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follow the Reg AC certification, or go to www.gs.com/research/hedge.html.
Global Investment Research
Forest Oil Corp. (FST) Buckeye GP Holdings L.P. BGH N/N $1.70 unch -- ↑ $2.08 $2.07 0.7% Dec
FormFactor, Inc. (FORM)
General Mills, Inc. (GIS) Buckeye Partners, L.P. BPL N/N ↓ $3.51 $3.55 (1.1%) $3.80 unch -- Dec
ICON plc (ADR) (ICLR) Chesapeake Midstream Partners, L.P. CHKM N/N ↓ $1.36 $1.40 (2.9%) $1.45 unch -- Dec
Intel Corp. (INTC)
Enterprise GP Holdings L.P. EPE N/N ↓ $1.74 $1.88 (7.5%) ↓ $2.04 $2.25 (9.2%) Dec
International Flavors & Fragrances
Inc. (IFF) EXCO Resources, Inc. XCO NR ↑ $0.73 $0.72 1.5% $0.97 unch -- Dec
International Game Technology International Flavors & Fragrances Inc. IFF N/N $3.43 -- -- $3.67 -- -- Dec
(IGT)
International Paper Company (IP) Northeast Utilities NU NR ↓ $2.05 $2.07 (0.6%) ↓ $2.31 $2.36 (2.0%) Dec
International Rectifier Corp. (IRF) NXP Semiconductors N.V. NXPI B/A ↑ $1.38 $1.30 5.7% $2.75 unch -- Dec
Intersil Corp. (ISIL)
QEP Resources, Inc. QEP B/N ↓ $1.46 $1.49 (2.3%) ↓ $1.91 $1.92 (0.3%) Dec
Intuit, Inc. (INTU)
Kendle International Inc. (KNDL) Quicksilver Resources, Inc. KWK N/N $0.72 unch -- ↓ $0.42 $0.43 (1.8%) Dec
KLA-Tencor (KLAC) Research In Motion Ltd. RIMM S/N ↑ $5.74 $5.72 0.2% ↑ $5.51 $5.38 2.5% Feb
Lam Research Corp. (LRCX)
The Estee Lauder Companies Inc. SandRidge Energy, Inc. SD N/N ↓ $0.12 $0.36 (65.2%) ↓ $0.12 $0.19 (36.4%) Dec
(EL) Suburban Propane Partners, L.P. SPH N/N ↓ $3.95 $4.05 (2.5%) $4.15 unch -- Sep
Linear Technology Corp. (LLTC)
Ultra Petroleum UPL N/N ↑ $2.32 $2.30 0.6% ↓ $3.21 $3.31 (2.9%) Dec
LSI Corp. (LSI)
Marvell Technology Group Ltd. Wisconsin Energy Corp. WEC B/N ↓ $3.87 $3.94 (1.7%) ↑ $4.18 $4.16 0.6% Dec
(MRVL)
Maxim Integrated Products (MXIM)
McKesson Corp. (MCK) Other Headlines
Microchip Technology Inc. (MCHP)
Micron Technology Inc. (MU) Basic Materials
MKS Instruments, Inc. (MKSI) Americas: Paper & Forest Products: Printing Paper: Preliminary data show volumes turn negative
National Semiconductor Corp. 5
in Oct.
(NSM)
Newfield Exploration (NFX)
Nordstrom, Inc. (JWN)
Consumer Cyclicals
Northeast Utilities (NU) Americas: Retail: Amazon widens leads in Toys and CE, but Wal-Mart makes its move 6
Novellus Systems Inc. (NVLS)
Nvidia Corp. (NVDA) Americas: Gaming: Takeaways from Bally and IGT pre-G2E analyst events 7
NXP Semiconductors N.V. (NXPI) Americas: Retail: Broadlines: With even fewer beat & raises likely in week 2, see limited upside 8
ON Semiconductor Corp. (ONNN)
Oracle Corp. (ORCL) Consumer Staples
Owens & Minor, Inc. (OMI)
Parexel International Corp. (PRXL) BRF-Brasil Foods S.A. (BRFS3.SA): 3Q2010 in line, but not firing from all cylinders yet; stay
9
Patterson Companies, Inc. (PDCO) neutral
Pharmaceutical Product Dev. United States: Food: Actions are louder than words; the promo heat's still on 10
(PPDI)
PMC-Sierra, Inc. (PMCS) International Flavors & Fragrances Inc. (IFF): Initiate on IFF at Neutral - 2010 was zesty, but
11
Precision Castparts Corp. (PCP) 2011 could be milder
PSS World Medical, Inc. (PSSI) Americas: Consumer Products: Cosmetics: US Prestige cosmetics: Industry sales up 7%; EL up
QEP Resources, Inc. (QEP) 12
4% in October
Quicksilver Resources, Inc. (KWK)
Research In Motion Ltd. (RIMM)
Rolls-Royce (RR.L)
Healthcare
Ross Stores, Inc. (ROST) Americas: Managed Care: A frontline perspective on 2011 pricing and product trends 13
Saks Inc. (SKS)
salesforce.com, Inc. (CRM) Agilent Technologies (A): Beats 4Q2010 on stronger electronic measurement sales 14
SanDisk Corporation (SNDK) Americas: Healthcare Services: Distributors: Upcoming Distributor Events in November and
SandRidge Energy, Inc. (SD) 15
December 2010
Sappi Ltd. (ADR) (SPP)
Sears Holdings Corp. (SHLD) Technology
Semtech Corporation (SMTC)
Shanghai Int'l Airport (600009.SS) salesforce.com, Inc. (CRM): Bookings growth likely to remain strong; Social proliferating; Buy 16
SIA Engineering (SIAE.SI) Americas: Communications Technology: GS CommTech Weekly: Previews for QCOM, FFIV, and
Spirit AeroSystems Holdings, Inc. 17
ARUN; raising RIMM EPS and PT
(SPR)
STEC, Inc. (STEC) Americas: Technology: Semiconductors: GS US Semi Weekly: Inventory database; AMAT,
18
Suburban Propane Partners, L.P. MRVL previews
(SPH)
Americas: Technology: Software: The Weekly Catalyst: CRM, ADSK, INTU; Techtonics and CIO
SuccessFactors, Inc. (SFSF) 19
Taleo Corporation (TLEO)
wrap
Target Corporation (TGT)
Teradyne, Inc. (TER) Utilities
Texas Instruments Inc. (TXN)
The TJX Companies, Inc. (TJX)
Northeast Utilities (NU): Data Update: Updating estimates after 3Q2010 reporting 20
Ultra Petroleum (UPL) CESP (CESP6.SA): First Take: Adjusted EBITDA grows 17% yoy and beats consensus 21
Varian Semi Equipment Assoc.
(VSEA) Cemig (CMIG4.SA): First Take: Adjusted EBITDA in line with consensus, 3Q neutral 22
Verigy Ltd. (VRGY) Eletrobras (ELET3.SA): First Take: Neutral 3Q; good operating performance but on one-offs 23
VMware, Inc. (VMW)
Wal-Mart Stores, Inc. (WMT) Americas: Utilities: Diversified: Pipeline & MLP Essentials: Plethora of data points over next 8
24
Wisconsin Energy Corp. (WEC) days
XILINX Corp. (XLNX) Wisconsin Energy Corp. (WEC): Updating estimates for WEC post 3Q, maintaining CL Buy 25
Other
Latin America Weekly Kickstart: Picking sectors by inflation exposure 26
Reports Published
Americas Morning Summary November 15, 2010
Focus Items
Americas: Energy: Oil: Trading update: Bullish oil correlations, bullish liquids shale players 1
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. A “risk-off” day on November 12 knocked nearly $3/bbl off the spot WTI crude oil price, sending it
a hair below $85/bbl. Given the sharp $16/bbl increase from September 1 lows of just under $72/bbl to the
November 11 high of nearly $88/bbl, we are not surprised to see a pullback. In our view, investors should
take advantage of inevitable oil price volatility to add to positions, as our core expectation is for a continued
“grind higher” over the coming year.
Top 10 oils: CNQ, ESV, HAL, MUR, NBR, NFX, OXY, PBR, SLB, 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. Our Top 10 Buy-rated favorites include CNQ, ESV,
HAL, MUR, NBR, NFX, OXY, PBR, SLB, and SU.
Five SMID-cap oils: FST, HP, OIS, PXP, RDC
For investors focused on SMID-cap equities (under $7.5 billion market cap.), we highlight five equities that
have a high correlation with crude oil prices, though all are Neutral rated, including FST, HP, OIS, PXP, and
RDC.
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. 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, following a long stretch where the business was dominated
by E&Ps. We continue to see Buy-rated Murphy Oil as best positioned on this theme, though Neutral-rated
Hess also appears well positioned. While Conviction Buy Occidental Petroleum has interesting California
“shale” acreage, it is a smaller driver of our recommendation and hence we do not associate Oxy as much
with this theme. Chevron entered the fray with the announcement of its Atlas Energy acquisition last week.
The jury is still out on whether Exxon/XTO and Conoco/Burlington make sense.
Americas: Energy: Oil & Gas - E&P: Reiterate Buy on QEP, CL-Buy on NFX; KWK now Neutral 2
We have increased confidence in 2012 liquids upside from: (1) processing NGLs; and (2) production in the
Granite Wash/Bakken/Cana Woodford that could approach critical mass in 2012. 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. We expect 2011 capex/production guidance to be released
this week to be positive.
FST: Granite Wash guidance appears conservative; prefer NFX
We have continued confidence in the Granite Wash and FST's leading position in the play. Recent well
results above company type curves appear more the norm, and we raise our 6-month DCF- and multiples-
based price target to $35 from $34. While we prefer NFX among Granite Wash players (and raise our price
target to $74 from $70 on Granite Wash upside), FST is well positioned to benefit from both from the Granite
Wash and emerging plays in Canada.
BBG: Production growth flexibility, 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. We do not believe this will be appreciated, in our view, as long as gas sentiment
remains poor, and as such, see exploration as a more important catalyst. Beyond the Niobrara (first well
drilling now) the Mancos play remains a key catalyst.
Upgrade KWK to Neutral, update ests. for QEP, BBG, UPL, SD, 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, 30%-
50%) within our M&A framework. We also update estimates for QEP, BBG, Ultra Petroleum, SandRidge
Energy, Quicksilver Resources and EXCO Resources to reflect 3Q results/other adjustments. We lower our
6-month DCF- and multiples-based price target for SD to $5 from $6 to reflect lower EBITDA and LT FCF.
Key risks: commodity prices, well results, costs, gov’t pronouncements.
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, up 3.5 times from an estimated 284mn pax in 2010E. Secular growth should stem from
the multiplier effect of faster-than-avg. GDP growth coupled with an increasing air travel penetration rate. By
our estimation, BRICs will represent 35% of the global aviation market by 2020E, vs. c.15% currently.
Another angle on China consumption
In our view, rising consumption in China could drive domestic and outbound int’l air travel. Not only will China
become a key demand generator for overseas tourism, we see it developing into an important destination
market, which bodes particularly well for domestic carriers. However, there is no room for complacency, as
low-cost carriers are expanding, even in China, and could continue to take market share from incumbents.
Airports are well positioned to benefit
China’s plan to add 90 airports by 2020 implies sufficient capacity to handle 1bn pax/yr, but air traffic control
is a potential impediment.
China fleet to double by 2022E
To carry 1bn air pax/yr, we estimate China’s current aircraft fleet would need to double to 3,500 by 2022E,
presenting ample opportunity for current large-jet OEMs, Boeing, and Airbus. China’s demographics and fleet
mix may result in even greater opportunity for the regional jet OEMs, Embraer and Bombardier. China is
focused on its indigenous manufacturing capability, and while it will take share, it will require many years.
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, screened against our global investment profile
(IP) metrics including: (1) Director’s Cut valuation , (2) cash returns on cash invested (CROCI), and (3)
CROCI growth. Our top 10 long-term picks are Aeroflot, BE Aerospace, Boeing, Cathay Pacific, China
Eastern Airlines, Precision Castparts, Rolls Royce, Shanghai Int’l Airport, SIA Engineering, and Spirit
Aerosystems. These 10 stocks have outperformed the MSCI World Industrials Index cumulatively by c.500%
over the past 10 years.
Americas: Healthcare Services: CROs: Continued solid clinical bookings with 3Q; reiterate CL-Buy on 4
PRXL
Backlog growth seen with 3Q; 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 1.0 or better across the group. Importantly, the quarter also provided further clarity
around backlog conversion, an issue that has been top of mind for investors, given the increasing prevalence
of long-term strategic deals. Conversely, 3Q’s disappointing preclinical results demonstrated that the early-
stage environment remains challenged as still weak demand and excess capacity sparked further cost
actions and buyback announcements.
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. On the issue of backlog conversion, we received updates from managements and we continue to feel
comfortable that the bolus of strategic wins will lead to accelerated top-line growth. Specifically, ICLR expects
to see an uptick in the amount of revenue converted out of its backlog in the next 12 months despite its on-
going central lab issues. PPDI also mentioned that its backlog duration had actually decreased slightly. On
CVD’s late-stage business, management said it was seeing longer revenue conversions, given an overall
lengthening in the duration of clinical trials and a higher level of project scope. 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, we maintain our CL-Buy, given (1) industry leading TTM book-to-bill ratio of 1.67, (2) re-
set FY2011 outlook, and (3) best EPS growth in the space (21% three-year forward EPS CAGR).
CVD & CRL take further actions to offset still poor fundamentals
In contrast to the late-stage, the preclinical industry continues to face challenges and low visibility into future
business. Both companies with preclinical exposure (CRL and CVD) reduced capacity, undertook significant
cost-cutting initiatives, and are pursuing share repurchases as excess capacity and prolonged lack of
demand continues to pressure fundamentals. In our view, longer-term share performance remains linked to
an improving preclinical environment. Until we see signs of a more meaningful improvement, we believe
preclinical exposure will be an overhang for CRL and CVD and stay Neutral on both names.
Other Headlines
Basic Materials
Americas: Paper & Forest Products: Printing Paper: Preliminary data show volumes turn negative in Oct. 5
Consumer Cyclicals
Americas: Retail: Amazon widens leads in Toys and CE, but Wal-Mart makes its move 6
Toy Tally: Wal-Mart makes its move, but Amazon still tops in Toys
Week 3 saw Wal-Mart fire back against rival Target, lowering prices by 2.2% to move 2.7% below Target.
However, Amazon was just as aggressive, cutting prices by 2.9% to take the top Toy Title with prices 1.3%
below Wal-Mart. Kmart remained out of contention, 10.1% higher than Wal-Mart. Overall, prices fell 1.3%
during week 3, as Wal-Mart and Amazon lowered while Kmart and Target were flat. Last year, Amazon had a
wider 4.0% pricing gap, while Target was a narrower 1.3% above Wal-Mart.
Consumer Electronics Count: Amazon widens lead; Costco retreats
Week 3 of our CE Count was uneventful, with all retailers maintaining their positions and Amazon widening
its lead. Amazon prices were 10.3% below the average, followed by Wal-Mart at 3.9% below. Costco moved
from 1.6% below to 0.8% above, followed by Best Buy, Kmart and Target, Kmart at 3.3%, 6.5%, and 6.8%
above respectively. Overall, price cuts of 2.2% were in line with last week at 2.1%, with Wal-Mart, Amazon
and Kmart most aggressive. Last year, we saw similar positioning after week 3, though Best Buy was in line
with the average and Costco improved its position.
Americas: Gaming: Takeaways from Bally and IGT pre-G2E analyst events 7
Industry context
Yesterday, IGT and Bally hosted pre-industry slot show events. The meetings were well attended and
investor interest was high. However, while the quality of products seems to improve each year, they will only
be successful if customer budgets increase.
Bally – Innovation in systems; new cabinets/platform raise bar
Bally’s event focused on systems and the new Alpha2 platform and pro series cabinets. Bally is looking to
extend its lead in systems by growing the installed base of iViews and launching floor wide value-add
applications. One example of a value-add application that showed success is Bally’s virtual racing
application. The software is currently installed at the Barona casino and company management indicated that
there was an increase in win after the installation. While this installation was successful and could attract
more customers, casinos need to have iView installed, Ethernet cable, and a dedicated sales/marketing staff
to get a full return. Bally management believes there is a systems revenue opportunity of ~$1.8bn for new
products and $10 mn-$20 mn for maintenance/sales revenues over the next 5-7 years. The second focus
point at the investor event was the new games and hardware. We thought the games looked very good and
the interaction between the iDeck, iView, base game and top box was solid. Bally’s new Alpha2 and pro
series products were a marked improvement over its older offerings.
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, its systems offerings and revenues from its IP catalog; (2)
growing globally; (3) taking advantage of its cash flows; (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); 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; IGT expects to grow this division from about 200 people currently to around 300 over the next year).
IGT also displayed several new titles including a graphically-impressive Dark Knight as well as Dirty Dancing,
The Hangover and Ghostbusters.
Americas: Retail: Broadlines: With even fewer beat & raises likely in week 2, see limited upside 8
Consumer Staples
BRF-Brasil Foods S.A. (BRFS3.SA): 3Q2010 in line, but not firing from all cylinders yet; stay neutral 9
United States: Food: Actions are louder than words; the promo heat's still on 10
International Flavors & Fragrances Inc. (IFF): Initiate on IFF at Neutral - 2010 was zesty, but 2011 could be 11
milder
IFF, $52.46 Andrew Sawyer, CFA (New York): andrew.sawyer@gs.com, (212) 902-5488
Market cap $4,193 mn
Goldman Sachs & Co.
Stephanie Whited (New York): stephanie.whited@gs.com, (212) 855-9812
Target price $57.00
Goldman Sachs & Co.
Fiscal y/e Dec 2010E 2011E
US cosmetics industry up 7%
Total cosmetics sales in US department stores grew 7% for the month of October. We are encouraged by the
300bp of sequential improvement versus the June quarter average. On a two-year stacked basis, sales were
up 1-2%, a significant step-up versus the 4-5% year-to-date decline and the first positive number on this
basis since April 2009.
All three beauty sub-categories posted solid results. Skin care remains the strongest category with sales
climbing 11% in the month. Fragrance sales grew 7-8% as the category lapped a -15% decline in the year-
ago period. Make-up sales were up 4% for the period.
EL reported sales up 4%, core (ex-Prescriptives) grew 7%
Estee Lauder’s sales were up 4% according to NPD. EL’s underlying fundamentals remain strong with the
company’s core business (excluding the discontinuation of Prescriptives) growing inline with the industry.
Sales were positive across Estee’s top three brands. Clinique grew 6-7% and MAC was up 5-6%. The Estee
Lauder brand lagged a bit with sales only up 1-2%. Estee’s smaller brands generally posted the strongest
growth
Estee’s category performance was broadly positive. Its skin care business (+11-12%) continues to outpace
the industry, while make-up (+20bp) and fragrance (+1-2%) underperformed with sales up modestly.
Remain Neutral on EL shares
We view the industry and EL’s core performance as positive. 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. This said, there may be potential for a better entry point in coming quarters.
Sept 1Q results benefited from sell-in that exceeded sell-through in Europe and the US. For example,
reported sell-in to US department stores grew DD while sell-through in the NPD data was up 4%. Subsequent
results could be choppier if this dynamic reverses and sell-in lags sell-through.
(2) Shares reflect solid turnaround dynamics – The stock is trading at 20X our CY2011 EPS, 25% above the
large-cap multi-national average of 16X. A premium multiple is warranted by strong sales and margin trends,
but the potential for a further in the P/E premium is limited.
Healthcare
Americas: Managed Care: A frontline perspective on 2011 pricing and product trends 13
Americas: Healthcare Services: Distributors: Upcoming Distributor Events in November and December 15
2010
possible exception that its equipment sales might fare better given its exclusive rights to distribute the
CEREC CAD/CAM system in the US. We are at $0.46 for the quarter vs. the Street at $0.45. Dial-in: 1-877-
941-8609 / ID: 4384954.
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. We look for
further commentary on margin expansion initiatives, including private label growth and cost cutting efforts.
OMI (Sell) – 2010 Analyst Day; expect FY2011 guidance
O&M will host an Analyst Day on 12/2 and give first time FY2011 guidance (GS/Street at $2.05/$2.08). With
continued utilization headwinds, we believe Street 2011 revenue estimates, which imply 4% growth, are too
high.
CAH (Neutral) – 2010 Analyst Day on 12/7; updates on key initiatives
We expect CAH to provide more insight into its specialty distribution strategy, as well as updates on utilization
trends, generic penetration, margin expansion efforts, and nuclear pharmacy ramp-up.
Technology
salesforce.com, Inc. (CRM): Bookings growth likely to remain strong; Social proliferating; Buy 16
Americas: Communications Technology: GS CommTech Weekly: Previews for QCOM, FFIV, and ARUN; 17
raising RIMM EPS and PT
Americas: Technology: Semiconductors: GS US Semi Weekly: Inventory database; AMAT, MRVL previews 18
balanced supply side, 2011 unit growth could be seasonal, in our view, implying 11% yoy growth.
AMAT: 4QCY10 guidance should drive upward estimate revisions
We expect 3QCY10 results to be in line with guidance for sales of $2.5 bn-$2.6 bn (flat to +5% qoq) and EPS
of $0.28 to $0.32. 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. If management provides 4QCY10
order guidance (Applied has not guided orders for several quarters), we would expect the mid-point to be for
orders to be down qoq, driven by weakness in DRAM and FPD. However, 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.
MRVL: Buy the stock, as 4Q guidance is likely to beat expectations
We would Buy Marvell ahead of the report, as we believe the stock is likely to trade higher on stronger 4Q
guidance, given relatively bearish market expectations for the PC supply chain. Relative to 3Q results, we
believe that management’s relatively conservative guidance has positioned the company for modest upside
around the quarter. We think 4Q revenue guidance is likely to be above the Street (but in line with our
estimate), as we expect stronger HDD results driven by the ongoing recovery in the PC market. We continue
to like the stock, 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.
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 $1.38 from $1.30.
Americas: Technology: Software: The Weekly Catalyst: CRM, ADSK, INTU; Techtonics and CIO wrap 19
Three main highlights from our panelists: the shift to SaaS is accelerating, even in large enterprise, VDI
adoption is shifting from hype to reality, and private Clouds are getting more traction than public for now.
Utilities
Northeast Utilities (NU): Data Update: Updating estimates after 3Q2010 reporting 20
Investment Lists
Changes and Implications
We update 2010-2014 EPS estimates by up to 2% for Northeast Utilities (NU) after 3Q2010 reporting and the
Not Rated
fall 2010 EEI conference.
We do not view these changes as material – as NU made modest changes to long-term capital spending and
*Current and a year ago therefore rate base growth projections.
Valuation
We remain Not Rated on Northeast Utilities (NU).
CESP (CESP6.SA): First Take: Adjusted EBITDA grows 17% yoy and beats consensus 21
Cemig (CMIG4.SA): First Take: Adjusted EBITDA in line with consensus, 3Q neutral 22
Eletrobras (ELET3.SA): First Take: Neutral 3Q; good operating performance but on one-offs 23
Americas: Utilities: Diversified: Pipeline & MLP Essentials: Plethora of data points over next 8 days 24
Industry context
Last week largely wrapped up an earnings season we rate as in line, given nine matches, eight beats, and
eight misses. Although the Street analyzed a vast amount of information over the past three weeks, we
expect a plethora of data points over the next eight days. These events include the following.
TransCanada Analyst Day. Our largest company under coverage will host analyst days in Toronto on 11/17
and NYC on 11/18. What to watch for: (1) updates on capital growth program, including Keystone, Bison,
Horn River, Bruce Power, and wind power; (2) strategy for financing the remainder of its multi-year, C$21bn
program; (3) cash flow recovery plans for its core Mainline natural gas pipeline system.
Energy Transfer Analyst Day. The fourth-largest MLP by market cap will host an analyst day in Dallas, TX on
11/17. What to watch for: (1) timetable for distribution increases; (2) expectations for natural basis
differentials, (3) asset acquisition outlook, and (4) “GP burden” commentary.
Atmos Energy Analyst Day. This $2.7 bn market cap natural gas utility will host an analyst day in NYC on
11/18. What to watch for: (1) updates on various rate cases, especially Texas Pipeline; (2) utility customer
growth trends; (3) outlook for marketing, given depressed gas price volatility.
El Paso Altamont Update. We expect a deluge of operational data from El Paso regarding this oil field on its
11/18 conf call. We will primarily focus on wellhead economics (returns) and production growth expectations.
Spectra Energy Analyst Update. Spectra will meet investors on 11/17 in NYC and Boston to further discuss
3Q results. Although SE provided a framework for 2011, we do not expect a detailed discussion of guidance
until its traditional January meeting.
Buckeye/Enterprise Special Meetings. 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, BGH
for BPL).
We update estimates/target prices for BPL/BGH, CHKM, EPE, and SPH.
Risks
Weaker infrastructure growth or energy prices; capital market volatility.
Wisconsin Energy Corp. (WEC): Updating estimates for WEC post 3Q, maintaining CL Buy 25
EPS Quarter/Interim
*
1.08 1.01
What's changed
After 3Q2010 reporting, we reiterate Conviction Buy on Wisconsin Energy (WEC) and update our 2010-2014
Investment Lists estimates to reflect: (1) 3Q2010 earnings and 10-Q data, (2) slightly revised rate base estimates for the
Americas Buy List utilities, and (3) updated financing assumptions. We modestly lower our 2010 estimate from $3.94 to $3.87
Americas Conviction Buy List and update our 2011-2013 estimates from $4.16/$4.77/$4.97 to $4.18/$4.75/$4.96 and maintain our 12-
Coverage view Neutral month target of $67 per share.
*Current and a year ago 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, (2) above average earnings growth and (3) above average realized returns
on capital going forward. 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, given WEC’s payout
ratio remains below peer levels.
Valuation
We maintain our P/E- based 12-month target price of $67, implying a total return potential of 16% versus
average upside for small/mid regulated utilities of 9%. WEC trades at 12.4x/11.9x on our 2012/2013
estimates versus peers at 12.2x/11.2x.
Key risks
Key risks for WEC include: (1) delays in the in-service dates for Oak Creek unit 2, (2) rate case and general
regulatory risks, and (3) weakness in electricity demand.
Other
Equity performance
Last week, the MSCI Latin America lost 4.2% and the MSCI Emerging Markets 3.0%, both in dollars. Locally,
Brazil was down 3.1% and Mexico 0.7%. Our Latin America research coverage is listed on page 10.
Rates and currency
The Brazilian Real fell 2.4% to 1.72/$ and the Mexican peso 1.2% to 12.35/$.
Valuation
MSCI Brazil is trading at 10.6X next-12-month consensus earnings, with Mexico at 16.5X.
LatAm Focus List
Over the week (to Thursday), our Focus List lost 0.1% vs. MSCI LatAm while gained 0.7% vs. our Latin
American coverage universe.
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
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