petroleum. see exploration as a more important catalyst. in our view. Not only will China become a key demand generator for overseas tourism. Ronald Keung (Beijing): ronald. +44(20)7774-1917 Goldman Sachs International Ricky Tsang (Hong Kong): ricky.L.perry@gs. By our estimation. SandRidge Energy. We expect 2011 capex/production guidance to be released this week to be positive. BBG. Key risks: commodity prices. BBG: Production growth flexibility. However.Americas Morning Summary November 15. +852-2978-0526 Goldman Sachs (Asia) L.5 times from an estimated 284mn pax in 2010E. Recent well results above company type curves appear more the norm. well results. and as such.and multiples-based price target for SD to $5 from $6 to reflect lower EBITDA and LT FCF. we see it developing into an important destination market. +86(10)6627-3483 Beijing Gao Hua Securities Company Limited 3 1bn in 12 yrs We expect China to become the largest aviation market globally by 2020 and achieve 1bn air passenger (pax) traffic by 2022E. FST: Granite Wash guidance appears conservative.com. and could continue to take market share from incumbents. but air traffic control is a potential impediment. which bodes particularly well for domestic carriers. We believe QEP is not well known to E&P investors and would use weakness during the continued shareholder transition since QEP's spinoff from Questar as a long-term opportunity.15% currently. costs. c. and (2) production in the Granite Wash/Bakken/Cana Woodford that could approach critical mass in 2012. update ests. We lower our 6-month DCF. Upgrade KWK to Neutral.and multiplesbased price target to $35 from $34. as low-cost carriers are firstname.lastname@example.org@gs. UPL. prefer NFX We have continued confidence in the Granite Wash and FST's leading position in the play. vs.com. there is no room for complacency.com. 30%50%) within our M&A email@example.com@gs. gov’t pronouncements.C. Beyond the Niobrara (first well drilling now) the Mancos play remains a key catalyst. Hino Lam (Hong Kong): hino. Another angle on China consumption In our view. BBG. We do not believe this will be appreciated. GDP growth coupled with an increasing air travel penetration rate. David H.cn. BRICs will represent 35% of the global aviation market by 2020E. and we raise our 6-month DCF. SD.com. but exploration key We believe BBG has ample flexibility for growth following the BLM's permitting of drilling acceleration in the West Tavaputs (UT) field. FST is well positioned to benefit from both from the Granite Wash and emerging plays in Canada.
we believe preclinical exposure will be an overhang for CRL and CVD and stay Neutral on both names. Baneesh Banwait (Bangalore): baneesh. given an overall lengthening in the duration of clinical trials and a higher level of project scope. (2) cash returns on cash invested (CROCI). Cathay Pacific. Americas: Healthcare Services: CROs: Continued solid clinical bookings with 3Q.com. screened against our global investment profile (IP) metrics including: (1) Director’s Cut valuation . Boeing. China Eastern Airlines. given the increasing prevalence of long-term strategic deals. Strategic deals help bookings with clarity on backlog conversion We saw further growth in aggregate backlogs which were helped by new business related to recent strategic deals. CFA (New York): randall. we received updates from managements and we continue to feel comfortable that the bolus of strategic wins will lead to accelerated top-line growth. and (3) CROCI growth. Specifically. SIA Engineering. and are pursuing share repurchases as excess capacity and prolonged lack of demand continues to pressure fundamentals. the quarter also provided further clarity around backlog conversion.com.67. stay CL-Buy on PRXL & Buy on PPDI Our positive view of an attractive clinical late-stage environment was strengthened again this quarter as we saw book-to-bills ratios of 1. These 10 stocks have outperformed the MSCI World Industrials Index cumulatively by c. Jones (New York): robert. While slower conversion related to the large number of projects in the start-up phase from recent strategic wins led PRXL to lower its near-term outlook. 2010 To carry 1bn air pax/yr. (212) 357-3292 Goldman Sachs & Co. the preclinical industry continues to face challenges and low visibility into future business. (212) 357-3336 Goldman Sachs & Co. Our top 10 long-term picks are Aeroflot. Embraer and Bombardier. and Airbus.com. presenting ample opportunity for current large-jet OEMs.walker@gs. Boeing. Top 10 long-term winners We have identified 10 stocks in our global aviation coverage universe with at least 15% exposure to BRICs and leveraged to the secular growth prospects we forecast. China’s demographics and fleet mix may result in even greater opportunity for the regional jet OEMs. Verdell Walker (New York): verdell. CVD & CRL take further actions to offset still poor fundamentals In contrast to the late-stage. Randall Stanicky. we maintain our CL-Buy.firstname.lastname@example.org@gs. (212) 902-8446 Goldman Sachs & Co. In our view.0 or better across the group. Importantly.com. Rolls Royce. Until we see signs of a more meaningful improvement. and while it will take share. given (1) industry leading TTM book-to-bill ratio of 1.Americas Morning Summary November 15. Precision Castparts. undertook significant cost-cutting initiatives. an issue that has been top of mind for investors. (212) 934-6193 Goldman Sachs India SPL 4 Backlog growth seen with 3Q. reiterate CL-Buy on PRXL Robert P. longer-term share performance remains linked to an improving preclinical environment. management said it was seeing longer revenue conversions. Both companies with preclinical exposure (CRL and CVD) reduced capacity. Goldman Sachs Global Investment Research . Conversely. China is focused on its indigenous manufacturing capability. and Spirit Aerosystems.p.stanicky@gs. On the issue of backlog conversion. On CVD’s late-stage business. we estimate China’s current aircraft fleet would need to double to 3.500% over the past 10 years. (2) reset FY2011 outlook. ICLR expects to see an uptick in the amount of revenue converted out of its backlog in the next 12 months despite its ongoing central lab issues. Shanghai Int’l Airport.500 by 2022E. and (3) best EPS growth in the space (21% three-year forward EPS CAGR). PPDI also mentioned that its backlog duration had actually decreased slightly. BE Aerospace. 3Q’s disappointing preclinical results demonstrated that the earlystage environment remains challenged as still weak demand and excess capacity sparked further cost actions and buyback announcements. it will require many years.
(212) 357-0648 Goldman Sachs & Co. and (3) our forecast that Domtar will increase its return of cash to shareholders in 2011 by repurchasing $400 mn of its stock.8% yoy – the largest drop thus far in 2010 and below our estimate of minus 4%-5%. The coated paper market remains tight with operating rates in the mid-90s.com. Key risks: greater secular UCFS volume declines. Uncoated freesheet markets steady. CFA (New York): email@example.com@gs.0% yoy. Coated paper volumes are slowing. (212) 934-5057 Goldman Sachs India SPL Uncoated freesheet volumes disappoint in October According to preliminary statistics reported by the American Forest & Paper Association (AF&PA). RISI’s Paper Trader reported UCFS prices slipped $20/ton in October. but Wal-Mart makes its move Adrianne Shapira (New York): adrianne. Morry Brown. Domtar is Buy rated owing to robust FCF generation Although Domtar is the largest UCFS producer and we acknowledge UCFS volumes are likely to continue to decline. the first decline in 11 months and driven by weakness in coated groundwood.com. Total printing and writing paper shipments are up 6. but are up 16. (212) 902-7832 Goldman Sachs & Co. We expect UCFS volumes to fall 4% in 2011. We attribute weaker UCFS volume to high unemployment levels and negative secular trends.8% yoy in September and October. $1098/ton in 2010 as we expect prices to remain steady from current levels. Scott Kaufman-Ross (New York): scott. (212) 357-5509 Goldman Sachs & Co. CFA (New York): firstname.lastname@example.org. 5 Consumer Cyclicals Americas: Retail: Amazon widens leads in Toys and CE.6% yoy ytd in 2010. (2) robust free cash flow (+20% FCF yield). but market remains tight Coated paper shipments fell 1. Conversations with the large UCFS producers suggest their prices are unchanged and that the weakness is coming from discounted imports and competitive activity in private label. Uncoated freesheet volumes declined 7. Alex Ovshey (New York): alex.kaufman-ross@gs. we remain Buy rated on Domtar. but weaker volumes pose risk Uncoated freesheet (UCFS) shipments are down 6. Coated paper volumes fell 1.com. 2010 Other Headlines Basic Materials Americas: Paper & Forest Products: Printing Paper: Preliminary data show volumes turn negative in Oct. the International Trade Commission affirmed tariffs on Chinese and Indonesian coated freesheet imports – a positive for US coated freesheet producers. In October. Usha Chundru (Bangalore): usha. (212) 357-4174 Goldman Sachs & Co. respectively. lower paper prices.5% yoy in October.com. 6 Goldman Sachs Global Investment Research .com. inventories below average levels. (212) 934-4206 Goldman Sachs & Co. Last email@example.com% yoy in October. We expect producers will close 4% of capacity to keep operating rates near 90% and prices steady. and pricing rising.8% and 7. CFA (New York): richard. Stephen Grambling.skidmore@gs. Richard Skidmore.firstname.lastname@example.org/ton in 2011 vs. US printing and writing paper shipments declined 4. (212) 902-6751 Goldman Sachs & Co.0% yoy ytd decline. significantly weaker than the 2.5% ytd.Americas Morning Summary November 15. We attribute slower coated paper demand to tougher yoy comparisons and the inventory restocking cycle coming to an end. We forecast UCFS prices will average $1. given (1) expectations for UCFS markets to stay balanced.
6% below to 0. cutting prices by 2. we saw similar positioning after week 3. Last year. Neil Portus. with all retailers maintaining their positions and Amazon widening its lead. Bally management believes there is a systems revenue opportunity of ~$1. However. Kmart and Target. while the quality of products seems to improve each year. IGT and Bally hosted pre-industry slot show events. Costco moved from 1. Bally is looking to extend its lead in systems by growing the installed base of iViews and launching floor wide value-add applications.grambling@gs. CFA (New York): neil. Amazon had a wider 4.com. Overall. price cuts of 2. Amazon and Kmart most aggressive. Overall.com. (2) growing globally.portus@gs. 7 Industry context Yesterday. (212) 902-2077 Goldman Sachs & Co. Costco retreats Week 3 of our CE Count was uneventful. One example of a value-add application that showed success is Bally’s virtual racing application. 10.8bn for new products and $10 mn-$20 mn for maintenance/sales revenues over the next 5-7 years. Amazon was just as aggressive. Stephen Grambling.email@example.com@gs. CFA (New York): steven. 6.3% below the average. Bally’s new Alpha2 and pro series products were a marked improvement over its older offerings. followed by Wal-Mart at 3. However.2% to move 2. iView.3% below Wal-Mart.9% to take the top Toy Title with prices 1.com. Americas: Gaming: Takeaways from Bally and IGT pre-G2E analyst events Steven Kent. 8 Goldman Sachs Global Investment Research . with Wal-Mart. While this installation was successful and could attract more customers. CFA (New York): stephen.3% during week 3. The Hangover and Ghostbusters. but Amazon still tops in Toys Week 3 saw Wal-Mart fire back against rival Target. Ethernet cable. lowering prices by 2. prices fell 1.5%. though Best Buy was in line with the average and Costco improved its position. and 6. they will only be successful if customer budgets increase.kent@gs. and (5) accelerating growth from its on-line and mobile group (which IGT views as a significant opportunity and expects to be a leading player.2% were in line with last week at 2. as Wal-Mart and Amazon lowered while Kmart and Target were flat.7% below Target. (212) 902-7832 Goldman Sachs & Co. Kmart remained out of contention. while Target was a narrower 1. casinos need to have iView installed. see limited upside Adrianne Shapira (New York): adrianne. The software is currently installed at the Barona casino and company management indicated that there was an increase in win after the installation.9% below. followed by Best Buy. (4) improving operating efficiencies and returns (including monetization of prior acquisitions and keeping R&D spend relatively flat but increasing efficiencies by leveraging third party technologies and increasing cross-studio collaboration). new cabinets/platform raise bar Bally’s event focused on systems and the new Alpha2 platform and pro series cabinets. (3) taking advantage of its cash flows. Consumer Electronics Count: Amazon widens lead. The meetings were well attended and investor interest was high. IGT also displayed several new titles including a graphically-impressive Dark Knight as well as Dirty Dancing.com. (212) 357-4174 Goldman Sachs & Co.Americas Morning Summary November 15. Eli Hackel (New York): eli. Bally – Innovation in systems. (212) 902-6752 Goldman Sachs & Co. its systems offerings and revenues from its IP catalog. IGT sets goals for FY11 with an increased focus on on-line/mobile IGT discussed 5 goals for FY2011 during its presentation: (1) reduce its reliance on a North American replacement cycle by improving gaming ops yields.0% pricing gap.8% above. and a dedicated sales/marketing staff to get a full return.com. Last year. IGT expects to grow this division from about 200 people currently to around 300 over the next year). Amazon prices were 10. The second focus point at the investor event was the new games and hardware.3% above Wal-Mart.3%. We thought the games looked very good and the interaction between the iDeck. Kmart at 3. Americas: Retail: Broadlines: With even fewer beat & raises likely in week 2.8% above respectively. (212) 902-9672 Goldman Sachs & Co. 2010 Toy Tally: Wal-Mart makes its move. base game and top box was solid.1% higher than Wal-Mart.1%.
Most emerged with heavy inventory levels that could cap future margin expansion into the holiday season. Domestic volume growth of 10% yoy was driven by in natura poultry/pork (+21% yoy) and other processed food categories (+21% yoy). suggesting upside will be based on cost control. Processed meats – BRF’s largest segment (49% of domestic sales) – was the weak point of the quarter with only 1% volume growth and prices down 2% yoy. Overall export volumes increased 10% vs.7%. Goldman Sachs Global Investment Research .A.wigman@gs. However. which are the backbone of the holiday selling season.74 33. TGT: See potential for EPS miss on soft sales and negative mix shift We see downside risk due to four factors: 1) 1.6% was at low end of 1-3% plan.lensing@gs. Consumer Staples BRF-Brasil Foods S.com. BRF will hold an analyst day on Tuesday (Nov 16) in São Paulo. underperforming Brazilian exports (which grew 17% yoy in the quarter. (212) 934-4206 Goldman Sachs & Co.6%. (212) 357-0648 Goldman Sachs & Co. starting 6 am EST. Dial-in: Port: +55-11-2101-4848. Looking towards week 2.00 2010E 0. Consistent with the prior week. Week 1 share reactions Ahead of week 1 of 3Q earnings. EBITDA margin stood at 10.876 mn R$27.Americas Morning Summary November 15.brown@gs. according to Secex). Scott Kaufman-Ross (New York): scott. Claudio Lensing (Sao Paulo): claudio.com. Although in natura prices rose 9% driven by strong pork prices (up 22% yoy).com. 3) consensus est for 3Q remained flat at $0. but not firing from all cylinders yet. with average BRL prices down 3% impacted by FX appreciation. beating our and Bloomberg consensus estimates by 3%.68 since 2Q. WMT: Negative sentiment braced for a guide down We do not expect WMT to miss Q3 EPS nor guide down Q4.kaufman-ross@gs. we see a similar theme emerging as a continued mix shift to food and away from weaker discretionary sales may put downward pressure on off-mall retailers’ gross margins. BRF’s in natura poultry exports grew 8% yoy. and the results largely vindicated this expectation. 3Q2009.9% and 5. CFA (New York): morry. EPS broadly surpassed consensus estimates due to better cost control and below the line items. QE2). Analysis Domestic sales up 8% yoy. Our 3Q EPS est of $0. +55(11)3372-0101 Goldman Sachs Brasil Bco Múlt S. we expected unfavorable weather trends to pressure margins.44 17. while its turnaround efforts are far from smooth. average domestic prices declined 2% yoy driven by processed meats. we believe the stock could bounce given the overly negative set up in the absence of a miss and lower. respectively.SA): 3Q2010 in line.A. and 4) comparisons become more difficult in 4Q. 30 bp above GSe and 50 bp above the Street. Poultry exports trended below overall Brazilian exports in 3Q2010. News Brasil Foods reported on November 12 recurring EBITDA of R$602 mn. Expect guidance to remain conservative heading into the holidays Although economic indicators have improved over the past two months (payrolls.4X 0.SA. R$25.67 remains a penny below consensus. We would expect SKS’ beat to stem from strong margin expansions while JWN’s expenses to likely restrain strong flow through. this expectation is factored into our earnings estimates. This expectation stems from continued weakness in discretionary categories.24 Gustavo Wigman (Sao Paulo): gustavo. Net income of R$190 mn was 5% below our estimates owing to a slightly higher tax rate. +55(11)3371-0839 Goldman Sachs Brasil Bco Múlt S. 2010 Morry Brown.23 2011E 1. 2) discretionary and margin rich categories like apparel and home softened in Q3. Eng: +1706-679-9291. but no growth from processed meats. High end department stores lap tough comparisons well Both JWN and SKS demonstrated their ability to lap tough year ago comparisons as they delivered above plan comps of 5.A. (BRFS3. ISM. we think guidance will remain conservative heading into the holidays and expect executives to maintain their current outlooks. both have strong momentum heading into the holiday season. Nonetheless.9X 0.com.14 Market cap Target price Fiscal y/e Dec EPS (R$) P/E EPS Quarter/Interim Investment Lists Neutral Coverage view *Current and a year ago Neutral * 9 R$21. stay neutral BRFS3.
(212) 902-3293 Goldman Sachs & Co.hong@gs. The report uses unique and innovative data and calculations to provide what we believe is a more accurate portrayal of promotional intensity. We continue to see potential for Mars and Hershey to respond in the coming months. This analysis is of particular relevance today as the industry transitions from a deflationary cost environment to an inflationary one. are not universal and we continue to see divergences at the category level. which along with the rapid rise in commodity costs could drive profit and margin disappointment in the near term. Hong (New York): judy. Coffee is still aggressive with Kraft moving the wrong way on price. gross margin was up 40 bp qoq thanks to physical inventory carryover. In other words.Americas Morning Summary November 15. Despite the rhetoric. We look for price investment to remain elevated in an effort to restore volume. No relief in cereal. yogurt & baking mixes Mills is still aggressive in cereal and Kellogg may at last be rejoining the fray. SG&A was 5% (or 90 bp. (212) 934-0495 Goldman Sachs & Co. 10 Still searching for promotional inflection points in Food This is the second installment of our retail promotion tracking report. Trends. while the industry has begun to talk of price increases. but we no longer see the aggression building. the heat’s still on We retain our Cautious view of packaged food sector due to sluggish volume trend and high level of competition.com. Although local prices of corn and soybeans grew 7. IT and consulting expenses. it has yet to dial back promotional intensity. Implications Although from a margin perspective results were good. Nestle continues to stir the pot. Our rating. Tyler Walling (New York): tyler. estimates and PT remain unchanged. Cookies and crackers still relatively benign The seemingly rational competitive activity that we reported on last month in the cookie and cracker category continues.5% and 16. as % of sales) ahead of our estimates on higher marketing. no impact from grains yet. We believe the transition could be disruptive and expect the disruption to be most severe in promotionally intense categories. in our view.com. Jason English (New York): jason.com. Our analysis supports this caution.8% qoq respectively. (212) 902-0490 Goldman Sachs & Co.com. Another quarter of double-digit EBITDA mg.luddy@gs. Mills’ price investment was surprising but not as surprising as the +47% volume response. suggesting ROI remains relatively low. United States: Food: Actions are louder than words. Danone’s retaliation to Mills’ aggression is building in yogurt.walling@gs. We see this as a likely enabler to pricing actions for K and KFT in the coming months. the promo heat's still on Judy E. Goldman Sachs Global Investment Research . (212) 902-9592 Goldman Sachs & Co. In chocolate. however. Recurring EBITDA margin expanded 70 bp qoq driven by lower employee profit sharing. the lack of consistent volumes & pricing across categories deterred BRF from having a clean quarter. as packaged food remains heavily promotional and the efficacy of promo spend is still down yoy.english@gs. Aggression continues to build in soup & chocolate candy Campbell had been the chief aggressor but Mills hit back in a big way this month (GIS soup pricing down 22% yoy). Baking mix aggression remains high. coffee. 2010 Total export revenues increased 7% yoy. Michael Luddy (New York): michael.
67 14. a significant step-up versus the 4-5% year-to-date decline and the first positive number on this basis since April 2009.3X 0. Strong FCF is a key plus and we see a 20-25% increase in the dividend in 2011 along with resumption in buybacks ($100 mn). On the plus side. This said.46 Market cap Target price Fiscal y/e Dec EPS ($) P/E EPS Quarter/Interim Investment Lists Neutral Coverage view *Current and a year ago Neutral * 11 $4. Industry consolidation should favor the big suppliers like IFF. 2010 International Flavors & Fragrances Inc. (212) 855-9812 Goldman Sachs & Co.sawyer@gs. which supports margins. All three beauty sub-categories posted solid results. Stephanie Whited (New York): stephanie. Core drivers of growth We see LT sales growth of 4% vs.3X 0.whited@gs. EL’s underlying fundamentals remain strong with the company’s core business (excluding the discontinuation of Prescriptives) growing inline with the industry.43 15. We also expect the strategic review to result in a doubling in cash back to shareholders in 2011. We also see limits on margin potential due to rising input costs and the fragmented industry structure. Sales were positive across Estee’s top three brands. Sales growth could be sub-par at 1-2% in 2011 as IFF hurdles inventory restocking from 2010. (212) 902-5488 Goldman Sachs & Co. (212) 855-9812 Goldman Sachs & Co. We are encouraged by the 300bp of sequential improvement versus the June quarter average. Investment view We initiate coverage on IFF with a Neutral rating and see 10% upside to our $57. The Estee Lauder brand lagged a bit with sales only up 1-2%. (212) 902-5488 Goldman Sachs & Co. IFF has posted robust growth in 2010 and is making strategic changes to re-allocate more resources to growth areas like emerging markets. $52. a 3% historic average on increased emerging market presence (40-45% of sales).com.193 mn $57. Make-up sales were up 4% for the period. Stephanie Whited (New York): stephanie. Estee’s smaller brands generally posted the strongest growth Estee’s category performance was broadly positive. but 2011 could be milder IFF. EL up 4% in October Andrew Sawyer. in line with the company’s historic average.2010 was zesty. sales were up 1-2%. we stay on the sidelines due to modest risk to consensus sales and EPS forecasts. 12-month price target. Its skin care business (+11-12%) continues to outpace Goldman Sachs Global Investment Research . We envision long-term EPS growth of 9%. CFA (New York): andrew. flavors & fragrances are a real value-add for the CPG customers at a relatively low cost. Margin gains may be difficult to obtain in a fragmented industry with larger customers. This said. Skin care remains the strongest category with sales climbing 11% in the month. Risks to the investment case (1) The 2010 sales base is inflated by customer inventory re-stocking.00 2010E 3. which could make margin expansion difficult. core (ex-Prescriptives) grew 7% Estee Lauder’s sales were up 4% according to NPD.com.com. a better R&D pipeline.sawyer@gs. Valuation We are setting a 12-month P/E and DCF-based price target of $57. and improved resource allocation. Americas: Consumer Products: Cosmetics: US Prestige cosmetics: Industry sales up 7%.Americas Morning Summary November 15.com. Fragrance sales grew 7-8% as the category lapped a -15% decline in the yearago period. 12 US cosmetics industry up 7% Total cosmetics sales in US department stores grew 7% for the month of October. Industry context IFF is an unbranded supplier in a fragmented industry.73 2011E 3. On a two-year stacked basis. and (2) IFF had difficulty pricing to recover input cost inflation in 2008. (IFF): Initiate on IFF at Neutral . This is 14-15X our 2012 estimate.whited@gs. Clinique grew 6-7% and MAC was up 5-6%. EL reported sales up 4%.63 Andrew Sawyer. CFA (New York): andrew.
A national perspective on the middle-market On Nov. adult dependent coverage). Remain Neutral on EL shares We view the industry and EL’s core performance as positive. carriers appear to be incorporating an additional 100-300 bp in pricing to reflect the expected impact from health reform mandates (e. In this context. Ken is a national employee benefit practice leader for Equity Risk Partners.paquette@gs. which we continue to see as the key bellwether for health insurance industry trends. Healthcare Americas: Managed Care: A frontline perspective on 2011 pricing and product trends Matthew Borsch. the shift from multi-year periods of intense price competition and margin erosion to recovery of price discipline and margin expansion). (2) Shares reflect solid turnaround dynamics – The stock is trading at 20X our CY2011 EPS.com.com. consistent with what we expect given our view that 2010 marks the first year of recovery from the 4year industry down-cycle (2006-9). Strong price discipline following the 2006-2009 industry downcycle Over the years. with – for example – the Blue Cross plan margins hitting a 20-year low in 2009. We remain Neutral for two reasons: (1) Expect better buying opportunity in subsequent quarters – Estee’s restructuring is clearly gaining traction and sales trends are healthy.com. CFA (New York): matthew. featuring his frontline view of 2011 pricing and product trends. CFA (New York): sebastian. including major carrier service disruptions as well as turning points in the health insurance industry underwriting cycle (in particular. Subsequent results could be choppier if this dynamic reverses and sell-in lags sell-through. Higher pricing for 2011 partly reflects new health reform mandates Conservatism in underwriting moving into 2011 is widespread. Ken and his colleagues have provided a quite valuable perspective to us in terms of spotting key inflection points. Sept 1Q results benefited from sell-in that exceeded sell-through in Europe and the US.borsch@gs. With that backdrop. 2010 we hosted our 8th annual conference call with middle-market employee benefit consultant Ken Ambos. our call this year highlighted a strong bias to price discipline across most carriers and markets. However. but the potential for a further in the P/E premium is limited. As background. A premium multiple is warranted by strong sales and margin trends. Sebastian Paquette. On average. (212) 357-0617 Goldman Sachs & Co. 2010 the industry. while make-up (+20bp) and fragrance (+1-2%) underperformed with sales up modestly.g. preventive care. (212) 902-5306 Goldman Sachs & Co. carriers are citing the MLR rules as a rationale to compress producer / broker commissions. A transcript of the conference call is provided in the body of this report. most carriers appear to be positioned for rebating surpluses as opposed to pricing lower to proactively achieve compliance with MLR floors. Sam Wass (New York): sam.. This said. a San Francisco-headquartered risk management and employee benefits consulting firm with a national scope of practice and a focus on the high-end of small group and middle-market employer segments. there may be potential for a better entry point in coming quarters. 25% above the large-cap multi-national average of 16X. (212) 902-6784 Goldman Sachs & Co. reported sell-in to US department stores grew DD while sell-through in the NPD data was up 4%.wass@gs.Americas Morning Summary November 15. it appears that Coventry’s recent public comments about pricing proactively below trend for books below the MLR threshold is an outlier. With regard to the pending minimum medical loss ratio (MLR) thresholds. For example. 10. 13 Goldman Sachs Global Investment Research .
Americas: Healthcare Services: Distributors: Upcoming Distributor Events in November and December 2010 Robert P. with the Goldman Sachs Global Investment Research .Americas Morning Summary November 15. cyclical demand for EM products. 2010 Agilent Technologies (A): Beats 4Q2010 on stronger electronic measurement sales A. The company continues to benefit from growth in emerging markets (China: +37%.32 Isaac Ro (New York): isaac. Key risks Upside risks to our price target include a broader economic recovery.3 bn in revenue and $2.36 Market cap Target price Fiscal y/e Dec EPS ($) P/E EPS Quarter/Interim Investment Lists Neutral Coverage view *Current and a year ago Neutral * 14 $12. Verdell Walker (New York): verdell. respectively. CFA (New York): randall.p.com. We are raising our P/E and EV/EBITDA multiples slightly (15X to 16X and 9X to 9.30-$2. network spending on 3G manufacturing and R&D. higher acquisition firstname.lastname@example.org-$0. and lower incremental margins from both the Life Science and Chemical Analysis divisions. as well as growth in R&D related to the LTE rollout.stanicky@gs. (212) 357-3336 Goldman Sachs & Co.3% for equipment.banwait@gs. Implications We are raising our 2011E-2013E EPS by 5.com.5X.5% yoy for consumables and 1. and failure to recapture market share in the VARI franchise. (212) 934-6193 Goldman Sachs India SPL 15 Distributor events for November and December 2010 Even though we are through the majority of 3QCY2010 for our Healthcare Distributor coverage.52 bn-$1. Valuation We are raising our 12-month price target to $38 from $35 based on higher estimates and target multiples.799 mn $38.1 bn-$6. and $3.com.4X our FY2011 EPS estimate of $2.2X 0.ares@gs. our previous estimates. Investor focus will likely center around the impact from government-imposed price reductions on generic drugs across certain provinces.50 EPS. Agilent raised expected cost synergies from VARI to $100 mn from $75 mn and noted it remains on track in the integration and is in the process of consolidating facilities and leveraging its scale in procurement and logistics. Randall Stanicky.7X 0.55 bn/$0. Schein mentioned that it is seeing stability in the number of dental visits and it believes that a ‘‘plateau’’ has been reached.0%. Our price target is based on an equal weight of P/E (50%) and EV/EBITDA (50%) and implies 15.47. India +31%). (212) 902-6393 Goldman Sachs & Co. PDCO (Neutral) – 2QFY2011 Earnings on November 23 Patterson Companies will report 2QFY2011 results before the market open on 11/23 and hold a conference call at 10:00am. On the Life Science and Chemical Analysis side of the business. (212) 902-8446 Goldman Sachs & Co. Management provided FY2011 guidance of $6. Jones (New York): robert.com. Jeff Ares (New York): jeff.com. $36. 5.00 2010E 2. there are several important events upcoming for the group before year-end MCK (NR) – Investor meetings with President of McKesson Canada On 11/16. downside risks include acquisition integration challenges. Agilent expects revenue/EPS of $1. (212) 902-5166 Goldman Sachs & Co. $2. to reflect stronger revenue growth and better incremental margins in EMG.00 18. What's changed Agilent reported better-than-expected 4Q2010 revenue/EPS driven by higher-than-expected revenue growth and incremental margins in its Electronics Measurement Group.47.65 2011E 2. For F1Q11. Competitor Henry Schein (HSIC. and sustainability of demand for EM products. Baneesh Banwait (Bangalore): baneesh.0%.1% to $2.06.com. slightly lower contributions from Varian vs. (212) 357-3292 Goldman Sachs & Co.57. respectively) to reflect increased guidance visibility. and 1.47 14. as well as key customer contract negotiations in Canada.email@example.com. Domenic Pilla. We expect similar results from PDCO.ro@gs. Neutral) reported internal sales growth of 1. we will be hosting investor meetings in Toronto with the President of McKesson Canada.
FCF/growth.com’s ability to successfully monetize it.05/$2. (415) 249-7440 Goldman Sachs & Co. Dial-in: 1-877941-8609 / ID: firstname.lastname@example.orgX 0.jankowski@gs. (415) 249-7437 Goldman Sachs & Co. resulting in total bookings of $412 mn. Technology salesforce. both of which were an acceleration from last quarter’s 12% and 49%.18 0. and nuclear pharmacy ramp-up. the Street at $0.16 Americas: Communications Technology: GS CommTech Weekly: Previews for QCOM. which imply 4% growth. (415) 249-7470 Goldman Sachs & Co. margin expansion efforts. With continued utilization headwinds.Americas Morning Summary November 15. PSSI (Neutral) – Hosting investor meetings with management We will be hosting investor meetings with PSS in Milwaukee and Toronto on 12/1 and 12/2.45. compared to a 13% rise in the S&P 500. expect FY2011 guidance O&M will host an Analyst Day on 12/2 and give first time FY2011 guidance (GS/Street at $2.013 mn $128.com and Service Cloud.friar@gs. We are 2% and 6% above consensus. -.com. 17 Goldman Sachs Global Investment Research . especially Service Cloud and now Chatter. are too high. SaaS peers at 28X.com and expect the company to post bookings growth of 26% for the quarter. as well as updates on utilization trends.com.08).46 for the quarter vs.com. Chatter penetration will significantly improve the company’s stickiness within the organization and pave the way for further up-sell and wider adoption of Force.com. Implications We maintain our above-consensus estimates for FY2012 and FY2013 and we believe that Street estimates will increase as salesforce. We look for further commentary on margin expansion initiatives.. vs. FFIV. including private label growth and cost cutting efforts. and ARUN. recent SMB data points have suggested a level of cautious optimism. Valuation 12-month PT of $128 (10% upside) is based on EV/rev.66 $16. OMI (Sell) – 2010 Analyst Day. but also customer outreach and marketing. CRM is at a CY12E EV/adj.stoichev@gs. Inc. CAH (Neutral) – 2010 Analyst Day on 12/7. updates on key initiatives We expect CAH to provide more insight into its specialty distribution strategy. we believe that.73 Market cap Target price Fiscal y/e Jan EPS ($) P/E EPS Quarter/Interim* Investment Lists Americas Buy List Coverage view *Current and a year ago Attractive 2011E 0.com continues to gain market share from legacy vendors and drives top-line growth and margin expansion through up-sell. raising RIMM EPS and PT Simona Jankowski. Social proliferating. EV/adj.00 2012E 1. $116. (415) 249-7436 Goldman Sachs & Co. increased competition. Key risks A derailing of the enterprise spending recovery. Expectations are elevated with the stock up 22% since last quarter. Our positive view is based on: (1) Our checks.01 16 Sarah Friar (San Francisco): sarah. generic penetration. User feedback on Chatter remains very positive and. FCF of 28X. 2010 possible exception that its equipment sales might fare better given its exclusive rights to distribute the CEREC CAD/CAM system in the US. CFA (San Francisco): stephanie. Stephanie Withers. Buy CRM. industry conversations and surveys suggest that the company is increasingly gaining traction beyond its core salesforce automation offering. (2) Transactions on the company’s platform grew 14% qoq and 54% yoy. (CRM): Bookings growth likely to remain strong. Our surveys show increasing appetite for social software among both large enterprises and SMBs as organizations aim to improve intra-company collaboration. while there is still uncertainty about salesforce. and DCF. at the very least. respectively. (3) Finally. as the NFIB index has improved for two consecutive months.115. CFA (San Francisco): simona. What's changed We are buyers of salesforce. we believe Street 2011 revenue estimates.com. Ventsi Stoichev (San Francisco): ventsi. We are at $0.
We expect the company to address: 1) handset/smartphone market email@example.com as we are incorporating 2.kotlarsky@gs. of $80.Americas Morning Summary November 15. raising our price target to $24 We expect inline or better F1Q results with our/ Street’s sales/non-GAAP EPS est. Lee (New York): thomas.38/$5.3% on an absolute basis in 2H Oct compared to 1H Oct. 2) potentially. suggesting an 8% discount to its 1-yr average of 18.3X (prior 4.4 mn tablet units in our FY12/13 estimates. our PT moves higher to $50 from $45. 2010 Thomas D. Gabriela Borges (New York): gabriela. Erin Riley (San Francisco): erin. Our strongest performer was BSFT.11. James Schneider.lee@gs. AMAT.com. (New York): james. flat with the S&P 500 and the Nasdaq.D.7X) as a result of higher multiples for its comps and accelerating demand. Our PT moves to $24 from $22 on higher EV/sales of 5. The balanced view the inventory database suggests matches our trendline analysis. Sell): Expect strong focus on TAM and new products.riley@gs. supply/demand balanced Our quarterly inventory compilation of approximately 75 companies across the tech supply chain showed that total 3Q10 inventory increased 5% qoq. 18 3Q inventory grew seasonally +5% qoq.com. outline opportunities for secular growth in its telco vertical. As a result. Mukul Garg (Bangalore): mukul. up 82% on strong firstname.lastname@example.org from $5.delaney@gs. and 3) its entry in the CE display market with Mirasol.com. Aruba (ARUN.com. we don’t expect the Analyst Day to be a negative catalyst for the stock.com.51/$5. and slightly below revenue growth of 6%.0/2. Qualcomm (QCOM. in line with seasonality of +3 to 5% qoq. which would leave units in line with long-term demand.com. Since 1Q08. (212) 934-9960 Goldman Sachs India SPL Weekly stock performance Our median stock was down 2% last week. and address its virtual product portfolio. the size of the tablet market. Semi revenue guidance is for a slightly below seasonal 4Q.covello@gs. F5 (FFIV. down 17%. while our weakest was CSCO. (415) 249-7453 Goldman Sachs & Co.email@example.com@gs. Kate Kotlarsky (New York): kate.9X last week.com.7 mn/ $0. which we view as very positive. revenues have grown 10% while inventory dollars are up just 1%. Sell): Raising estimates and price target as we incorporate tablets We raise our FY12/13 estimates to $5. This compares to the S&P 500’s 13.com. Although most segments are balanced. (212) 902-2066 Goldman Sachs & Co. Relative valuation was flat at 1. not a negative catalyst While we rate FFIV shares Sell on concerns about Street estimates in the context of a slowing server cycle in 2011. Short interest declined in 2H October Short interest for CommTech fell 4. (212) 357-0535 Goldman Sachs & Co. (212) 357-7956 Goldman Sachs & Co.2X. RIM (RIMM.schofield@gs. (917) 343-3149 Goldman Sachs & Co. Ph. We expect F5 to detail its target addressable market. Americas: Technology: Semiconductors: GS US Semi Weekly: Inventory database.4X.3X the S&P. Mark Delaney (New York): mark. MRVL previews James Covello (New York): james.com. Kent Schofield (San Francisco): kent. Buy): Expect another solid quarter.com. CL-Buy): Expect upbeat tone at Analyst Day We expect an upbeat tone at Qualcomm’s Analyst Day in NY next Wednesday. (212) 357-2692 Goldman Sachs & Co. (212) 902-1918 Goldman Sachs & Co. Amanda O'Brien (San Francisco): amanda. (415) 249-7467 Goldman Sachs & Co. Given the Goldman Sachs Global Investment Research . Valuation The median CommTech forward P/E was 16. (415) 249-7489 Goldman Sachs & Co. inventory in the Comm segment grew 7% qoq compared to revenue growth of 1%.
we would expect the mid-point to be for orders to be down qoq. MRVL: Buy the stock. Intuit (Neutral): October quarter typically less important Intuit’s October quarter is a seasonally smaller contributor to full-year results. as some of our checks have suggested that some of the downturn’s pent-up demand has been soaked firstname.lastname@example.org. and (3) Finally. Software takeaways from the GS Techtonics conference Goldman Sachs Global Investment Research .6 bn (flat to +5% qoq) and EPS of $0.com. AMAT: 4QCY10 guidance should drive upward estimate revisions We expect 3QCY10 results to be in line with guidance for sales of $2. Autodesk (Neutral): We expect upside on the quarter.bingham@gs. This year. as we believe the stock is likely to trade higher on stronger 4Q guidance.38 from $1. which were up 14% qoq and 54% yoy.com. (415) 249-7438 Goldman Sachs & Co. given relatively bearish market expectations for the PC supply chain.28 to $0. which suggest the company is successfully gaining traction beyond its core sales automation tool. Stephanie Withers. CIOs expect 10%-15% of their apps deployed via SaaS today to double in the next 3 years. We expect an in-line to slightly better quarter that will be driven by continued strength in the QuickBooks segment and a stabilizing SMB backdrop. However. Americas: Technology: Software: The Weekly Catalyst: CRM.com shares as we expect the company to continue posting solid bookings growth (we model 26% for the quarter.friar@gs. we believe that management’s relatively conservative guidance has positioned the company for modest upside around the quarter.Americas Morning Summary November 15. FX movements have moved in Autodesk’s favor. (415) 249-7436 Goldman Sachs & Co. INTU. as the NFIB index has improved for two consecutive months. We continue to like the stock. and select micro data points from European CAD vendors and domestic commercial construction have been positive. as we expect stronger HDD results driven by the ongoing recovery in the PC market. CFA (San Francisco): stephanie. For example. VDI. in line with Street) based on (1) our industry checks and survey work.withers@gs. and SaaS. there is no change to our view that the SPE cycle is intact and we expect orders to reaccelerate in 1HCY11 ahead of new NAND capacity ramps.5 bn-$2. PMI. GS GLI) have showed improvement. 2011 unit growth could be seasonal. Gonzalo Cavenaghi (San Francisco): gonzalo. ADSK. we expect the quarter to account for just 14% of 2011E revenue and contribute negatively to earnings. (415) 249-7435 Goldman Sachs & Co. ABI index.com (Buy): Bookings growth likely to remain strong We remain buyers of salesforce. If management provides 4QCY10 order guidance (Applied has not guided orders for several quarters). We think 4Q revenue guidance is likely to be above the Street (but in line with our estimate).06-$0. in our view. recent SMB data points have suggested a level of cautious optimism. (2) continued growth in transactions. driven by weakness in DRAM and FPD. as valuation remains reasonable (in line with the group on 2011 P/E) and we believe Marvell’s growth prospects remain significantly higher than the broader semi industry.08 cents above the high end of the guided EPS range). Derek R.com.30. NXPI: Erratum – Adjusting 4Q10 estimate on minority interest We are adjusting our 4Q10 estimate on management’s clarification of guidance for 4Q minority interest: 2010E EPS to $1. 19 salesforce.32. We expect above-consensus results. as 4Q guidance is likely to beat expectations We would Buy Marvell ahead of the report. We expect 4QCY10 sales to be guided up in the low-/mid-single-digit percentage range (at the mid-point) consistent with SPE reports thus far during earnings season. Bingham (San Francisco): derek. elevated expectations could temper stock reaction Key macro indicators (e. Takeaways from our In-Your-Office call with 3 Fortune 500 CIOs Our panel expects normal 4Q seasonality and plans to increase their adoption of server virtualization. Techtonics and CIO wrap Sarah Friar (San Francisco): sarah. (415) 249-7470 Goldman Sachs & Co. Relative to 3Q results. both of which accelerated from last quarter. 2010 balanced supply side. though perhaps not as substantial upside as the beats we have been seeing in the last three quarters (each $0. implying 11% yoy growth..
+55(11)3372-0103 Goldman Sachs Brasil Bco Múlt S.2X 0.lapides@gs. up 17% yoy. $31. any higher/lower volume delivered in any given quarter is compensated at the next. and showed reasonable cost control.82 15.com. CESP (CESP6.63 17. CESP did not show any apparent loss from exposure to the spot market. implying a wash in earnings.malik@gs. Jaideep Malik (New York): jaideep. Utilities Northeast Utilities (NU): Data Update: Updating estimates after 3Q2010 reporting NU. Electricity sales are mostly fixed for the full year.78 21 Francisco Navarrete (Sao Paulo): francisco.062 mn R$32.59 2011E 2.A.SA): First Take: Adjusted EBITDA grows 17% yoy and beats consensus CESP6.com.navarrete@gs. Implications Our rating.com. 2010 Three main highlights from our panelists: the shift to SaaS is accelerating. Analysis Net revenues came at R$757 mn. Controllable opex (payroll.gaeta@gs. Neil Mehta (New York): neil.Americas Morning Summary November 15. +55(11)3371-0825 Goldman Sachs Brasil Bco Múlt S. News Brazilian power generator CESP reported adjusted 3Q2010 EBITDA of R$517 mn.46 R$9. material) were 6% below our estimate at R$79 mn.29 Market cap Fiscal y/e Dec EPS ($) P/E EPS Quarter/Interim Investment Lists Not Rated *Current and a year ago * 20 $5. (212) 357-4042 Goldman Sachs & Co. R$27. (917) 343-0717 Goldman Sachs & Co. and private Clouds are getting more traction than public for now.507 mn 2010E 2. VDI adoption is shifting from hype to reality.com.6X 0. Goldman Sachs Global Investment Research . Therefore.48 Michael Lapides (New York): michael. This does not affect our full year estimates.SA. we would expect 4Q volumes to be lower than 3Q. down from R$255 mn last year with the yoy drop explained by (1) lower noncash monetary gains on CESP dollar-denominated debt (as the Brazilian FX rate appreciated 7% vs. mainly reflecting higher provisions on potential labor and environmental liabilities. services. as we expect that 4Q will show lower volumes (a wash for the full year).67 Market cap Target price Fiscal y/e Dec EPS (R$) P/E EPS Quarter/Interim* Investment Lists Americas Buy List Coverage view *Current and a year ago Neutral 2010E 1. estimates and price target are unchanged. Net income was R$164 mn (GSe R$150 mn). which was a concern for some investors. thus. 11% last year) and (2) a higher effective income tax rate of 35% (26% in 3Q2009). Results beat our forecast mainly on higher revenue that we attribute to better-than-expected volume sales on the seasonality of sales contracts to distributors.com.0X 0. However. Changes and Implications We update 2010-2014 EPS estimates by up to 2% for Northeast Utilities (NU) after 3Q2010 reporting and the fall 2010 EEI conference. even in large enterprise. 14% above our estimate and 18% ahead of Street consensus (Broadcast). Valuation We remain Not Rated on Northeast Utilities (NU). up 17% yoy and ahead of our R$688 mn estimate.05 15. we think the better-than-expected top line was mainly on above-normal volumes delivered in 3Q2010 to distribution companies. (212) 357-6307 Goldman Sachs & Co. Andre Gaeta (Sao Paulo): andre. CESP booked R$81 mn of net nonrecurring expense.2X 0.A.20 2011E 1.31 13.mehta@gs. We do not view these changes as material – as NU made modest changes to long-term capital spending and therefore rate base growth projections.
However. GS of R$463 mn and 12% ahead of consensus. which if excluded would leave EBITDA in line with our estimates and consensus.13 7. and is about management’s target of a 90% margin.57 2011E 3.6X 0. leave underlying EBITDA flat yoy for these companies. 3Q neutral CMIG4. but we do not think this is likely a trend. In the last two years. we estimate 3Q results were positively impacted by around R$80 mn of one-off provision reversal (no details.com. Analysis Generation & Transmission (56% of total EBITDA): EBITDA of R$666 mn was slightly higher than GS of R$624 mn.68 2011E 2.A.5% in 2Q2010. R$22. +55(11)3371-0825 Goldman Sachs Brasil Bco Múlt S. this increase is mainly explained by higher maintenance expenses. and showing a Goldman Sachs Global Investment Research . which are volatile and not a core earnings driver. which impacts Eletrobras’s US$4. in line with our estimate. Service expenses declined 30% yoy to R$28mn (GS R$44 mn). in line with our estimates.99 7.688 mn R$31. opex seems also under control.com. Power distribution (24%). but on higher non-cash monetary losses of R$528 mn driven by the strengthening of the currency.A.SA. the company has expend around R$200 mn in higher service/maintenance to refurbish its power distribution network. However. up 11% yoy and 10% ahead of GS and 6% above consensus (Bloomberg).2X 0. Net income was R$553 mn vs.Americas Morning Summary November 15. As in the case of Chesf.email@example.com@gs. but driven by higherthan-expected spot revenues.gaeta@gs. Eletronorte (18%): EBITDA of R$349 mn was 5% up yoy but short of our R$431 mn estimate explained by (1) noncontrollable: lower spot revenues and.8 billion net dollar-assets.navarrete@gs. when Cemig took control of operations. Service expenses were the main negative highlight. Transmission company Taesa (former Terna) continues to improve EBITDA margins. A net financial loss at the holding co of R$145 mn was below our expectation. EBITDA was R$283 mn.com. and price target are unchanged. up from 88.SA.85 Market cap Target price Fiscal y/e Dec EPS (R$) P/E EPS Quarter/Interim Investment Lists Neutral Coverage view *Current and a year ago Neutral * 22 R$19. Implications Our Neutral rating.40 Francisco Navarrete (Sao Paulo): francisco.A.97 9. 2010 Cemig (CMIG4. on slightly better-than-expected revenues (we think on higher seasonal allocation of contracts) and lower service costs. after adjusted.A. apparently at the holding company). estimates. as costs tend to seasonally increase in 2H. News Brazilian integrated utility Cemig reported 3Q2010 EBITDA of R$1.83 Francisco Navarrete (Sao Paulo): francisco. R$28. good operating performance but on one-offs ELET3.SA): First Take: Adjusted EBITDA in line with consensus. Eletrobras (ELET3. but mainly on one-offs which. +55(11)3372-0103 Goldman Sachs Brasil Bco Múlt S. +55(11)3371-0825 Goldman Sachs Brasil Bco Múlt S. Analysis Chesf (44% of aggregate EBITDA): EBITDA of R$869 mn was above GS of R$665 mn. above GS of R$642 mn and compared to R$454 mn last year. +55(11)3372-0103 Goldman Sachs Brasil Bco Múlt S. and (2) better aggregate results at the main power generation subsidiaries. The potential reduction in opex could be a key theme for Cemig in 2011. and management has indicated this extra cost could drop next year.188 mn. 22% ahead our estimate and 49% up yoy (offset by lower payroll but mostly on a provision reversal).com. (2) controllable: slightly lower revenues from noncore operations (no details).5X 0.7X 0. which reached 89. According to Cemig.8% in 3Q2010 (GS 88%). This is a significant improvement from 80% EBITDA margins. Andre Gaeta (Sao Paulo): andre. We think this higher cost level could repeat in 4Q reflecting increasing demand on the approach of the summer.30 2010E 2.SA): First Take: Neutral 3Q.444 mn R$25. Andre Gaeta (Sao Paulo): andre. Operating expenses (adjusted for one-offs in 3Q2009) grew only around 6% yoy compared to 5% inflation. this yoy improvement was driven by (1) half the noncash FX losses of last year on lower 3Q2010 currency appreciation. News Brazil’s federally controlled utility Eletrobras reported 3Q2010 net income of R$800 mn.47 Market cap Target price Fiscal y/e Dec EPS (R$) P/E EPS Quarter/Interim Investment Lists Neutral Coverage view *Current and a year ago Neutral * 23 R$25. The bottom line was ahead of our estimate on (1) higher equity income driven by higher spot revenues at subsidiary Chesf and (2) a nonrecurring gain of R$181 mn at thermal generator CGTEE (regulatory recovery of past costs from the delay in start-up of a generation unit).60 2010E 2.28 12.
Bruce Power. (3) asset acquisition outlook. Buckeye (on 11/16) and Enterprise (on 11/22) will host special meetings where its unitholders will vote on proposals to eliminate their general partners (EPE for EPD. However. (2) expectations for natural basis differentials. eight beats.7 bn market cap natural gas utility will host an analyst day in NYC on 11/18. (212) 357-1914 Goldman Sachs & Co. CHKM. we do not expect a detailed discussion of guidance until its traditional January meeting. Our largest company under coverage will host analyst days in Toronto on 11/17 and NYC on 11/18. Horn River. better-than expected revenue (on slightly higher average tariffs and volume sales) was offset by an increase in core opex (payroll. 2010 slight yoy decline (we think unlikely a trend). and SPH. The fourth-largest MLP by market cap will host an analyst day in Dallas.com. We will primarily focus on wellhead economics (returns) and production growth expectations. given nine matches. BGH for BPL). We update estimates/target prices for BPL/BGH. EPE. and wind power. Although the Street analyzed a vast amount of information over the past three weeks. (212) 902-2312 Goldman Sachs & Co. C$21bn program. Michael Cerasoli. We expect a deluge of operational data from El Paso regarding this oil field on its 11/18 conf call. What to watch for: (1) updates on capital growth program. What to watch for: (1) updates on various rate cases. Bison. What to watch for: (1) timetable for distribution increases.cerasoli@gs. Furnas (21%): EBITDA of R$418 mn was up only 4% yoy and in line with our forecast. including Keystone. Although SE provided a framework for 2011.com. TX on 11/17. This $2. Risks Weaker infrastructure growth or energy prices. given depressed gas price volatility. Atmos Energy Analyst Day. Spectra Energy Analyst Update. capital market volatility. especially Texas Pipeline. services and material). (2) utility customer growth trends. Buckeye/Enterprise Special Meetings.Americas Morning Summary November 15. 24 Industry context Last week largely wrapped up an earnings season we rate as in line. (3) cash flow recovery plans for its core Mainline natural gas pipeline system. El Paso Altamont Update. (2) strategy for financing the remainder of its multi-year. CFA (New York): michael. and price target are unchanged. and eight misses. we expect a plethora of data points over the next eight days. TransCanada Analyst Day.durbin@gs. (3) outlook for marketing. Spectra will meet investors on 11/17 in NYC and Boston to further discuss 3Q results. Implications Our Neutral rating. Goldman Sachs Global Investment Research . Americas: Utilities: Diversified: Pipeline & MLP Essentials: Plethora of data points over next 8 days Theodore Durbin (New York): ted. which grew 11% yoy or double inflation. Energy Transfer Analyst Day. estimates. and (4) “GP burden” commentary. These events include the following.
com. +55(11)3371-0831 Goldman Sachs Brasil Bco Múlt S.97 to $4. (2) rate case and general regulatory risks. Key risks Key risks for WEC include: (1) delays in the in-service dates for Oak Creek unit 2. Large investment projects w/delayed revenues. given WEC’s payout ratio remains below peer levels.87 15. We expect a 17% dividend increase by WEC in the coming months – with upside potential to this estimate – and further double-digit dividend increases for 2012-2013.lapides@gs. 2010 Wisconsin Energy Corp.com.16/$4.77/$4.00 2010E 3.com.9x on our 2012/2013 estimates versus peers at 12.96 and maintain our 12month target of $67 per share. Neil Mehta (New York): neil. while price indices in Brazil and Mexico are also showing new pressure. Powerful retail players in fragmented markets. and (3) updated financing assumptions. Nevertheless.com. Jaideep Malik (New York): jaideep. What's changed After 3Q2010 reporting.3X 1. 26 Goldman Sachs Global Investment Research . (917) 343-0717 Goldman Sachs & Co.87 and update our 2011-2013 estimates from $4. Implications We remain Conviction Buy on WEC as we believe the stock warrants a premium to peers given (1) significant dividend increases for 2011/2012.1X 1. We modestly lower our 2010 estimate from $3.997 mn $67. Stocks that match are discussed inside. Beneficiaries: Basic commodity producers.2x/11. if i-rates respond fast. Other Latin America Weekly Kickstart: Picking sectors by inflation exposure Stephen Graham (Sao Paulo): stephen. Brazilian companies with IGPM-linked revenues. (2) above average earnings growth and (3) above average realized returns on capital going forward.08 2011E 4. Asset-sensitive financials.18 14.94 to $3. if rates rise. Our equity view The pickup of inflation datapoints in China is refocusing investor attention on emerging-markets inflation pressure in general.18/$4. Many businesses are inflation-neutral.10 Market cap Target price Fiscal y/e Dec EPS ($) P/E EPS Quarter/Interim Investment Lists Americas Buy List Americas Conviction Buy List Coverage view *Current and a year ago Neutral * 25 $6. (212) 357-4042 Goldman Sachs & Co.2x.malik@gs. $59. and prospects for others will change as policy and competition respond. we reiterate Conviction Buy on Wisconsin Energy (WEC) and update our 2010-2014 estimates to reflect: (1) 3Q2010 earnings and 10-Q data. Inflation-exposed firms with quick pass-through.based 12-month target price of $67. Businesses under discretionary price controls. (WEC): Updating estimates for WEC post 3Q. maintaining CL Buy WEC. implying a total return potential of 16% versus average upside for small/mid regulated utilities of 9%. (2) slightly revised rate base estimates for the utilities.graham@gs. Stock exchanges.4x/11.Americas Morning Summary November 15.A. (212) 357-6307 Goldman Sachs & Co. Valuation We maintain our P/E. and (3) weakness in electricity demand.01 Michael Lapides (New York): michael. we can gauge winners and losers from a first round of any inflation surge.75/$4. WEC trades at 12. Vulnerable: Commodity price takers.mehta@gs.
LatAm Focus List Over the week (to Thursday).2% and the MSCI Emerging Markets 3. is.2% to 12. 2010 Equity performance Last week. directly or indirectly.4% to 1.7% vs. related to the specific recommendations or views expressed in this report. the MSCI Latin America lost 4.35/$. MSCI LatAm while gained 0. with Mexico at 16.6X next-12-month consensus earnings.72/$ and the Mexican peso 1. Valuation MSCI Brazil is trading at 10.5X. hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. our Focus List lost 0. I also certify that no part of my compensation was. Name of Analyst. Brazil was down 3. Locally. both in dollars.7%. Reports Published Europe this week GS US Economics Analyst: Awaiting Tidings of the Holiday Spending Season S&P 500 Beige Book: Five themes from the 3Q 2010 earnings conference calls Analyst Certification Disclaimer Each equity and strategy research report excerpted herein was certified under Reg AC by the analyst primarily responsible for such report as follows: I.0%. or will be. Goldman Sachs Global Investment Research . Our Latin America research coverage is listed on page 10.1% and Mexico 0.1% vs. our Latin American coverage universe.Americas Morning Summary November 15. Rates and currency The Brazilian Real fell 2.
EPS. Revenue.g.g. this research in Canada if and to the extent it relates to equity securities of Canadian issuers.gs. The precise calculation of each metric may vary depending on the fiscal year. compensation for certain services.gs. Volatility is measured as trailing twelve-month volatility adjusted for dividends. and agreed to take responsibility for. Growth. directorships. forecasts and ratios. See 'Ratings.html. or to make comparisons between companies in different sectors and markets. 2010 Investment Profile The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. on the Goldman Sachs website at http://www. and therefore may not be subject to NASD Rule 2711/NYSE Rules 472 restrictions on communications with subject company. Price/Book. is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. e.html. 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