Hotstocks.nychotstocks.nyc/public_html/wp-content/uploads/2017/10/research102617.pdfOctober 26, 2017...

October 26, 2017 | Equity Research

Summary - Morning Packet

10/26/17 03:55:40 ET .

Price Target Change Price Target

Company Price M.Cap(MMs)

From To Title Rating Analyst

Baxter International Inc.(BAX) $64.64 $35,875.2 $73 $76 BAX: Q3 Beat - 2017 EPS Guidance Raised; Sales Outlook Lowered On PR

1 Biegelsen/Health Care

Applied Industrial Technologies, Inc.(AIT)

$65.45 $2,559.1 $60 $65 AIT: FQ1 Results Find Their "Bearing", But Investors Expecting More

2 Poliniak-Cusic/Industrial

International Paper Company(IP) $57.99 $24,205.0 $62 $65 IP: Momentum Building Into 2018 1 Manuel/Industrial PolyOne Corporation(POL) $44.34 $3,635.9 $45 $49 POL: "Thank You For The Color" 1 Mitsch/Industrial The Boeing Company(BA) $258.42 $157,533.

0 $255 $270 BA: Good Q3 Despite Tanker; Slow BGS

Growth 2 Pearlstein/Industrial

QTS Realty Trust, Inc.(QTS) $57.48 $3,316.6 $59 $63 QTS: Making Splash In Key Strategic Markets In Strong Q3

1 Luebchow/Media & Telecommunications

Earnings Estimate Revised Up FY2017 FY2018


Rating Old New Old New Price Target

Analyst /Industry

The Hain Celestial Group, Inc.(HAIN) $37.19 $5,804.4 2 NE NE $1.76 $1.77 42 Baumgartner/Consumer Kellogg Company(K) $60.48 $601.4 2 $3.95 $3.97 $4.15 $4.19 65 Baumgartner/Consumer Mondelez International, Inc.(MDLZ) $41.08 $14,094.1 1 $2.11 $2.14 $2.33 $2.37 51 Baumgartner/Consumer TreeHouse Foods, Inc.(THS) $66.27 $3,878.9 2 $3.15 $3.16 $3.50 $3.52 71 Baumgartner/Consumer The J.M. Smucker Company(SJM) $103.93 $95,038.6 2 NE NE $7.71 $7.73 113 Baumgartner/Consumer The Bank of N.T. Butterfield & Son(NTB) $36.54 $1,984.1 2/V $2.76 $2.81 $3.30 $3.35 36 Braziler/Financial Services Baxter International Inc.(BAX) $64.64 $35,875.2 1 $2.37 $2.44 $2.66 $2.73 76 Biegelsen/Health Care Laboratory Corporation of America(LH) $152.71 $15,836.0 1 $9.52 $9.50 $10.57 $10.70 175 Evans/Health Care Applied Industrial Technologies, Inc.(AIT) $65.45 $2,559.1 2 NE NE $3.10 $3.20 65 Poliniak-Cusic/Industrial Penske Automotive Group, Inc.(PAG) $47.94 $4,122.8 2 $4.17 $4.27 $4.48 $4.55 46 Lim/Industrial The Boeing Company(BA) $258.42 $157,533.0 2 $9.95 $10.15 $10.55 $11.35 270 Pearlstein/Industrial

Earnings Estimate Revised Down FY2017 FY2018



Analyst /Industry

Dr Pepper Snapple Group, Inc.(DPS) $85.52 $15,573.2 1 $4.60 $4.53 $5.05 $5.00 98 Herzog/Consumer BOK Financial Corp.(BOKF) $87.19 $5,745.8 2 $5.24 $5.18 $5.55 $5.45 85 Shaw/Financial Services Laboratory Corporation of America(LH) $152.71 $15,836.0 1 $9.52 $9.50 $10.57 $10.70 175 Evans/Health Care International Paper Company(IP) $57.99 $24,205.0 1 $3.65 $3.50 $4.65 $4.50 65 Manuel/Industrial PolyOne Corporation(POL) $44.34 $3,635.9 1 $2.26 $2.21 $2.54 NC 49 Mitsch/Industrial QTS Realty Trust, Inc.(QTS) $57.48 $3,316.6 1 $2.73 $2.68 $3.12 $3.00 62.5 Luebchow/Media &

Telecommunications Sprint Corporation(S) $7.10 $21,278.7 1/V $0.07 ($0.03) ($0.05) NC 11 Fritzsche/Media &

Telecommunications

This document is only a summary of Wells Fargo Securities, LLC notes published on the date indicated above. Please contact your Institutional Salesperson for full-text notes or for additional information.

October 26, 2017


Company Research Notes Company Price M.Cap

(MMs) Rating Title Price

Target Analyst /Industry

Dr Pepper Snapple Group, Inc.(DPS) $85.52 $15,573.2 1 DPS: Q3: A Bai-opsy Of Where We Were Wrong 98 Herzog/Consumer BOK Financial Corp.(BOKF) $87.19 $5,745.8 2 BOKF: Core Revenue And Expense Miss,

Lowering Numbers 85 Shaw/Financial Services

CNO Financial Group, Inc.(CNO) $24.82 $4,346.0 2 CNO: Favorable Underwriting In Bankers 22 Dargan/Financial Services

The Bank of N.T. Butterfield & Son(NTB)

$36.54 $1,984.1 2/V NTB: Two For One--A Solid Quarter And Complementary Trust Acquisition

36 Braziler/Financial Services

Unum Group(UNM) $52.21 $11,815.1 2 UNM: Q3 Beat Driven By Unum US 48 Dargan/Financial Services

Baxter International Inc.(BAX) $64.64 $35,875.2 1 BAX: Q3 Beat - 2017 EPS Guidance Raised; Sales Outlook Lowered On PR


Laboratory Corporation of America(LH)

$152.71 $15,836.0 1 LH: Q3 2017 Full Analysis --Counting On Covance

175 Evans/Health Care

Teva Pharmaceutical Industries Ltd.(TEVA)

$13.93 $14,166.8 2 TEVA: 3Q17 Preview; We Remain Cautious Amid Generic Pricing Concerns

17 Maris/Health Care

Walgreens Boots Alliance, Inc.(WBA) $69.02 $73,161.2 1 WBA: FQ4 Ahead, 2018 Guide Above Consensus 95 Costa/Health Care Applied Industrial Technologies, Inc.(AIT)

$65.45 $2,559.1 2 AIT: FQ1 Results Find Their "Bearing", But Investors Expecting More


International Paper Company(IP) $57.99 $24,205.0 1 IP: Momentum Building Into 2018 65 Manuel/Industrial Penske Automotive Group, Inc.(PAG) $47.94 $4,122.8 2 PAG: Q3 EPS Beats Consensus 46 Lim/Industrial PolyOne Corporation(POL) $44.34 $3,635.9 1 POL: "Thank You For The Color" 49 Mitsch/Industrial The Boeing Company(BA) $258.42 $157,533.

0 2 BA: Good Q3 Despite Tanker; Slow BGS Growth 270 Pearlstein/Industrial

Trinity Industries, Inc.(TRN) $33.87 $5,114.4 2 TRN: FY17 Guidance Raised, But Not Based On Improving Fundamentals


QTS Realty Trust, Inc.(QTS) $57.48 $3,316.6 1 QTS: Making Splash In Key Strategic Markets In Strong Q3

62.5 Luebchow/Media & Telecommunications

Sprint Corporation(S) $7.10 $21,278.7 1/V S: Solid FQ2'17; Eyes Remain Fixed On TMUS Merger Speculation

11 Fritzsche/Media & Telecommunications

Realty Income Corporation(O) $54.47 $14,881.2 1 O: First Look - Q3 FFO In Line With Our Estimate

65 Stender/Real Estate, Gaming, And Lodging

CA, Inc.(CA) $34.13 $14,334.6 3/V CA: First Look At Earnings 27.5 Winslow/Technology & Services

Citrix Systems, Inc.(CTXS) $82.43 $13,040.4 1/V CTXS: First Look At Earnings 95 Winslow/Technology & Services

ServiceNow Inc.(NOW) $124.62 $21,883.3 2/V NOW: First Look At Earnings 115 Winslow/Technology & Services

October 26, 2017


Sector Overviews

Sector Subject Companies Title Analyst Food

The Hain Celestial Group, Inc.(HAIN) Kellogg Company(K) Mondelez International, Inc.(MDLZ) Dean Foods Company(DF) TreeHouse Foods, Inc.(THS) Campbell Soup Company(CPB) The Hershey Company(HSY) The J.M. Smucker Company(SJM) The Kraft Heinz Company(KHC) Post Holdings, Inc.(POST) Blue Buffalo Pet Products, Inc.(BUFF) Calyxt, Inc.(CLXT)

Food: 3Q17 Earnings Preview Baumgartner

Media & Cable

Cable And Broadcast Ratings (C3) Ryvicker

Media & Cable

Cable And Broadcast Ratings (L+SD) Ryvicker

Government Services

CACI International Inc.(CACI) ManTech International Corporation(MANT) Leidos Holdings, Inc.(LDOS) ICF International, Inc.(ICFI) Booz Allen Hamilton Holding Corporation(BAH) Science Applications International Corp.(SAIC) CSRA, Inc.(CSRA)

Gov't Services: GD IT 3Q17 Read-Through Caso

Synopsis - Morning Packet

Industry Consumer M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Dr Pepper Snapple Group, Inc.(DPS) Herzog $85.52 DEC. $4.53 $5.00 1 $15,573.2 Last Reporting Date: 10/25/17 DPS: Q3: A Bai-opsy Of Where We Were Wrong DPS's Q3 Miss Catches Us Off Guard - But Our Bullish Outlook Remains in Tact- DPS reported Q3 core EPS of $1.10 (-6% y/y),

below our/cons. $1.17/$1.16 ests. We missed a few things in our analysis ahead of Q3 earning including: (1) Softness in fountain Dr Pepper (volume -3.3%) based on the timing of a large order, which was a drag on CSD results (down -1%); (2) Weak Packaged Bev. results due to unexpected cost inflation and soft volumes in two key brands (Snapple, 7-Up) driving flat vols overall; (3) the extent of the neg. FX impact on Latin America costs; and (4) the full 50bps neg. impact on vol. from recent natural disasters (2pt drag on EPS). That being said, while we acknowledge our recent upgrade of DPS was ill-timed, our fundamental thesis and increasingly favorable outlook remains in-tact: that DPS is doing well with Bai, has a strong stable of allied brands, performance of core brands continues to be relatively solid, DPS's innovation pipeline for next year looks solid, and the stock's valuation is attractive (21% discount to KO/PEP's FY18 P/E vs. a 7-8% avg. discount over the last 3 years). Mostly to reflect the Q3 miss (as well as slight adjustments to Q4 and FY18), we lower our FY17/FY18 EPS ests by $0.07/$0.05 to $4.53/$5.00. However we maintain our Outperform rating and $98 price target as we believe the outlook for DPS remains favorable.

On Bai - We Are Disappointed Too, But Let's Keep Things in Perspective - While we share investors' frustration on another deterioration of Bai's vol. outlook - now 40% growth for FY17 (vs. 40-50% previously), or about $15M lower (vs. mid-point), we also note that this is still within the previous range. At this point in the year, we think hitting its FY17 sales growth target is probably safe, and we think the key question is shifting to: can DPS sustain Bai's 40% growth next year to reach its goal to double sales from 2018 vs. 2016? Yes, we believe this is indeed achievable based on: (1) scaled back trade promo spend next year as trial-driving activities are reduced, which has been a drag on net sales this year; (2) the benefit of repeat purchases from customers ''acquired'' this year; (3) Bai's innovation pipeline (including Bubbles, and Water), which we believe is/was the source of mgmt's confidence at this year's NACS Show; and (4) continued shelf/cooler space gains we expect Bai to get in the c-store channel. Ultimately, irrespective of the brand's FY17 sales outlook, we believe DPS's strategy for the brand is the right one, and are encouraged that mgmt has stayed the course.

The ''Allied Brand Risk'' - We acknowledge that a key risk to DPS's recent strategy with allied brands is that it may lose the successful ones as entrepreneurs look for exits. While we believe this risk is real, we think it is largely offset by: (1) as partial owners, the participation that DPS enjoys in the financial upside of many allied brands- e.g. we believe its stake in Body Armor could soon be worth $100MM; and (2) the very long runway of replacement brands.

Price Target Basis & Risks Our $98 price target implies that DPS shares should trade at 12.9x our 2018 EBITDA estimate and 19.6x our 2018 EPS estimate, both slight premiums to its 3-yr historical average multiples. Risks to our price target: Increased competitive pressures, commodity price volatility, and a broad economic pullback.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/DPS102517-170438.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/DPS102517-170438.pdf

Industry Consumer Food M. Cap Analyst Price FY FY17E FY18E Rating (MM$) The Hain Celestial Group, Inc.(HAIN) Baumgartner $37.19 JUN. $1.77 $1.96 2 $5,804.4 Kellogg Company(K) Baumgartner $60.48 DEC. $3.97 $4.19 2 $601.4 Mondelez International, Inc.(MDLZ) Baumgartner $41.08 DEC. $2.14 $2.37 1 $14,094.1 Dean Foods Company(DF) Baumgartner $10.04 DEC. $0.85 $1.00 2 $917.7 TreeHouse Foods, Inc.(THS) Baumgartner $66.27 DEC. $3.16 $3.52 2 $3,878.9 Campbell Soup Company(CPB) Baumgartner $46.21 JUL. $3.05 $3.19 2 $23,305.6 The Hershey Company(HSY) Baumgartner $108.60 DEC. $4.80 $5.16 2 $21,289.0 The J.M. Smucker Company(SJM) Baumgartner $103.93 APR. $7.73 $8.29 2 $95,038.6 The Kraft Heinz Company(KHC) Baumgartner $77.33 DEC. $3.70 $4.04 2 $63,222.1 Post Holdings, Inc.(POST) Baumgartner $83.47 SEP. $2.75 $4.25 1 $6,519.0 Blue Buffalo Pet Products, Inc.(BUFF) Baumgartner $29.08 DEC. $0.93 $1.06 1 $11,806.4 Calyxt, Inc.(CLXT) Baumgartner $23.40 DEC. ($0.54) ($1.39) 1/V $3,777.4 Food: 3Q17 Earnings Preview 3Q17 Food Preview: Expectations Lowered but Still Risk of Disappointment. Following continued pronounced weakness in U.S.

Nielsen retail takeaway (-1.5% avg. volume in Q3 vs. -0.4% comp and -2.2% during 1H17), the back half is not setting up for the improvement that companies had hoped for earlier this year. In addition to overall volume softness, pricing power remains weak and elasticity is pronounced in the pockets where price increases are evident. Trading at near parity with the S&P 500 (vs. 30%+ premium last summer) and 20% discounts to Staples peer groups, we think that Food multiples are flattening. Still, we can't rule out residual downside for stocks with EPS disappointments and reduced outlooks.

What We Like: POST and BUFF. For POST, we think that the name offers investors the potential for the largest positive revisions to expectations over the next 12 months; egg customer normalization is capable of +4% yr/yr EBITDA alone while distribution growth in cereal and nutrition support volume growth and the accretive impact of Weetabix and Bob Evans acquisitions also likely present upside potential. We think investors are overly focused on BOBE's transaction multiple and pro forma leverage. For BUFF, early Nielsen data for the grocery/mass launch is solid ($100MM annualized retail run rate) and we await updated commentary pertaining to the retail expansion. It's hard for us to see a short case here, other than longs taking profits, and we'd look to buy on any weakness into the quarter.

Where We're Cautious: THS and K. For THS, Q3 saw +50bps of yr/yr private label value share across our 130 tracked categories. However, in THS's categories private label has continued to see price weakness (-0.9% yr/yr median) vs. +1.8% for the industry and it fails to assuage our concerns over industry pricing/margin risk. For K, Q3 retail takeaway was weak at -4.7% yr/yr (vs. -2.8% comp) and with broad volume declines across categories, the anticipated sequential improvement is not materializing; we think that the downside risk to FY17's revenue guide is increasing (+3% fx-neutral).

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/FOODS102517-163528.pdf



Industry Financial Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) BOK Financial Corp.(BOKF) Shaw $87.19 DEC. $5.18 $5.45 2 $5,745.8 Last Reporting Date: 10/24/17 BOKF: Core Revenue And Expense Miss, Lowering Numbers Summary. BOKF had a weaker quarter, with operating EPS of $1.30 a nickel below both First Call consensus and our estimates. While

the net interest margin (NIM) benefited from the June rate hike, 6bps of the 12bps qtr. expansion was from interest recoveries on nonperforming loan paydowns, which is unlikely to continue at the same pace. Additionally, loan growth was weak as commercial real estate (CRE) paydowns and flat energy balances offset broader improvement in commercial business, while sustained improvement in asset quality allowed for another zero provision. Fee income was negatively hit by a comb. of lower mortgage originations and gain on sale margins, which combined with higher expenses primarily from increased incentive accruals. Due to trends and management outlook, we decrease our estimates to $5.18/$5.45 from $5.24/$5.55 for FY2017/FY2018, establish FY2019 estimates of $6.00, and reiterate our price target and Market Perform rating.

Loan growth slowing as CRE is a headwind. Loan growth did not meet guidance as CRE loan balances decreased from higher paydown activity. Mgt. pointed to borrowers tapping the permanent funding market earlier in the cycle, which is likely to continue into year-end, and will pressure overall loan growth. Energy lending is a brightspot - while balances were virtually flat, mgt. indicated BOKF is active in the market, and the goodwill generated by staying with customers during the energy crisis will continue to pay dividends.

NIM benefiting from asset sensitivity, but interest recoveries likely to moderate. With the full qtr. reaping the benefit from the June rate hike, core NIM improved as asset yields had solid gains while deposit costs generally were unchanged other than for mix shift. BOKF had about $4.5MM of interest recoveries from payoffs on nonperforming loans, which accounted for 6bps of the 12bps expansion (2.89% to 3.01%). Going forward, we do not expect that pace to continue and have excluded it from our NIM model.

Fee income softening, but potential remains for operating leverage. Core fee income was significantly lower than expectations, primarily due to weakness in mortgage banking. Volumes and gain on sale margins were both hurt by a highly competitive market, especially on the part of non-bank participants. Volume of $805MM was down 9%, and GOS margins of 1.03% was below 1.57% in Q2 and our estimate of 1.25%. Unfortunately this overshadowed positive trends in brokerage and transaction card revenue. As we go forward, mortgage will likely remain a drag on revenue. Expenses were a negative surprise, primarily from higher incentive accruals and stock-based comp costs. We should see some relief from the $4.0MM of catch-up accruals, but overall don't expect to see additional operating leverage in the model until 2H 2018.

Price Target Basis & Risks Our price target is 15.6x our 2018 estimates, a discount to the broader group given the slower loan growth profile. Risks to our price target, to the downside, include (1) higher-than-expected losses from the lending book; (2) a slowdown in market-based fee income; and (3) a mismatch in interest rate sensitivity.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/BOKF102517-154137.pdf

Industry Financial Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) CNO Financial Group, Inc.(CNO) Dargan $24.82 DEC. $1.61 $1.68 2 $4,346.0 Last Reporting Date: 10/25/17 After Close CNO: Favorable Underwriting In Bankers Summary: CNO reported Q3 operating EPS of $0.45, compared to our estimate of $0.38 and FactSet consensus of $0.39. See Figure 1

for a detailed comparison between actual results and our forecast. Backing out one-time net favorable items called out by the company (a slight reserve correction in Colonial Penn), EPS would be $0.44. We would also back out an additional $0.04 of excess call and prepayment income, pointing to run-rate EPS of $0.40. We don't think the underlying trends in the quarter warrant a further run-up in CNO shares from current levels going into a Q4 annual actuarial review.

Beat came from Bankers and Washington National. On a normalized basis, the biggest delta versus our forecast was the earnings strength in the Bankers Life segment, and to a lesser degree Washington National.

What we liked. There were no negative segment earnings surprises, and within Bankers Life, benefit margin guidance was favorably revised within two product lines. In long-term care (LTC), CNO reported an interest-adjusted benefit ratio of 72.9% in Q3 versus H2 2017 guidance of 75-80%. Guidance for Q4 remains 75-80%. In the Medicare Supplement product line, the benefit ratio came within the H2 2017 guidance range of 70-73%, which remains guidance for Q4 2017. Within Washington National, the supplemental health benefit ratio of 59.0% was within the lower half of the guided range of 58-61%, which was reaffirmed. On the statutory capital front, the insurance subsidiaries paid dividends of $110 million which allowed holding company cash to grow to $380 million versus $278 million at June 30, and risk-based capital (RBC) stood at the targeted 450%.

What we didn't like. Sales were generally weaker on a year-over-year basis. Total company life and health new annualized premium was down 10% year-over-year. Bankers Life new annualized premium for life and health products was down 14%. Bankers annuity collected premium was down 4%. Colonial Penn new annualized premium was down 12%. On the capital management front, share repurchase of $28 million was light of our estimate of $70 million, which CNO attributes to price sensitivity.

A word of caution on long-term care. While CNO has had favorable experience in its Bankers Life long-term care (LTC) block over the first nine months of 2017, we caution the company deemed margin in that book's reserves as ''thin'' at an investor day back in June. Given our experience in covering Genworth, we think it is too early to declare victory on LTC. Absent significantly higher interest rates, we think CNO shareholders have to be ready to accept a reduction in book value that would accompany a transaction where CNO pays a third party to offload LTC risk.

Conference call. CNO is hosting its Q3 earnings conference call at 11:00am ET on October 26. The dial-in number is 866-393-4306; passcode is 1825315.

Price Target Basis & Risks Our price target is based on applying a 0.9x multiple to our Q2 2018E book value of around $24 per share ex. accumulated other comprehensive income. Risks to our target include adverse mortality, credit losses, and falling interest rates.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/CNO102017-154405.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/BOKF102517-154137.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/CNO102017-154405.pdf

Industry Financial Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) The Bank of N.T. Butterfield & Son(NTB) Braziler $36.54 DEC. $2.81 $3.35 2/V $1,984.1 Last Reporting Date: 10/25/17 NTB: Two For One--A Solid Quarter And Complementary Trust Acquisition Summary. This was a strong quarter for NTB as an unexpected upswing in loan growth and solid net interest margin (NIM) expansion

helped drive a $0.06 beat vs. First Call consensus. Additionally, in conjunction with earnings, management announced the acquisition of Deutsche Bank's Global Trust Solutions (GTS) business (excluding US operations) adding 1,000 trust relationships through 900 private clients. Incorporating the quarterly trends, and the impact of GTS (slated to close in 1Q18), we increase our FY2017/2018 EPS estimates by a nickel to $2.81/$3.35, and establish FY2019E EPS of $3.85. We are maintaining our $36 price target at this time as we reiterate our Market Perform rating.

Loan growth aided by UK growth. Linked quarter loan growth of 2.1% (vs. our 0.2% estimate) was a positive surprise out of the typically slower growing bank. Commercial (C&I) growth reversed a two-quarter losing streak to post 12% Q/Q growth (+$35MM), while continued momentum out of the UK mortgage operation resulted in 2.2% residential growth (+$52MM). Growth out of the UK portfolio should help bolster overall growth rates in the near-term; however, management is still expecting roughly flat period-over-period loan growth as the pace of originations in Bermuda and Cayman does not quite match quarterly amortization.

NIM benefitting as deposit betas remain stagnant. NIM improved 15bps Q/Q to 2.81%, topping our +6bps/2.72% est., as asset yields improved 15bps while funding costs remain unchanged. Going forward, Q4 results will benefit from the June rate hike, as Bermuda based residential loans reprice on a 90-day lag. However, that benefit will be partially mitigated by UK residential production, which currently has origination yields of 2.75-3.00% vs. Bermuda resi. yields of 6-7%. The incremental UK production will negatively impact NIM trends but should be a positive for net interest income.

Expenses heading lower. Core operating expense declined 3.0% sequentially following heightened marketing cost associated with the America's Cup in Q2. NTB is nearing the final stages of implementing an updated Sarbanes Oxley system, investing in compliance systems and processes, and finalizing the build-out of its Halifax Group Service Center. As these projects come to completion in 4Q17, management believes its expense base can retrench to the $69-70MM level for 1Q18, implying an efficiency ratio near 60%.

Trust deal inked. In its first deal announced since the US IPO, NTB inked a deal for Deutsche Bank's GTS. While limited deal specifics were announced, management indicated that the transaction matches all the previously announced M&A metrics, with the deal being 100% private trust (at least 2/3 is their guideline), less than $50MM deal price, and a multiple of less than 8x EBITDA. The acquisition of GTS will comprise 20-25% of overall trust revenue.

Price Target Basis & Risks Our price target represents 10.7x our FY2018E EPS and 257% of our year-end 2017E TBV, a meaningful discount to the group on a PE basis. Given the off-shore nature of the franchise we believe that it will take U.S. investors some period of time prior to becoming fully comfortable from a compliance and oversight perspective. Risks include: 1) geographic risk in Bermuda and Cayman, 2) concentration of customers, 3) different regulators compared to mainland banks.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/NTB102517-170309.pdf

Industry Financial Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Unum Group(UNM) Dargan $52.21 DEC. $4.16 $4.35 2 $11,815.1 Last Reporting Date: 10/25/17 After Close UNM: Q3 Beat Driven By Unum US Summary. Unum reported Q3 2017 operating EPS of $1.09 versus our estimate and FactSet consensus of $1.04. The

outperformance versus our estimate was attributable to the three businesses within Unum US, particularly Group Life and AD&D, and Supplemental and Voluntary. The company also said 2017 operating EPS growth would be at, to slightly above, the +5 to +8% guidance established in Q2 2017. We expect the stock to react well to the beat as well as the upward revision of the operating EPS growth guidance. We believe the focus of the conference call will be on the upcoming review of UNM's long-term care (LTC) reserves.

Our take. Similar to the first two quarters of the year, the third quarter was notable for continued favorable claims experience in Group Disability, lack of long-term care claims noise, share repurchase within expectations, and continued cash build at the holding company. Outside of the positive upside vs. our estimates in Unum US, Unum UK was weaker in US dollar terms, Colonial and the Closed Block earnings were also slightly below our expectation. Please see Figure 1 for a detailed comparison of actual results vs. our forecast.

What we liked. 1) Unum US-Group Disability. For the fourth consecutive quarter, segment earnings beat our estimate on the back of a 190 basis-point year-over-year improvement in the benefit ratio to 76.7% due to lower claim incidence rates in group long-term disability, and lower prevalence rates in short-term disability product line; 2) Group long-term disability sales grew 28% year-over-year and group short-term disability sales grew 76.9%; 3) Within the Closed Block the interest-adjusted loss ratio for long-term care (LTC) was 93.3% versus 93.8% in Q3 2016, largely driven by a large group case moving to individual policy ported status; 4) UNM ended Q3 with $771 million of holding company cash vs. $757 million at June 30. While a deal to pay another party to take LTC off UNM's hands may not be imminent, Unum continues to build its cash position to deal with uncertainties including higher capital charges against invested assets.

What we didn't like. Unum UK results were again weaker than expected in US dollars. The benefit ratio in Q3 was 74.9%, versus 71.7% in the prior year quarter, attributed to unfavorable claim resolutions, as well as higher claim incidence. We expect to get an update on the impact of Brexit to the UK business.

Conference call. Unum is hosting its Q3 earnings conference call at 8:00am ET on October 26. The dial-in number is 800-231-9012; Passcode: 9545873.

Price Target Basis & Risks Our price target is based on a 1.1x multiple on our Q2 2018E BVPS ex. AOCI of ~$44. Risks to our target include investment spread compression, a weak employment market, and credit losses in particular related to energy.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/UNM102017-160213.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/NTB102517-170309.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/UNM102017-160213.pdf



Industry Health Care M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Baxter International Inc.(BAX) Biegelsen $64.64 DEC. $2.44 $2.73 1 $35,875.2 Last Reporting Date: 10/25/17 Before Open BAX: Q3 Beat - 2017 EPS Guidance Raised; Sales Outlook Lowered On PR Summary. On 10/25, BAX reported Q3 EPS of $0.64, beating consensus and our estimate of $0.59. EPS upside vs. our model primarily

reflected higher revenue and net other income, as well as a lower tax rate. Management lowered 2017 underlying (ex-FX, Claris, cyclo, low-margin exits) sales growth outlook from 5% to 4-5%, due to Hurricane Maria impact of $70MM or ~70bps. Despite the top-line headwind, BAX raised full year EPS guidance from $2.34-$2.40 to $2.40-$2.43, with the offset coming from reduced FX headwind, lower non-operating expense and a lower tax rate. For Q4, the company sees underlying sales growth of 1-2% (including $70MM or ~270bps of hurricane headwind) and EPS of $0.56-$0.59 (including $0.06 of hurricane impact). Overall, we believe BAX's outlook is unchanged and the company is well positioned to achieve its long-term sales, EPS and cashflow targets. We are increasing our EPS estimates by $0.07 to $2.44 in 2017 and by $0.07 to $2.73 in 2018 (+12%). Raising our price target from $73 to $76 based on equal weighting of DCF, 2019E P/E/G and 2019 EV/EBITDA.

2017 EPS guidance raised; sales outlook lowered. BAX lowered its underlying sales growth guidance from 5% to 4-5% to reflect impact of Hurricane Maria in Puerto Rico (PR) of $70MM or ~70bps. Excluding-FX, the company continues to expect 4% top-line growth, with the PR headwind offset by strength in other businesses, including higher cyclophosphamide (cyclo) sales ($190MM vs. previous $160MM) due to the absence of additional competition. The majority of the PR impact will be in the Integrated Pharmacy Solutions (IPS), where BAX lowered its ex-FX sales growth outlook from 4-5% to 4%. BAX raised its full year EPS guidance from $2.34-$2.40 to $2.40-$2.43 or 22-24% growth, with higher cyclo sales and a lower tax rate more than offsetting the ~$0.06 impact from PR.

Q4 outlook may prove conservative. BAX guided to Q4 underlying sales growth of 1-2%, which includes the $70MM or ~265bps of PR headwind. Adjusting Q4 sales growth would be closer to 4-5%, in line with BAX's 4% long-term growth outlook but slightly below YTD adjusted underlying growth of ~5%. On the bottom-line, BAX expects Q4 EPS to be $0.56-$0.59 or flattish at the midpoint, which includes the $0.06 of impact due to supply constraints from PR. Excluding PR, EPS growth would be 9-14% yr/yr. Given BAX's track record, we believe that the guidance may prove conservative, especially on the bottom-line. According to the company, although FX is expected to boost top-line growth by ~3% in Q4, drop-through to the bottom-line is modest due to natural hedging in Europe (i.e. expenses in the EUR will be higher) and offset from lower currency hedging gains. We forecast Q4 sales of $2.76B or 1.9% ex-FX growth and EPS of $0.60.

Continued on the next page. Price Target Basis & Risks

Our $76 price target is based on equal weighting of 2019E EV/EBTIDA, DCF and 2019E P/E. Risks to our thesis include unexpected competition, headwinds could slow restructuring effort, significant delays in new product launches.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/BAX102317-112242.pdf

Industry Health Care M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Laboratory Corporation of America(LH) Evans $152.71 DEC. $9.50 $10.70 1 $15,836.0 Last Reporting Date: 10/25/17 Before Open LH: Q3 2017 Full Analysis --Counting On Covance What now? LH's diagnostics business echoed the themes we heard at DGX: (1) strong organic volume trends, despite a material

hurricane impact, (2) a growing contribution from inorganic growth, and (3) significant concern about Medicare pricing cuts starting next year. It our mind, the Covance business holds the more significant controversy, particularly since our investment thesis hinges on growth acceleration and margin improvement. LabCorp did manage to drive Covance's margins higher than we expected, which should come in handy next year as Diagnostic margins come under pressure. But while organic growth accelerated to low-single digit territory (we think), Covance's revenue missed our estimate, and we think current guidance compared to prior guidance implies a $50MM reduction in organic revenue, representing about 1.5-2.0% of growth for the full year. Management seemed reluctant to talk about organic growth at Covance, but did say preclinical and clinical was a little below expectations. Another way to see this is in the backlog conversion rate, which has fallen to 12.9% in Q3 (adjusted for Chiltern revenue) from 14.2% in Q1-a massive drop for two quarters. Still, Covance has built substantial backlog this year, and we think the book-to-bill this quarter was once again >1.3 (for the third quarter in a row), which should support high-single digit revenue growth in 2018, even allowing for some further deterioration in conversion.

Quick take on the quarter. LH beat revenue and EPS consensus in Q3. The diagnostics business beat revenue estimates due to both acquired and organic volume growth, while the operating margin was weaker because of hurricane impact (70 bps to diagnostic margin). Covance missed revenue expectations slightly (includes one month of Chiltern) but beat on margin. The 1.33 TTM booking number suggests a solid quarterly book-to-bill of >1.3. For details, see our variance table in Exhibit 1.

Guidance. LH raised revenue and EPS guidance for the rest of the year due to acquisitions, organic strength in the lab business, and FX. Net revenue growth was raised to 8.0-8.5% vs. 5.0-6.5% previously. Diagnostics revenue growth was raised to 8.5%-9.0% (due to consolidation of JV related to PAML acquisition) vs. 7.0-8.0% previously. Covance revenue growth was raised to 6.0-7.5% (due to Chiltern acquisition) growth vs. 1.0-3.0% previously. EPS is expected to be $9.40-9.60 vs. $9.30-9.65 previously. For details, see our guidance table in Exhibit 3.

Read-Throughs. Covance's solid book-to-bill is the first direct read to other contract research organizations, and we think the read is positive. Covance's comment about preclinical softness could easily be share loss given we think Covance is not investing in that business nearly as aggressively as its closest peer.

Price Target Basis & Risks Our price target is DCF-based (WACC = 6.5%; terminal NOPLAT growth = 1.5%) and represents 16.4x our 2018 EPS estimate. Risks include slow or expensive consolidation or lab industry pricing and volume headwinds. Demand for contract research services could deteriorate if pharma companies come under pressure due to drug pricing or if consolidation or funding challenges disrupt demand.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/LH102317-110620.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/BAX102317-112242.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/LH102317-110620.pdf



Industry Health Care M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Teva Pharmaceutical Industries Ltd.(TEVA) Maris $13.93 DEC. $4.03 $3.30 2 $14,166.8 Last Reporting Date: 08/03/17 Before Open TEVA: 3Q17 Preview; We Remain Cautious Amid Generic Pricing Concerns Teva reports next week (Thursday, November 2) and in this note, we outline our thoughts and forecasts ahead of the quarter. On

October 16th, we lowered our numbers on Teva, to reflect the divestitures of the Women's Health products, more conservative assumptions around generic margins, and the impact of a Copaxone generic. We think 3Q17 could be as challenging as 2Q17 was for the company, with the only difference being investors are now expecting a more challenging environment. While our 3Q17 EPS estimate of $1.08 is $0.03 higher than consensus estimate of $1.05, we underscore that our $0.88 for 4Q17E is well below consensus $1.09, and our 2018E EPS of $3.30 is well below consensus $3.70 (as of 10/25/17).

Clearly, based on our below-consensus 2018 estimates, we believe 2018 consensus numbers will need to come down. For 3Q17, we estimate revenues of $5.67B (vs. $5.62B consensus) and down slightly from $5.69B in 2Q17.

In addition to what the potential impact of Copaxone generics will be in 2018, we believe other hot topics for the call will be the likelihood of cost cutting with the new CEO, divestiture plans, and a more thorough discussion about the debt maturities and whether there are any plans to refinance the debt. However, our biggest question is where could long-term operating margins for generics settle out.

We do not think investors will care much about Copaxone for 3Q, as the entire focus is on the impact of Mylan's new generics for 4Q and 2018. While Teva is not likely to provide 2018 guidance, we believe investors will naturally ask whether the $0.25 negative impact for 4Q should be roughly assumed to be the impact in each quarter going forward.

Debt situation: We recently held a well-attended healthcare debt focused webcast/conference call with our top-ranked Investment Grade (IG) Debt analyst. A major takeaway from the call was that we (along with our debt analyst) continue to believe that there is a fair risk Teva will be downgraded to High Yield (HY) from IG next year, and this will likely push up financing costs. Further, the new CEO of Teva (Kare Schultz) does not have a start date to our knowledge and this may make cost cutting and prioritizing certain parts of the pipeline a bigger hurdle than they might otherwise be. We will be interested in hearing whether Teva is ruling out divestitures for pipeline compounds, such as its anti-CGRP migraine drug, or if all options are on the table.

TEVA reports 3Q17 results on Thursday, November 2nd at 7:00am ET and the company is to host a conference call at 8:00am ET on the same day.

We maintain our Market Perform rating. Price Target Basis & Risks

Our price target of $17 is based on a discount rate of 7.0% and a terminal EV/EBITDA multiple of 6.0x. Risks to our target include: current and new launches of generic Copaxone, a less favorable outlook for the generics industry, as well as regulatory, R&D, pricing, and patent risks.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/TEVA102517-184703.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/TEVA102517-184703.pdf



Industry Health Care M. Cap Analyst Price FY FY18E FY19E Rating (MM$) Walgreens Boots Alliance, Inc.(WBA) Costa $69.02 AUG. $5.70 $6.20 1 $73,161.2 Last Reporting Date: 10/25/17 Before Open WBA: FQ4 Ahead, 2018 Guide Above Consensus Walgreens posted a strong quarter margin-wise with adjusted EPS helped further by $0.02 from lower share count and, more

importantly, WBA provided better than expected guidance for FY18, also helped by strong share repurchases. WBA's margins were mostly helped by a lower SG&A ratio, which is expected to continue. While WBA's Medicare Part D business is expected to grow in FY18, we believe pressure remains on traffic growth (excluding the recent bounce from the pharmacy inclusions into the TRICARE and Prime networks) and on the Pharmacy Wholesale margins. FQ4 adjusted EPS of $1.31 compared to our estimate of $1.23, consensus of $1.21, and versus $1.07 in FQ4 2016. FY17 adjusted EPS of $5.10, compared to our estimate of $5.03, consensus of $5.00, and $4.59 in FY16. WBA offered initial FY18 adjusted EPS guidance of $5.40-$5.70, which includes consensus of $5.45 near the low end and our estimate of $5.70 at the high end. Walgreens completed its $5 billion share repurchase program, which began last quarter, and expanded it by an additional $1 billion, allowing for the strong 2018 EPS guidance. Concerns over Amazon entering the pharmacy market were not materially addressed but continue to be an overhang on the stock. We are leaving our FY18 and FY19 EPS estimates of $5.70 and $6.20, resp., as well as our price target of $95, unchanged.

CVS announced a new performance network formed through a partnership between CVS pharmacy and Walgreens and ~10,000 independent pharmacies, creating a 30,000 store network to service CVS' Caremark Pharmacy Benefit Management clients. We see this announcement as a way for WBA, CVS, and selected independent pharmacies forming a more cost effective, outcome-focused narrow network that is long overdue and that could provide a commercially strong narrow network product that can channel business towards these retailers once effective starting in March 2018.

WBA announced plans to close 600 stores as many of the 1,932 RAD stores are within 1 mile of a WBA store. These efforts are expected to drive $300 million in annual savings by the end of FY2020, with an expected cost of $450 million over 18 months, beginning in spring 2018. These closings will effectively move scripts as file buys to other stores mostly within a mile of the closed stores.

Management noted the recent hurricanes, particularly in Puerto Rico, could adversely impact Q1 adjusted EPS by a few cents. Initial estimates indicate that the cost of the store damage and closures by recent hurricanes could be around $90 million.

Enhanced Beauty offerings are being introduced to over 1,000 additional stores. The program is expected to be completed in the next few weeks and bring the total number of stores with enhanced beauty offerings to around 2,900. Beauty products growth has seen a 60 bps improvement vs. front-end sales over the last 2 years.

Price Target Basis & Risks Our price target for WBA is based on a P/E multiple of ~15 times our FY19 EPS estimate. Key risks include potential earnings pressure stemming from weakness in the European economy, particularly in light of Brexit uncertainty; continued need for capital spending to maintain stores and grow new businesses; reimbursement rate pressure; and intense competition.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/WBA102517-160126.pdf

Industry Industrial M. Cap Analyst Price FY FY18E FY19E Rating (MM$) Applied Industrial Technologies, Inc.(AIT) Poliniak-Cusic $65.45 JUN. $3.20 $3.40 2 $2,559.1 Last Reporting Date: 10/25/17 Before Open AIT: FQ1 Results Find Their "Bearing", But Investors Expecting More AIT Posts Solid FQ1 Results And Raises FY Guidance, But Investors Looking For More. AIT posted a solid beat and raise quarter

to kick off their fiscal 2018. Quarterly results topped estimates by $0.10/share (FQ1 EPS $0.86 vs. $0.76); however, management only raised the midpoint of its full-year guidance $0.05/share ($3.10-3.20 vs. $3.00-3.20). Management also raised its FY18 sales growth outlook (4-5% vs. 3-4%); however, results include the latest DICOFASA acquisition, a Mexico-based industrial/ hydraulic equipment supplier. Furthermore, top-line growth is expected to decelerate from FQ1's 8.9% to more moderate/ MSD growth FQ2 (fewer selling days) and LSD growth H2 '18 (tough comps). While we believe management is being conservative and backlog visibility keeps Distribution guidance restrained, investors seemed to be expecting more in terms of H2 earnings pull-through with AIT shares finishing the day (10/25) down 1.4% (SPX -0.5%).

Raising FY18 Ests To Top-End Of Guidance, FY19 n/c. We have increased our FY18 estimate to $3.20 (from $3.10), assuming both EPS and sales at the top-end of management's guidance range; however, our FY19 $3.40 estimate is unchanged. Our price target is $65 (from $60), representing 11x FY19E EV/EBITDA, one turn higher than our prior valuation given the acceleration in some of AIT's key verticals (namely mining, metals, power transmission and oil & gas). Pricing and fixed cost leverage hold us back at this time regarding FY19 earnings, with increased storefront, IT and compensation costs necessary to support MSD top-line growth, coupled with the uncertainty of 20-30bps of annual gross margin expansion.

GM% Declines Despite Fluid Power Mix. These days one can't talk about Distribution and not mention gross margin, especially coming off yday's announcement from Amazon to introduce Prime business shipping, which likely played some factor in today's share performance given the industry overhang. FQ1 gross margin declined 20bps y/y and 50bps sequentially; however management noted excluding FQ4's LIFO benefit gross margin would have been flat sequentially. Still, the question remains, why did gross margin decline 20bps y/y when higher margin Fluid Power sales (+14.7 y/y organic) outpaced lower margin Service Center sales (+8.2% y/y organic). We believe a portion of the decline can be attributed to faster ecommerce channel sales, as well as higher COGS without a corresponding price increase, with end market growth not (yet) supportive of broad OEM price increases relative to raws inflation

Balance Sheet Best In Group. AIT remains one of the best positioned Distributor's in terms of balance sheet, with net leverage less than 0.5x. We don't expect FCF to exceed 100% of net income FY18E given the uptick in wcap; however management has plenty of flexibility, repurchasing 248K shares FQ1 (1.2MM authorization).

Price Target Basis & Risks Our $65 price target is implied by 11x our FY19 EV/EBITDA estimate. Risks to achieving this target include a protracted downturn in the U.S. economy, lack of acquisition candidates, integration missteps, or increased competition.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/AIT102517-141753.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/WBA102517-160126.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/AIT102517-141753.pdf



Industry Industrial M. Cap Analyst Price FY FY17E FY18E Rating (MM$) International Paper Company(IP) Manuel $57.99 DEC. $3.50 $4.50 1 $24,205.0 Last Reporting Date: 10/25/17 Before Open IP: Momentum Building Into 2018 We believe International Paper Company (NYSE: IP) is solidly executing on its strategy to become a more focused enterprise with

formidable positions across its three primary businesses (Industrial Packaging, Cellulose Fibers, and Printing Papers). Furthermore, we think yesterday's (10/24) announcement to contribute its North American Consumer Packaging business to a newly formed partnership with Graphic Packaging enables: (i) a further honing of IP's attention on the remaining three core businesses; and (ii) enables IP to monetize potential upside in the business in tax-deferred manner. Overall, we view IP as an attractive option for investors looking to purchase a market leading company in the North American containerboard subsector of packaging. As a result, we maintain our bullish posture and Outperform rating on IP. We are adjusting our 2017 and 2018 EPS estimates to $3.50 (prior $3.65) and $4.50 (prior $4.65), respectively. Our reduced estimates reflect lingering effects from the September hurricanes (mostly elevated wood fiber and freight) and higher maintenance outage costs in 2018. We are adjusting our price target to $65 (prior $62).

Creative deal structure enables IP to monetize Consumer Packaging operations in a tax-deferred manner. Yesterday (10/24) morning, IP announced the formation of a partnership with GPK whereby IP will contribute its North American Consumer Packaging business and combine with GPK's existing business. The transaction values IP's bleached paperboard operations at $1.8 billion, or 8.6x projected 2017 EBITDA of $210 million. In return, IP will receive a $660 million dividend for debt assumed as well as a 20.5% ownership stake in the newly formed entity (representing the remaining $1.14 billion). In our view the transaction is favorable from multiple standpoints: (i) the deal structure enables IP to participate in upside or value created over the holding period; (ii) the partnership formation affords IP a tax-deferred method to ''divest'' the North American Consumer Packaging operations; and (iii) an attractive valuation.

Increased synergy target for Cellulose Fibers of $200 million reaffirmed. The Cellulose Fibers operations showed continued improvement on a sequential basis, with EBIT increasing from $12 million in Q2 to $57 million in Q3. The increase stemmed from price/mix benefits (+$15 million) and lower maintenance outage expense (+$37 million), partially offset by $7 million in higher operating expenses. In addition, IP reaffirmed the recently (9/14) increased synergy objective of $200 million. With respect to synergy capture, the company delivered a run-rate of $140 million by the end of Q3; bringing absolute synergies cultivated YTD 2017 to $102 million. Lastly, we still believe IP is on track to deliver $600+ million of EBITDA by the 2019/2020 timeframe.

Price Target Basis & Risks We view a normalized valuation multiple for IP as 8.0x forward EBITDA, implying a price target of $62 using our 2018 estimate or a 7.1% FCF yield. Risks include increases in raw material prices to the extent not passed through or offset, acquisition integration risk, and economic risk.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/IP102517-182531.pdf

Industry Industrial M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Penske Automotive Group, Inc.(PAG) Lim $47.94 DEC. $4.27 $4.55 2 $4,122.8 Last Reporting Date: 10/25/17 Before Open PAG: Q3 EPS Beats Consensus Summary. PAG Q3 EPS exceeded ours and Street consensus expectations. Relative to our forecast, PAG delivered a solid operating

quarter - diversification is helping. That said, SG&A/Gross profit metric has been lagging this year (up 50bps year-to-date and 40bps in the quarter - we understand achieving leverage is easier said than done), but mgmt has been able to generate solid EPS growth (we estimate if SG&A/gross metric was flat versus last year, EBIT would have increased 8.3% vs. 5.5% actual). In our view, the strong parts and service margin is likely sustainable and the buildout of the used vehicle initiative could be a nice tailwind for the company. We are raising our 2017 EPS estimate to $4.27 (from $4.17) and our 2018 EPS estimate to $4.55 (from $4.48). Our price target is unchanged at $46 applying a P/E multiple of 10.1x to our 2018 EPS estimate.

Strong parts and service margin. Parts and service gross margin improved 210bps yr/yr to 59.1% (three quarters at or near 59%). We believe this figure can be sustainable as many luxury OEMs are offering multi-year maintenance plans. Recall, OEM maintenance plans are considered warranty work (and warranty margins are superior to those of customer pay [~52% vs ~47%], in the U.S.).

PAG UK operations outperformed the market. UK vehicle registration declined 9% in the quarter; however, PAG's unit delivery declined 3% (same store new vehicle revenues were flattish). Mgmt attributed the performance to a growing luxury mix. Although we don't anticipate luxury mix to grow to 50% of the market, premium brands are benefiting from entering new (volume) segments.

Management continues to focus on expanding its used vehicle business. It appears to us that mgmt's strategy is to launch in clusters, which makes sense from a logistics and advertising leverage stand point. In addition, we sensed that PAG is looking to acquire more stand-alone used vehicle dealer groups especially in Europe.

Quarter summary. PAG reported Q3 EPS from continuing operations of $1.10 (+7% yr./yr., no currency impact) compared to our $1.04E and the Street consensus of $1.09. Revenues were $5.52B (+7.2% yr./yr.; +6.9% ex-f/x) compared to our $5.28B estimate ($5.33B consensus). SG&A/Gross Profit was 78.5%, above our 78.3%E and 78.1% last year. SG&A/Revenue was 11.7% (+41bps yr/yr) vs. our 11.6% forecast. Operating margin was 2.8% (vs. 2.7% last year) compared to our 2.8%E. Relative to our estimate, higher operating income (+$0.05), higher equity income (+$0.02), lower tax (+$0.02), and better non-controlling (+$0.01) were partially offset by higher floorplan and corporate interest and higher share count.

Price Target Basis & Risks Our 12-month price target applies a P/E multiple of 10.1x to our 2018 EPS estimate. Risks to our price target include general market and macroeconomic risks, foreign currency exposure, and a significant decline in luxury vehicle segment.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/PAG102517-132258.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/IP102517-182531.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/PAG102517-132258.pdf



Industry Industrial M. Cap Analyst Price FY FY17E FY18E Rating (MM$) PolyOne Corporation(POL) Mitsch $44.34 DEC. $2.21 $2.54 1 $3,635.9 Last Reporting Date: 10/25/17 Before Open POL: "Thank You For The Color" POL reported adj. 3Q EPS at $0.58, exceeded our $0.56 and consensus $0.55 estimates, although lower taxes provided a $0.03

benefit. Higher incentive comp was a $0.09 headwind. Sales of $818MM were up 10% yr/yr (vol +3%; price/mix +2%, FX +1%, M&A +4%), with CAI leading the way; up 20%! Geographically, sales expanded across all regions, with Asia posting sales and EBIT growth of 20% and 23%, respectively. Factoring in the lingering 4Q Harvey related $3-4MM headwinds and $6MM incentive costs, we're trimming 4Q from $0.46 to $0.41. Although we're surprised to see the shares take out its all-time high off of today's result, we're raising our price target from $45 to $49, reflecting the diversified median 2018 EBITDA avg. multiple.

Margin Masked By Higher Raws, Incentive Comp. Adj EBIT margins in 3Q came in at 9.5%, a decline of 150 bps from a year ago. POL called out higher logistics and raw material costs from Hurricane Harvey, indicating that a basket of resins are up 15-20% over last year. While we believe the Street was modeling in higher raws, POL also overcame an incentive compensation headwind of $10MM yr/yr, reflecting the year ago true-up as DSS was hitting another rough patch. For 2017, POL is exceeding its incentive comp metrics on sales (25% of total) and working capital (15%), but running shy on EBIT (60%). We believe the margin performance in light of these headwinds is better than most would have expected. We expect to see margin expansion more 2H weighted in 2018, when pricing initiatives fully take hold with CEO Patterson ''very confident'' is seeing double-digit EPS growth in 2018 and beyond.

Buybacks, Dividend Hikes from Transformation. Following the recent portfolio moves, which essentially swapped out its troubled DSS business for Mesa and Rutland, returning shareholder value is at the forefront. Following October's 30% dividend increase, management is working toward a 60% cumulative increase over the next 3 years (2.7% yield at today's share price). Part of the rationale is that it is no longer spending dollars to fix DSS as well as saving the associated $20MM in capex. After spending $0 on share buybacks in 2Q, POL resumed in 3Q buying $36MM; its highest level since 1Q16. Net debt/EBITDA came in at 2.8x, a sequential decline from the 3.0x in 2Q. Free cash flow in 2017 is expected to total $180-200MM, with our estimates of FCF yield of ~5.5% in 2017 and ~7% in 2018.

Price Target Basis & Risks Reflects the the diversified median 2018 EBITDA average multiple. Risks include a global economic downturn, acquisition integration, failure to increase sales, and raw material volatility.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/POL102517-092913.pdf

Industry Industrial M. Cap Analyst Price FY FY17E FY18E Rating (MM$) The Boeing Company(BA) Pearlstein $258.42 DEC. $10.15 $11.35 2 $157,533.0 Last Reporting Date: 10/25/17 Before Open BA: Good Q3 Despite Tanker; Slow BGS Growth Summary. Q3 results were modestly ahead of the Street despite absorbing another Tanker charge. However, the post-Q3 selloff in BA

shares can be attributed to a few factors: (1) investors may have been expecting a larger EPS/FCF beat-and-raise; (2) the reduction in the 787's deferred production balance was not as great as some were anticipating; (3) the seventh Tanker charge since mid-2014 hardly inspires confidence in the execution; and (4) the newly-formed Services unit (BGS) YTD growth of ~1% is less than the robust growth the company has been discussing, but we think it is an area management intends to make acquisitions. Overall, nothing in the Q3 results changes the outlook for continued FCF growth (from already-impressive levels) through the end of the decade - i.e., the core of the BA investment thesis.

Valuation. BA's 2018E FCF yield is 7.3% -- comfortably above the peer median of mid-5%. Recall that Boeing recently changed its incentive/performance awards to pay out based 50% on FCF. We raised our price target to $270 from $255 (7% 2018E FCF yield).

Q3 2017 EPS of $2.72 was ahead of our $2.55 / consensus $2.65. Segment EBIT ($2.57B) was in line, but included $329MM ($0.38 EPS) for Tanker cost growth. All of the EPS upside vs. our estimate came from lower unallocated/corporate/other expenses. Our usual segment attribution analysis is not possible, as Boeing (as expected) created the new Boeing Global Services (BGS) segment, which combines the service units within BCA and Defense.

Q3 2017 FCF $3.0B was ahead of our $1.9B due to increases in accounts payable ($0.6B); advances/billings in excess of related costs ($0.9B); and deferred taxes (due to the pension contribution). The full-year implied FCF outlook improved by $250MM to $10.5B, helped by a $200MM R&D reduction.

Guidance. Boeing raised 2017 EPS guidance by $0.10 to $9.90-$10.10; we estimate most of this is due to a lower tax rate, R&D, and non-segment expenses - offsetting the Tanker cost growth. Total revenue and BCA delivery guidance were unchanged. 2017's implied FCF guidance was increased to $10.5B from $10.25B, helped by a $200MM reduction in planned R&D.

Estimates. We raised 2017E EPS to $10.15 from $9.95 following Q3's $0.17 upside. We raised 2018E EPS to $11.35 from $10.55, largely for BCA margin improvement (including the non-recurrence of Tanker charges). We introduced 2019E EPS of $11.35.

Slow BGS Growth. For the high expectation that Q3 would finally see the Services business broken out, we were surprised to see that on a YTD basis BGS revenues were up only 1% and the Q3 BGS margin of 14.2% was well below the 15.0%-15.4% margin guidance for the year.

Price Target Basis & Risks We believe BA could trade at $270 based on a 7.0% 2018E FCF yield. Risks include weak orders/production cuts, delays/cost overruns on new programs, and supply chain disruptions.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/BA101617-081808.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/POL102517-092913.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/BA101617-081808.pdf



Industry Industrial M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Trinity Industries, Inc.(TRN) Poliniak-Cusic $33.87 DEC. $1.25 $1.20 2 $5,114.4 Last Reporting Date: 10/25/17 After Close TRN: FY17 Guidance Raised, But Not Based On Improving Fundamentals Q3 EPS Tops Estimates Primarily Due To Lease Fleet Sales. After the close (10/25), TRN reported Q3 EPS of $0.43, well above

our $0.33 estimate and the Street's $0.32. For 2017, TRN now expects EPS to fall in the range of $1.41-1.51, above its prior outlook provided in July of $1.10-1.30; we are at $1.25 as is consensus. While optically the raised guidance is positive, we note that it is being driven by 1) increased sales out of its lease fleet (now expected to be $425-475MM, up from $300-350MM) and 2) compensation for an order cancellation ($0.07/share Q4 benefit). Base fundamentals for TRN's Rail and Barge manufacturing businesses remain under pressure, reflecting the challenging industry environment. These fundamentals are reflected in the company's initial 2018 guidance, which estimates earnings in the range of $0.90-1.25; we are at $1.20 and the Street is at $1.33. We remain on the sidelines given the ongoing pricing and operating challenges that TRN could face heading into 2018. We expect to gain greater clarity on the call scheduled for tomorrow (10/26) at 11am EST, accessible at trin.net.

Backlog Cancellations And Lower Pricing Give Us Pause. Given the industry data released yesterday (10/24), a muted level of orders was likely anticipated for TRN. TRN received orders for 3,045 new railcars, below our 3,941 estimate, but 35% of industry demand and in line with what we view to be the company's historical share. TRN called out an additional order termination of 650 railcars (1,140 ytd), raising the question once again of the stability of backlog. TRN's Rail backlog now stands at 25,555 units ($2.4B), down 7.3% sequentially from the 27,580 units ($2.7B) at the end of Q2, accounting for 39.8% of industry backlog. Average price per railcar in the backlog took another step down ($93,915 in Q3 vs. $97,897 in Q2).

2018 Deliveries Expected To Accelerate. TRN delivered 4,420 railcars, marking a 33.0% decline from the prior year. Q3 deliveries came in below our 5,000 estimate, and implied an average delivery price of $111K per railcar, which was down 3.0% sequentially (likely mix related). When TRN last reported in July, management estimated it would deliver 18,000 railcars for the full-year (vs. 12,245 ytd), or roughly a 34% production cut relative to 2016. No update was given in the release for 2017, but management expects to deliver 20,000 railcars in 2018 (65% in backlog at the end of Q3). For reference, our 2017 estimate assumes 18,025 deliveries and 15,500 in 2018.

Margin Execution Remained (Mostly) Solid In The Face Of Notable Top-Line Challenges. Relative to our 15.2% operating margin estimate, actual results were slightly better at 15.7%. Rail group margin of 10.3% (vs. 7.9% Q2 2017) came in ahead of our 9.0% estimate. The loss in Barge was less than our estimate as well. Given the latest batch of asset sales, Leasing was the primary driver of the $20MM operating profit ''beat'' relative to our expectations.

Price Target Basis & Risks Our $28 price target is implied by 9x our 2018 EV/EBITDA estimate. Risks to our target include (1) a quicker-than-expected fall-off in the freight railcar market, (2) delivery deferrals & delays, and (3) pricing pressure.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/TRN102517-165206.pdf

Industry Media & Telecommunications Analyst Media & Cable Ryvicker Cable And Broadcast Ratings (C3) In this report, we provide a snapshot of C3 (Commercial+3 Days) sequential & y/y trends for all major nets (broadcast & cable), as well

as a comparison to the Live+SD (Same Day) data in corresponding time periods (C3 ratings are released on a 2-week lag to the Live+SD ratings). We remind you that our numbers take into acct each net's specific target demo. We provide a summary of target demos and dayparts for each co.'s nets on page 2-4, as well as a similar breakdown on Total Day Total Household (TDTH) viewership on pg 5-6. THE BEST TREND OVERALL WERE DIS AND TWX; WORST WERE AMCX and VIAB.

Broadcast C3 ratings: Looking at primetime households across the big-4 nets, FOX (+15%) had the largest seq. rise, while ABC had the largest seq. drop (-6%). On the other hand, CBS had the best y/y trend (+3%), while FOX had the largest y/y decline (-17%).

Cable C3 Ratings: Looking at each net.'s target demo, FS1 had the largest seq. and y/y improvement, w/ +430% and +455%, resp., due to the MLB playoffs. On the other hand, ESPN (-22%) had the largest seq. decline, while AMC (-39%) had the largest y/y drop. We saw the highest C3/Clive sequential growth from FX (+29%), and the lowest growth from WGNA (+5%).

Broadcast Live+SD v. C3 trends for week 2: Total big-4 broadcast Live+SD was 19.1MM (-6% y/y, -1% wk/wk), while C3 came in at 19.6MM (-8% y/y, -3% wk/wk). This is +3% for time-shifted viewing.

Cable Live+SD v. C3 trends for week 2: In cable, Live+SD viewing came in at 7.4MM (+3% y/y, +11% wk/wk), while C3 came in at 6.9MM (-1% y/y, -1% wk/wk). This is -7% for time-shifted viewing.

AMCX: -37% y/y (-8% wk/wk), w/ AMC -39% (-5%), WETV -22% (-29%), & BBC America -29% (+18%) in their respective target demo.

CMCSA (NBCU): is -15% y/y (-5% wk/wk), with USA -16% (-7%), SyFy -18% (+9%), Bravo -4% (+5%), and MSNBC -1% (-10%). DIS: is +41% y/y (-22% wk/wk), with ESPN +44% (-22%), Freeform -12% (+11%), and ESPN2 -8% (-35%). DISCA: -4% y/y (-2% wk/wk), w/ Discovery -1% (-2%), TLC +12% (+1%), Invest. Discovery -11% (-4%), & Animal Planet -22%

(+3%). FOXA: -5% y/y (+19% wk/wk) w/ Fox News +29% (+18%), FX -33% (+8%), Nat Geo -31% (-11%), & FS1 +455% (+430%). SNI: is -4% y/y (0% wk/wk), with HGTV -20% (-2%), Food Network +25% (+1%), and Travel Channel -8% (-6%). TRCO/WGNA: is +12% y/y (+12% wk/wk). TWX: is +16% y/y (+31% wk/wk), w/ CNN +18% (+26%), TNT +15% (+23%), TBS +30% (+47%), & Cartoon Network -29% (-5%). VIAB: is -16% y/y (-8% wk/wk), with Nickelodeon -13% (-5%), MTV -12% (-29%), and Comedy Central -29% (+18%).

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/BRDCAB102517-153240.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/TRN102517-165206.pdf




Industry Media & Telecommunications Analyst Media & Cable Ryvicker Cable And Broadcast Ratings (L+SD) This report provides a user-friendly snapshot of Live+SD (Same Day) cable & broadcast ratings, where we analyze seq. and y/y trends

for all major nets last week. We remind you that viewership & growth rates below take into account each net's specific target demo. We provide a summary of target demos and dayparts for each co.'s nets on p. 2-4, & a similar breakdown on Total Day Total Household (TDTH) viewership on p. 5-6. Recall C3 ratings for the comparable wk are released 11/8. STANDOUTS: AMCX & TWX outperformed in this sports-dominated wk.

WALKING DEAD, MLB PLAYOFFS AND NFL TOOK THE TOP 5 SPOTS IN CABLE. Despite all the noise about AMC's Walking Dead being down 33% from last yr.'s debut, the point we have been hitting home (and did so in our 10/10 initiation) is that it is still the NO. 1 SHOW w/ 11.4MM viewers - even above and beyond sports, which did dominate the rest of the week: FS1's ALCS - Yankees/Astros Gm 7 w/ 9.9MM, ESPN's Monday Night Football - Colts/Titans w/ 8.4MM, FS1's ALCS - Yankees/Astros Gm 6 w/ 8.2MM, & TBS's NLCS - Dodgers/Cubs Gm 4 w/ 6.8MM). Through all the MLB playoff games heading into the World Series, total viewership averaged 4.8MM per game, which is up 13% from last yr's 4.2MM.

NFL AND CBS LED IN BROADCAST. NBC's Sunday Night Football - Falcons/Patriots with hot Tom Brady took the top spot with 19.2MM, up 9% y/y. CBS grabbed the rest of the top broadcast slate, with 60 Minutes (14.6MM), Thursday Night Football - Chiefs/Raiders (14.4MM & flat y/y), Big Bang Theory (13.1MM), and NCIS (12.8MM).

AMC HAD THE BEST TRENDS IN CABLE. When looking at the largest ad-weighted cable nets in their target demos, AMC saw the largest seq. & y/y rise (+213% & +130%, resp) due to the premiere of Walking Dead, which debuted a week earlier this yr vs. last. TBS saw the largest seq. decline (-20%); CNN saw the largest y/y drop (-36%).

Big-4 Broadcast Nets. Ratings: When looking at PT total HHs across the big-4 nets, CBS took the top spot; FOX trailed behind. Seq & y/y ratings trends: ABC (+3% wk/wk; -14% y/y), CBS (-1%; -3%), NBC (+1%; +3%), & FOX (-7%; -43%).

AMCX: +107% y/y (+175% wk/wk), w/ AMC +130% (+213%), WETV -23% (-9%), & BBC America -16% (-6%) in their respective target demo.

CMCSA: -19% y/y (-14% wk/wk), w/ USA -19% (-17%), SyFy -11% (-10%), Bravo -7% (-2%), & MSNBC -12% (+1%). DIS: is +9% y/y (-14% wk/wk), with ESPN +11% (-13%), Freeform +1% (+6%), and ESPN2 -36% (-61%). DISCA: -9% y/y (-4% wk/wk), w/ Discovery -15% (-6%), TLC +3% (+1%), Invest. Discovery -3% (-4%) & Animal Planet -10% (-4%). FOXA: -5% y/y (+2% wk/wk) w/ Fox News -7% (-11%), FX -1% (-4%), Nat Geo -33% (+3%), & FS1 -1% (+27%). SNI: is -11% y/y (-4% wk/wk), with HGTV -13% (-4%), Food Network -7% (-5%), and Travel Channel -4% (-2%).


Industry Media & Telecommunications M. Cap Analyst Price FY FY17E FY18E Rating (MM$) QTS Realty Trust, Inc.(QTS) Luebchow $57.48 DEC. $2.68 $3.00 1 $3,316.6 Last Reporting Date: 10/24/17 After Close QTS: Making Splash In Key Strategic Markets In Strong Q3 QTS posted promising Q3 results, with financial metrics relatively in line but quarterly net leasing up 40% over the PQ4 average. QTS

leased $15.3MM in net annualized rent in Q3, driven in part by ~150% growth in leasing velocity in its C1 ''wholesale'' business. This strength in C1 dovetails nicely with 3 key land acquisitions announced during the call - Ashburn (VA), Phoenix and Hillsboro (OR). QTS now has access to a potential of 140 MW and 700k sq. ft of raised floor in Ashburn, the top data center market in the country - with a 4 MW phase planned to open in mid-2018. The entries into these key strategic markets will be particularly attractive for attracting new hyperscale cloud wholesale demand in addition to its core enterprise customers. We are slightly trimming our OFFO and AFFO/share numbers as revenue contributions from these new markets should largely be 2019 and beyond, while 2018 capex could be slightly higher than we previously anticipated (~$425MM in our model). But we think these land expansions give QTS a significantly better competitive position to compete for hyperscale cloud demand and should drive more attractive long-term growth in the business. We are raising our price target to $62.50 (from $59 prior). Our new FY2017E revenue and AFFO/sh. are $446.6MM and $2.68 (vs. $447.8MM and $2.73 prior) and our FY2018E are $509.9MM and $3.00 (vs. $519.3MM and $3.12 prior).

Q3 RESULTS - QTS reported total revenue and Adjusted EBITDA of $113.8MM and $52.9MM (vs. our $113.2MM and $53.0MM). OFFO/share and AFFO/share were $0.70 and $0.65 (vs. our $0.70 and $0.69). Total rental revenue was $85.8MM, up 11.5% yr/yr, ahead of our $84.7MM, while cloud/managed services revenue was $16.2MM. QTS leased $15.3MM in net annualized rent, up 40.1% vs. PQ4 average. Total capex was $139.1MM. Booked-not-billed backlog increased to $56.6MM from $39.7MM in Q2.

LAND PURCHASES AND LEASE BUYOUT COMPLETED - Since Q2, QTS purchased 52 acres of land in Ashburn, Virginia and has commenced development on the first 24 acre parcel. QTS is to deliver 4 MW in its first phase by mid-2018, which is already ~55% pre-leased to an insurance provider anchor tenant. Since the end of Q2, QTS also purchased 84 acres of land in Phoenix for $25MM and 92 acres in Hillsboro, Oregon for $26MM. Finally, in October QTS bought out the lease on its Vault Campus in Dulles, Virginia for $32MM. QTS can typically greenfield build for ~$8-9MM/MW and likely deliver facilities in Phoenix and Hillsboro in about 12 months.

UPDATED FY2017 GUIDANCE - QTS reiterated its guidance for revenue growth, Adjusted EBITDA and Operating FFO. Operating FFO/share guidance increased to $2.68-2.80 (from $2.66-2.78), due to a higher non-cash tax benefit ($6.5MM vs. $4MM) and capital efficiencies.

Price Target Basis & Risks We value QTS at 19.8x 2018E EV/EBITDA. Risks include renewal and re-leasing risks, concentration of customers and data center assets and price competition from larger-scaled peers.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/QTS102517-132331.pdf


https://www.wellsfargoresearch.com/Research%20Publications/2017/October/QTS102517-132331.pdf



Industry Media & Telecommunications M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Sprint Corporation(S) Fritzsche $7.10 MAR. ($0.03) ($0.05) 1/V $21,278.7 Last Reporting Date: 10/25/17 Before Open S: Solid FQ2'17; Eyes Remain Fixed On TMUS Merger Speculation Solid FQ2 2017 report as revenue was light of expectations but was more than made up for by strong gross add growth and cost

reductions. S's ability to generate gross adds was on full display in FQ2, as net adds beat across the board despite an uptick in churn. We note S's 10% y/y growth in gross adds was better than any of the other 3 carriers (some of who saw decline yoy). In our view, S is well positioned to capture its share of gross adds in the upcoming iPhone refresh (both iPhone 8 and iPhone X). Further, the momentum gained with S's cost takeout initiatives, and target to take more out in 2HFY17, should provide further tailwinds at the margin. While S's fundamentals are going in a positive direction it seems all attention is focused on the (daily) headlines regarding a possible merger with TMUS (as reported by CNBC, both companies have commented about the possibility). The stock seems to be trading on this speculation more than anything. We note both S and TMUS have cancelled from our Media Telecom conference on 11/7 and 11/8 (disappointing but not overly surprising given neither had a September quarter earnings call).

FQ2 2017 RESULTS: S reported FQ2 total revenue and Adjusted EBITDA of $7.93B and $2.73B vs. our estimates of $7.98B and $2.71B. Wireless revenue and EBITDA were $7.61B and $2.76B vs. our $7.70B and $2.74B. Wireless service revenue was $5.65B (vs. our $5.70B) and equipment revenue was $1.96B (vs. our $2.0B). Lighter service revenue was driven by lower ARPUs, as the customer metrics beat across the board. Postpay ARPU was $46.00 vs. our $46.75 (Street consensus: $46.89), and prepay was $37.83 vs. our $37.99 (Street consensus: $38.28). S added 168K postpay net adds (vs. our 109K est. and Street 153K), and 279K postpay phone adds (vs. our 225K and Street 227K). The company also added 95K prepay net adds (vs. our 50K and Street 77K). Churn did tick up in FQ2, as postpay churn was 1.72% was up from 1.65% in FQ1 and 1.52% y/y, and prepay churn of 4.83% was up from 4.57% in FQ1 but down from 5.63% y/y. FQ2 capex was $1.3B (vs. our $1.4B) and Adjusted FCF was $420MM (vs. our -$174MM est.).

COST TAKEOUT INITIATIVES CONTINUE MOMENTUM IMPROVING MARGINS: S took another $400MM of cost reductions out of cost of services and S&A in FQ2. YTD the company has taken +$750MM of costs out, and continues to target $1.3-1.5B in FY2017.

REITERATED FY2017 GUIDE; IMPROVED ADJ FCF OUTLOOK: Adjusted EBITDA of $10.8-11.2B, operating income of $2.1-2.5B, cash capex (ex device leasing) of $3.5-4.0B. S also increased its Adj FCF outlook to be breakeven vs. down y/y in FY207. Importantly this was the FIRST time in recent memory when S offered guidance on FCF. A positive change which few seemed to notice.

Price Target Basis & Risks Our price target is based on 6.9x FY2017E EV/Adjusted EBITDA. The primary risks to our Sprint thesis include increased pricing pressure and churn due to slowing growth in the wireless business, the rapid decline in wireline voice revenue, and its LTE network build.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/S102517-101334.pdf

Industry Real Estate, Gaming, And Lodging M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Realty Income Corporation(O) Stender $54.47 DEC. $3.04 $3.16 1 $14,881.2 Last Reporting Date: 10/25/17 After Close O: First Look - Q3 FFO In Line With Our Estimate Q3 In-Line. O posted Q3 FFO of $0.77/share, which was in line with our estimate and consensus. Lower interest expense and lower

G&A were offset by higher property operating costs than our model had called for. Management's 2017 acquisition volume guidance remained unchanged at $1.5B as did AFFO expectations ($3.03-3.07/shr); our estimate is $3.06/shr. However, disposition guidance edged higher (details herein).

Successful Releasing Activity In Q3 Continues Solid Trend. O signed 79 lease renewals in Q3, with the vast majority of those (73) going to existing tenants and 6 going to new tenants. Overall, the recapture rental rate for lease renewals was a solid 104% in the quarter, which was down from 113% in Q2 though in line with other recent quarters (Q1: 104%, Q417 and Q317: 105%). Q3 occupancy was down a modest 20bps to 98.3% and same-store rents increased 1.0%, illustrating the fairly steady revenue structure of O's predictable business model.

Sources and Uses of Capital. During Q3, O invested in 56 retail properties across 16 states for $265MM; only 10% of investments consisted of investment grade (I/G) tenants, which is below the levels that we have gotten used to as of late: 33% in Q2 and 68% in Q1; however, O's overall portfolio mix of I/G tenants remained unchanged at 46%. Q3 acquisitions were done at an average 7.0% cap rate (7.1% on acquisitions / 6.4% on development projects), which was 40bps higher than that of the average Q2 rate and 90bps above the Q1 rate. We point to the addition of 7 AMC Theatres added in Q3; AMC carries a below I/G rating, which likely was sold to O at an attractive cap rate at or around the quarterly average. We hope to hear further details on the Q3 earnings conference call (dial-in details below). YTD acquisitions total $941MM, so a healthy $560MM of deal flow is implied in Q4 with full-year guidance at $1.5B. The primary source of capital during the quarter was the issuance of over 7MM shares thru the at-the-market (ATM) program at an average $57.53/shr for $444MM. We note that this volume is the highest we have seen the company issue and about the amount of an overnight offering, though recognize the ease and (lower) cost of ATM issuances vs overnights. Also, O sold 17 properties for $26MM of proceeds. Mgmt raised disposition guidance from $75-100MM to $125-175MM for '17, implying another $56-106MM more to sell in Q4. At quarter end, the company had a $658MM outstanding balance on its $2.0B line of credit.

Conference Call Details. Thursday, October 26 at 2:30pm ET. Dial-in: 888-352-6803; Passcode: 7635084. Price Target Basis & Risks

Our price target represents the result of our dividend discount model derived valuation, which assumes 3-5% annual growth over the next several years. Risks include material tenant bankruptcies and lease defaults, an inability to acquire assets at yields that exceed Realty Income's cost of capital, and increasing competition for net leased portfolios.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/O102517-112931.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/S102517-101334.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/O102517-112931.pdf



Industry Technology & Services M. Cap Analyst Price FY FY18E FY19E Rating (MM$) CA, Inc.(CA) Winslow $34.13 MAR. $2.44 $2.52 3/V $14,334.6 Last Reporting Date: 10/25/17 CA: First Look At Earnings Conference Call: Today, 5:00 P.M. ET (877-561-2748) Summary of Results: CA reported fiscal Q2 results of EPS of $0.62 and $1.034 billion in revenue versus consensus expectations of EPS of $0.62 and $1.053

billion in revenue (our estimates of $0.61 in EPS and $1.039 billion in revenue). Subscription and support revenue was $826.0 million (0.2% year-over-year) versus consensus estimates of $830.5 million (our estimate

of $838.1 million). Professional services revenue was $75.0 million (0.0% year-over-year) versus consensus estimates of $76.4 million (our estimate of

$79.1 million). Gross margin was 86.0% versus consensus estimates of 85.5% (our estimate of 85.7%). The company reported operating margin of 37.9% versus consensus expectations of 36.5% (our estimate of 36.6%). Operating cash flow equaled $37.0 million versus consensus of $13.8 million. Deferred revenue equaled $2.617 billion versus consensus of $2.587 billion (our estimate of $2.521 billion). Billings equaled $0.746 billion versus consensus of $0.756 billion (our estimate of $0.677 billion). Bookings equaled $0.720 billion versus consensus of $0.736 billion (our estimate of $0.761 billion).

Price Target Basis & Risks Our price target of $27.50 is based on an NTM PE multiple of 11.2 as well as an NTM EV/UFCF multiple of 17.8. CA's business is susceptible to adverse changes in global economic and political conditions. Additionally, the sudden loss or departure of CA's executive officers could negatively impact the business.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/CA102517-163831.pdf

Industry Technology & Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Citrix Systems, Inc.(CTXS) Winslow $82.43 DEC. $4.60 $5.52 1/V $13,040.4 Last Reporting Date: 10/25/17 CTXS: First Look At Earnings Conference Call: Today, 4:45 P.M. ET (+1-888-799-0519, passcode: CITRIX)Summary of Results: Citrix Systems reported Q3 results of EPS of $1.22 and $691 million in revenue versus consensus of EPS of $1.04 and $692 million in

revenue (our estimates of $1.04 in EPS and $692 million in revenue). The company reported license revenue of $192 million (-6.8% year-over-year) versus consensus of $202 million (our estimate of $193

million). License updates equaled $421 million versus consensus of $415 million (our estimate of $430 million). Software as a service equaled $46 million versus consensus of $44 million (our estimate of $42 million). Professional services equaled $32 million versus consensus of $31 million (our estimate of $27 million). Gross margin was 87.4% versus consensus of 87.1% (our estimate of 87.4%). The company reported operating margin of 31.6% versus consensus of 29.0% (our estimate of 28.8%). Deferred revenue equaled $1.679 billion versus consensus of $1.706 billion (our estimate of $1.719 billion).

Price Target Basis & Risks Our price target of $95 is based on an EV/NTM UFCF multiple of 12.1. Citrix's business is susceptible to adverse changes in global economic and political conditions. Additionally, the sudden loss or departure of Citrix's executive officers could negatively impact the business.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/CTXS102517-163748.pdf


https://www.wellsfargoresearch.com/Research%20Publications/2017/October/CTXS102517-163748.pdf



Industry Technology & Services Government Services M. Cap Analyst Price FY FY18E FY19E Rating (MM$) CACI International Inc.(CACI) Caso $145.25 JUN. $6.82 $7.40 1 $5,597.8 ManTech International Corporation(MANT) Caso $46.34 DEC. $1.54 $1.65 2 $3,544.1 Leidos Holdings, Inc.(LDOS) Caso $62.91 DEC. $3.55 $3.62 1 $5,210.8 ICF International, Inc.(ICFI) Caso $54.35 DEC. $3.01 $3.22 2 $1,043.5 Booz Allen Hamilton Holding Corporation(BAH) Caso $37.65 MAR. $1.92 $2.01 1 $9,436.5 Science Applications International Corp.(SAIC) Caso $73.00 JAN. $3.61 $4.00 1 $1,784.1 CSRA, Inc.(CSRA) Caso $31.89 MAR. $1.95 $2.12 1/V $3,212.0 Gov't Services: GD IT 3Q17 Read-Through Government Services: Prime Read-Through: General Dynamics (GD) Information Systems and Technology (IS&T) CQ3 Revenue Down

8%, But Big Q4 Expected to Drive Flat Year; Strong Backlog Bodes Well For the Future. GD IS&T revenue of $2,154 million declined 8% yr/yr while higher segment margin of 11.7% (+140bps yr/yr) drove operating profit growth of +3%. The top-line declines in IS&T continue a trend through the first nine-months of 2017 that has seen IS&T revenue shrink 7% yr/yr. That said, revenue growth improved $50 million sequentially. Similar to last quarter, management called out delays in Army procurement following the six-month continuing resolution to start the year, along with slow execution in several civilian agencies resulting from unfilled government appointments. Our View: Additional data point suggesting 1) even stronger than normal September quarter book-to-bills, and 2) government services revenues are poised for 'modest' growth.Strong Q4 Outlook. Given the combination of rising IS&T backlog, and the expected catch-up of delayed contracts, management expressed confidence that IS&T would post a strong Q4 resulting in roughly flat 2017 segment revenue growth. This implies Q4 IS&T sales around $2.7B (or +25% sequential growth). (We note that GD services are not directly comparable given platform support and product inclusion). GD IT&S Reported Book-to-Bill 1.3x. GDs IS&T quarterly book-to-bill came in at 1.3x (vs 0.8x in CQ3 2016 and 1.1x in 2015). Segment backlog increased $628 million sequentially and +3% yr/yr. Similar to other government service providers, IS&T's booked significantly higher unfunded backlog (+17% yr/yr) relative to growth in funded backlog (-1% yr/yr).

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/ITSERV102517-112858.pdf

Industry Technology & Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) ServiceNow Inc.(NOW) Winslow $124.62 DEC. $1.19 $2.22 2/V $21,883.3 Last Reporting Date: 10/25/17 NOW: First Look At Earnings Conference Call: Today, 5:00 P.M. ET (844-464-3153; Passcode: 91890596) Summary of Results: ServiceNow reported fiscal Q3 results of EPS of $0.38 and $498.2 million in revenue versus consensus expectations of EPS of $0.32 and

$491.6 million in revenue (our estimates of $0.32 in EPS and $493.1 million in revenue). Subscription revenue was $455.4 million versus consensus estimates of $444.9 million (our estimate of $446.3 million). Professional services and other revenue was $42.7 million versus consensus estimates of $46.7 million (our estimate of $46.7 million). Gross margin was 78.4% versus consensus estimates of 77.0% (our estimate of 77.6%). The company reported operating margin of 19.7% versus consensus expectations of 17.2% (our estimate of 17.0%). Deferred revenue equaled $1124.6 million versus consensus estimates of $1119.3 million (our estimate of $1112.8 million). Billings equaled $546.1 million versus consensus estimates of $544.1 million (our estimate of $544.0 million).

Price Target Basis & Risks Our price target is based on an EV/NTM UFCF multiple of 32.2 and an EV/LTM Recurring Revenue multiple of 9.2. ServiceNow's business is susceptible to adverse changes in global macro trends and events. Additionally, the sudden loss or departure of its executive officers could negatively impact the business.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/NOW102517-163249.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/ITSERV102517-112858.pdf



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10/26/17 05:16:36 ET . Page 1

Price Target Change Price Target Company Price M.Cap

(MMs) From To Title Rating Analyst

Buffalo Wild Wings, Inc.(BWLD) $101.15 $1,921.9 $100 $110 BWLD: In-Line SSS & EPS Upside Driven Largely By 1xers Keep Us On Sideline

2 Farmer/Consumer

Mattel, Inc.(MAT) $15.45 $5,300.9 $24 $20 MAT: Sentiment Very Negative. Turnaround Details And TRU Update Needed

1 Conder/Consumer

NIKE, Inc.(NKE) $54.94 $92,128.9 $52 $56 NKE: Analyst Day Recap; Doing The Right Things, But Still Have Work To Do

2 Nikic/Consumer

Hess Corporation(HES) $42.21 $13,418.6 $56 $55 HES: Streamlining, Optimizing And Improving; Adj Ests Post-Q3

1/V Read/Energy

C.R. Bard, Inc.(BCR) $328.03 $25,028.7 $315 $330 BCR: Solid Q3 - Hurricane & Supply Issue Are Short-Term Disruptions


General Dynamics Corp.(GD) $207.25 $63,273.4 $220 $225 GD: Q3 Margins Make Up For Revenue Decline

1 Pearlstein/Industrial

Northrop Grumman(NOC) $304.75 $57,689.2 $275 $310 NOC: Strong Q3 Pension Outlook Improves

2 Pearlstein/Industrial

Digital Realty Trust, Inc.(DLR) $122.98 $26,305.4 $118 $122 DLR: Hot Ashburn Market Drives Accelerated Leasing In Q3


On Assignment, Inc.(ASGN) $56.09 $2,984.0 $53 $62 ASGN: Q3 Results And Q4 Guide Both Better

1 Caso/Technology & Services

Earnings Estimate Revised Up FY2017 FY2018 Company Price M.Cap

(MMs) Rating Old New Old New Price


Buffalo Wild Wings, Inc.(BWLD) $101.15 $1,921.9 2 $4.42 $4.95 $5.02 $5.10 110 Farmer/Consumer Hess Corporation(HES) $42.21 $13,418.6 1/V ($4.95) ($4.66) ($3.44) ($3.84) 55 Read/Energy Legg Mason, Inc.(LM) $37.70 $3,479.7 1 NE NE $2.74 $2.89 45 Harris/Financial Services Amgen, Inc.(AMGN) $177.50 $130,108.0 2 $12.59 $12.70 $12.77 NC 179 Birchenough/Health Care C.R. Bard, Inc.(BCR) $328.03 $25,028.7 2 $11.88 $11.90 $13.08 NC 330 Biegelsen/Health Care Merit Medical Systems, Inc.(MMSI) $41.70 $2,151.7 1/V $1.25 $1.28 $1.41 $1.44 46 Biegelsen/Health Care General Dynamics Corp.(GD) $207.25 $63,273.4 1 $9.75 $9.80 $10.70 NC 225 Pearlstein/Industrial Ingersoll-Rand Plc(IR) $91.32 $23,441.8 1 $4.49 $4.50 $5.05 $5.10 102 Kwas/Industrial Northrop Grumman(NOC) $304.75 $57,689.2 2 $12.35 $13.10 $13.40 $13.50 310 Pearlstein/Industrial Digital Realty Trust, Inc.(DLR) $122.98 $26,305.4 2 $5.52 $5.55 $6.09 $6.12 122 Fritzsche/Media &

Telecommunications GrubHub, Inc.(GRUB) $57.79 $5,114.4 2/V $1.04 $1.12 $1.43 $1.38 58 Stabler/Technology &

Services On Assignment, Inc.(ASGN) $56.09 $2,984.0 1 $2.85 $2.99 $3.10 $3.20 62 Caso/Technology &

Services Xilinx Inc.(XLNX) $70.72 $18,896.4 2 NE NE $2.52 $2.58 66 Wong/Technology &

Services Earnings Estimate Revised Down

FY2017 FY2018

Company Price M.Cap (MMs)


Analyst /Industry

Mattel, Inc.(MAT) $15.45 $5,300.9 1 $0.71 $0.53 $0.89 $0.77 20 Conder/Consumer Hess Corporation(HES) $42.21 $13,418.6 1/V ($4.95) ($4.66) ($3.44) ($3.84) 55 Read/Energy UMB Financial Corporation(UMBF) $73.07 $3,617.0 2/V $3.58 $3.56 $4.00 $3.80 71 Shaw/Financial Services GrubHub, Inc.(GRUB) $57.79 $5,114.4 2/V $1.04 $1.12 $1.43 $1.38 58 Stabler/Technology &

Services ServiceNow Inc.(NOW) $124.62 $21,883.3 2/V $1.19 $1.14 $2.22 $1.75 115 Winslow/Technology &

Services


October 26, 2017


Page 2




Buffalo Wild Wings, Inc.(BWLD) $101.15 $1,921.9 2 BWLD: In-Line SSS & EPS Upside Driven Largely By 1xers Keep Us On Sideline

110 Farmer/Consumer

Mattel, Inc.(MAT) $15.45 $5,300.9 1 MAT: Sentiment Very Negative. Turnaround Details And TRU Update Needed

20 Conder/Consumer

NIKE, Inc.(NKE) $54.94 $92,128.9 2 NKE: Analyst Day Recap; Doing The Right Things, But Still Have Work To Do

56 Nikic/Consumer

The Coca-Cola Company(KO) $46.05 $198,936.0

2 KO: A Solid Q3 With Optimism For the Future 45 Herzog/Consumer

Hess Corporation(HES) $42.21 $13,418.6 1/V HES: Streamlining, Optimizing And Improving; Adj Ests Post-Q3

55 Read/Energy

AFLAC Inc.(AFL) $84.07 $34,435.1 2 AFL: Beats On Reserve Release, Tax 82 Dargan/Financial Services

Arch Capital Group Ltd.(ACGL) $102.11 $13,927.8 2 ACGL: Q3 Misses--Cats Within Guided Range 100 Greenspan/Financial Services

Axis Capital Holdings Limited(AXS) $56.34 $4,685.1 3 AXS: Q3 Just Misses Our Estimate--Cat Losses In-Line With Preannouncement

54 Greenspan/Financial Services

Legg Mason, Inc.(LM) $37.70 $3,479.7 1 LM: F2Q EPS Beats, Strong Performance Fees--F3Q And FY'18 EPS Estimates Up

45 Harris/Financial Services

UMB Financial Corporation(UMBF) $73.07 $3,617.0 2/V UMBF: Modest Qtr As Lower Tax Rate Drives Penny Beat, 4Q Pipeline Solid

71 Shaw/Financial Services

Allergan plc(AGN) $180.34 $64,327.3 1 AGN: 3Q17 Preview - Can AGN Regain Control Of The Narrative?

258 Maris/Health Care

Amgen, Inc.(AMGN) $177.50 $130,108.0

2 AMGN: 3Q17 Trends Disappointing, Growth Strategy Not Emerging

179 Birchenough/Health Care

C.R. Bard, Inc.(BCR) $328.03 $25,028.7 2 BCR: Solid Q3 - Hurricane & Supply Issue Are Short-Term Disruptions


Merit Medical Systems, Inc.(MMSI) $41.70 $2,151.7 1/V MMSI: Q3 Sales Miss; Guidance Implies Q4 Acceleration


General Dynamics Corp.(GD) $207.25 $63,273.4 1 GD: Q3 Margins Make Up For Revenue Decline 225 Pearlstein/Industrial Ingersoll-Rand Plc(IR) $91.32 $23,441.8 1 IR: Op Leverage Should Improve In '18-Maintain

Outperform 102 Kwas/Industrial

Northrop Grumman(NOC) $304.75 $57,689.2 2 NOC: Strong Q3 Pension Outlook Improves 310 Pearlstein/Industrial Packaging Corporation of America(PKG)

$118.16 $11,083.4 2 PKG: Solid Q3 Performance; Q4 Outlook Below Expectations

114 Manuel/Industrial

Digital Realty Trust, Inc.(DLR) $122.98 $26,305.4 2 DLR: Hot Ashburn Market Drives Accelerated Leasing In Q3


Hersha Hospitality Trust(HT) $18.32 $822.6 2 HT: Q3 Softer-Than-Expected, October Improving

18 Donnelly/Real Estate, Gaming, And Lodging

Kimco Realty Corporation(KIM) $18.49 $7,869.3 2 KIM: First Look - Shares May Be Pressured On Lower 2017 NOI Outlook

25 Donnelly/Real Estate, Gaming, And Lodging

CoreLogic, Inc.(CLGX) $48.63 $4,187.0 1 CLGX: First Take: Solid Execution Despite Market Headwinds, Buyback Raised

52 Warmington/Technology & Services

GrubHub, Inc.(GRUB) $57.79 $5,114.4 2/V GRUB: Noisy Quarter, Guide As Expected 58 Stabler/Technology & Services

On Assignment, Inc.(ASGN) $56.09 $2,984.0 1 ASGN: Q3 Results And Q4 Guide Both Better 62 Caso/Technology & Services

ServiceNow Inc.(NOW) $124.62 $21,883.3 2/V NOW: Now Gaining Traction In New Products 115 Winslow/Technology & Services

Xilinx Inc.(XLNX) $70.72 $18,896.4 2 XLNX: Earnings - Steady 7% Year/Year Growth 66 Wong/Technology & Services

October 26, 2017


Page 3

Sector Overviews

Sector Subject Companies Title Analyst Marine MLP LNG Terminals Marine GP

Teekay LNG Partners, L.P.(TGP) Cheniere Energy, Inc.(LNG) Golar LNG Partners, LP(GMLP) Golar LNG Ltd.(GLNG) GasLog Ltd.(GLOG) GasLog Partners LP(GLOP) Dynagas LNG Partners LP(DLNG) Cheniere Energy Partners LP(CQP)

Wells Fargo LNG Weekly Webber

Wireless Towers

American Tower REIT, Inc.(AMT) Crown Castle International Corp.(CCI) SBA Communications Corp.(SBAC)

AGL Dallas - Tower Conference Take-Aways Fritzsche

Transaction and Business Services

Quick Thoughts From Money 2020 Willi

Page 4

Industry Consumer M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Buffalo Wild Wings, Inc.(BWLD) Farmer $101.15 DEC. $4.95 $5.10 2 $1,921.9 Last Reporting Date: 10/25/17 After Close BWLD: In-Line SSS & EPS Upside Driven Largely By 1xers Keep Us On Sideline While expectations were low heading into earnings, BWLD delivered in-line SSS and EPS upside driven largely by 1-time benefits,

leaving us to remain lukewarm on the shares with the company facing continuing cost pressures and sluggish sales. BWLD reported 3Q17 EPS of $1.36 (+10% yr/yr), well above the $0.82 Street estimate. The primary drivers of 3Q17 EPS upside vs. the Street and increase in 2017 EPS guidance to $4.85-$5.15 (from $4.50-$5.00) were: (1) recognition of $2.9MM in deferred revenue ($0.15 per share), as the company established an initial breakage estimate for the Blazin' Rewards loyalty program and (2) $2.4MM in labor cost favorability ($0.12 per share) related to an out of period benefit adjustment. Raising 2017E to $4.95 from $4.42 and 2018E EPS to $5.10 (+3% yr/yr) from $5.02. We note that our $5.10 2018E is +15% yr/yr when controlling for the $0.35 extra week benefit and $0.27 of non-recurring EPS benefits in 3Q17. Raising our Price Target to $110 (equates to 8x 2018E EBITDA) from $100.

SSS generally met low 3Q expectations and the outlook for 4Q suggests more of the same malaise for sales. BWLD reported 3Q company SSS of -2.3% including +0.9% pricing and mix/traffic of -3.2%. For 4Q17, BWLD is guiding company SSS on par with the 3Q decline despite benefiting from a higher pricing level (+1.7% vs. +0.9%). An approximate 2% 4Q SSS decline implies a -6% 2-year SSS number - the weakest performance over the 16 years of data captured in our model. We find it challenging to see how BWLD drives a material improvement in SSS trends - comfortable with our -0.7% 2018 company SSS estimate.

Fiscal fitness cost savings initiative running ahead of schedule, but we think the ultimate target remains unchanged. In April, management guided to $40-$50MM in net savings divided between our restaurant-level and G&A lines. The company has achieved $15.3MM in costs savings through 3Q17 and expects $8MM in additional savings in 4Q - bringing 2017 fiscal fitness savings to $23.3MM. The G&A savings appear to be coming from ''favorability in salaries from a leaner organization, and reduced travel expenses. Over the past six months, we have taken action to flatten the organization from home office through field leadership, speeding up communication, accountability, and decision making''. We expect the majority of the G&A cost savings efforts to be lapped in 2H18.

Other changes to the 2017 outlook include: 1) lower capex ($80MM vs. $100MM prior), 2) 1 less new company store opening (14 vs. 15 prior), 3) higher wing cost inflation expectations (10-11% vs. 8-10% prior) and 4) lower G&A spend (now $133-$135MM vs. $138-$142MM prior). More details in Exhibit 1.

Price Target Basis & Risks Our $110 price target equates to ~8.0x 2018E EBITDA. The discount to historical levels balances near-term fundamental challenges against potential value-enhancing initiatives, in our view. Risks include (1) continued SSS declines; (2) slow moving cost control progress; and (3) wing price inflation.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/BWLD102517-091554.pdf

Industry Consumer M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Mattel, Inc.(MAT) Conder $15.45 DEC. $0.53 $0.77 1 $5,300.9 Last Reporting Date: 07/27/17 After Close MAT: Sentiment Very Negative. Turnaround Details And TRU Update Needed Investor sentiment is decisively negative ahead of Q317 earnings (post-close 10.26.17) given limited turnaround details and Toys R Us

(TRU) uncertainty. We believe buyside 2017 EPS expectations approximate $0.40-$0.50. Any further clarity on turnaround progress/details, incremental investment cost allocation, and TRU bankruptcy implications could enhance investor confidence to build positions and precipitate short covering (21% of float). Key Q317 earnings call items: (1) TRU impact, (2) UK/Brazil trends, (3) Power brand point-of-sale (POS), (4) Cars 3 2017 revenues, (5) company/channel inventories. What we want to hear: (1) 2017 EPS baseline, (2) cadence/mix of net incremental spend, (3) turnaround timeline/benchmarks, (4) strategy to minimize 2019 Barbie share loss vs. Frozen 2, (5) 2018+ organic/partner content. Lowering ests to reflect Q317 TRU bad debt charge ($0.09), more conservative revenue and increased investment assumptions. We assume NO liquidation of TRU N Amer operations in 2018. Elevated investment in IT, content, and manufacturing will likely constrain earnings near-term. 2017E/18E/19E rev $5.46B/$5.53B/$5.83B (prior $5.60B/$5.65B/ $5.96B), EPS $0.53/$0.77/$1.02 (prior $0.71/$0.89/$1.14). Price target $20 (prior $24) at 19.7x more normalized 2019E.

2017-2019. Primary 2018 benefit to revenue/margins should be the absence of 2017 company/channel inventory reductions and TRU charge. 2017YE inv. and A/R could be even better absent the TRU disruption. Key 2018 revenue drivers include turnaround execution, Justice League carryover, Jurassic World, and a potential Barbie movie. 2019 focus is on minimizing Barbie share loss to Frozen 2, Toy Story 4, and other incremental content and product innovation.

Capex/OpEx Cadence.We now assume $175MM (prior $125MM) net incremental spend. $350MM cumulative gross (guidance high-end) investment allocated 25%/75% Capex/OpEx $63MM in 2017, $152MM in 2018 and the remainder in 2019/2020 (see page 4).

TRU Implications. On 10.24.17, TRU was granted access to the full $3.1B debtor-in-possession financing. We estimate MAT will take a Q317 $41MM or $0.09 EPS bad debt charge based on $135.6MM of pre-petition claims, similar 30.3% write-off as HAS, and 21% tax rate. We continue to believe TRU will likely come through Christmas/holiday 2017, with U.S. asset liquidation risk (currently perceived 25-35%) dependent on TRU minimally achieving US FQ417 comps of down MSD% AND a H118 refinancing of 2019 debt.

Leverage. MAT's recent credit amendment provides for 4.5x max leverage as of Q417 and 4.25x thereafter. Assuming the 4.5x maximum for Q417, would imply minimum 2017 EBITDA of ~$537MM and EPS of ~$0.43. Our estimates reflect 2017YE leverage of 4.2x, 2018YE of 3.4x, and 2019YE of 2.9x.

Price Target Basis & Risks Our price target represents a 26.1x P/E and 12.4x EV/EBITDA multiple to our 2018 EPS and EBITDA ests of $0.77 and $2.03. Price target risks: 1) weaker than expected consumer toy spending, 2) loss of key license relationships, 3) loss of a major customer, 4) significant decline in Barbie, 5) significant input cost inflation, 6) significant strengthening of the US$, and 7) US tax law changes.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/MAT102517-210247.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/BWLD102517-091554.pdf

Page 5

Industry Consumer M. Cap Analyst Price FY FY18E FY19E Rating (MM$) NIKE, Inc.(NKE) Nikic $54.94 MAY $2.30 $2.58 2 $92,128.9 Last Reporting Date: 09/26/17 After Close NKE: Analyst Day Recap; Doing The Right Things, But Still Have Work To Do Our Call. NKE hosted a remarkably upbeat Analyst Day (particularly in light of the some of the marketplace/competitive headwinds), in

which management clearly articulated the companies strategies to drive growth over the next 5 years (medium-term algo largely unchanged at high single digit top-line and mid-teens EPS). We believe the ''Triple Double'' strategy (2x innovation/speed/consumer-direct) makes perfect sense in today's rapidly-evolving marketplace, and we feel the company's track record of growth/execution is unrivaled in the industry. That said, we are not ready to turn positive on the name, as we believe they still need to navigate through several key headwinds: (1) the North American retail environment remains extremely choppy (particularly for athleticwear), presenting risk to the company's plans for mid-single-digit growth domestically, in our view (2) while there's a plethora of new innovation platforms in the pipeline, we're not sure that any of them are as revolutionary as flyknit was when launched 5 years ago (which we believe provided a significant ''halo'' to the brand overall, aiding even non-flyknit product), (3) given the significant size of the business today (nearly $60 billion in sales at retail), it's unclear how much some of the initiatives discussed at the Analyst Day can actually move the needle, (4) the digital environment is a key opportunity for NKE, but it also makes it easier for competitors to gain mind share (less need to fight for shelf space with wholesale partners, easier to do ''grassroots'' marketing, etc.). So, while we came out of the event incrementally positive (and are thus taking our price target to $56 from $52), we remain in ''wait-and-see'' mode for now.

5-Year Targets Largely Unchanged, But This 5-Year Plan Needs to Work Better Than the Last One. Right off the bat, management stated their goal of growing revenues high single digits and EPS mid-teens over the next 5 years (mostly in line with their medium-term goals laid out two years ago). These projections are based on North America growing mid-single-digits, EMEA growing mid-to-high singles, APLA growing high singles to low doubles, Greater China growing low-to-mid teens, as much as 50bps of gross margin expansion, slight SG&A leverage and stock buyback. If the company does attain these goals, we believe it implies $53 billion of revenues by FY23 and roughly $5.00 of EPS, and the stock price would likely see tremendous upside from current levels (a conservative 18x multiple would yield a $90 share price). Where We See Risk: The biggest issue we see is that the 5-year plan that was laid out 2 years ago ($50 billion of revenues by FY20) is falling well short of plan (we believe they are on track for more like $42 billion), so the investment community may view the 5-year targets with skepticism until we see a stabilization of the domestic marketplace (we see the North American growth plan as the biggest risk at this time) and the fundamentals of NKE's business specifically re-accelerate (as is implied by the 5-year targets).

Price Target Basis & Risks Our price target of $56 is based on 20x our CY19 EPS estimate of $2.78. Risks: The company is operating in an increasingly competitive and promotional environment. New innovations might not drive as much demand as expected.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/NKE102517-124232.pdf

Industry Consumer M. Cap Analyst Price FY FY17E FY18E Rating (MM$) The Coca-Cola Company(KO) Herzog $46.05 DEC. $1.92 $1.99 2 $198,936.0 Last Reporting Date: 10/25/16 Before Open KO: A Solid Q3 With Optimism For the Future KO's Q3 Results - Solid Price-Driven Top-Line Growth Continues - Maintain Neutral Near-Term Outlook As Strategic Initiatives Likely to

Limit Upside Surprises - KO reported $0.50 EPS (vs. our/cons. ests. of $0.50/$0.49) based on solid 4% org. rev. growth, very respectable relative to the broader Staples universe, driven by 3% price/mix & 1% conc. vol growth (ahead of flat unit case volumes). Regionally, results were particularly strong in N. America, Europe, Mexico, and China, offset by persistent challenges in Brazil and Venezuala. KO also reported strong 405bps of operating margin expansion. Overall, we remain very encouraged by the progress of KO's transformation, including its refranchising initiatives & productivity savings efforts (both of which have and should continue to drive solid margin expansion), and CEO Quincey's efforts to transform KO to a total beverage company and leverage improved marketing, innovation, and execution to drive improved top-line growth. Bottom Line - We see much to be excited about in the long-term and think KO is taking the right steps to position itself better for the future. However, with volume growth remaining weak and structural headwinds increasing relative to current valuation (KO trades at a 24% premium to avg. staples FY18 P/E vs. 10% over a 3-yr avg), we see limited near-term upside in KO's stock. We therefore maintain our Market Perform rating and $45 price target and our FY17/F18 EPS ests. of $1.92/$1.99.

Evolution to Total Beverage Company Well Underway - CEO Quincey took the opportunity on today's earnings call to highlight key ways in which KO is evolving to become a total beverage company: (1) identifying and incubating high-growth brands in N. America through its VEB (Venture and Emerging Brands unit); (2) leveraging intl. partners and lift & shift strategies to grow small premium brands globally; (3) exploring opptys. in craft bevs and mixers; and (4) remaining focused on the core brands through innovation (product & package), marketing, and execution as it has done with Coke Zero Sugar, and is now doing with Fanta. Overall we believe these are the right priorities that should leverage the diverse set of opportunities KO has globally and believe in particular that Quincey's intention to premiumize the portfolio through new brands while also revamping the core as needed will help KO reaccelerate volume growth globally. Further, we believe improving results in key emerging markets (China, India, Brazil), and fully lapping the signficant challenges in Venezuala next year should allow KO to return to growth. That said, we believe these improvements are already priced in the stock.

Refranchising On Track - But N.T. Headwinds Could Weigh on Results For Now - We believe KO's transformation of its global system, including refranchising its North America bottling operations, will give KO better speed and agility to adopt to the rapidly changing marketplace and help the Company find new avenues of growth. However, over the balance of the year, we believe the structural headwinds will give investors pause, and expect some refranchised markets could experience short-term hiccups during the transition based on feedback from our retailer contacts.

Price Target Basis & Risks Our $45 price target implies 16.5x our 2018E EBITDA and 22.7x our 2018E EPS, both slight premiums to average historical valuation ranges. Risks to our price target include near-term increases in input costs, potential competitive pressure and broad-based pullback in consumer spending.



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https://www.wellsfargoresearch.com/Research%20Publications/2017/October/KO102517-191155.pdf

Industry Energy M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Hess Corporation(HES) Read $42.21 DEC. ($4.66) ($3.84) 1/V $13,418.6 Last Reporting Date: 10/25/17 Before Open HES: Streamlining, Optimizing And Improving; Adj Ests Post-Q3 Key Takeaway. A more streamlined and easier to comprehend/value Hess is taking shape following more divestitures to fund the

expansion of its most attractive offshore (Guyana) and onshore (Bakken) opportunities. To date, Guyana exploration drilling has discovered 2.25-2.75 billion boe (Hess 30% WI). Exploration drilling could continue well into the middle of the next decade - thus Hess' Guyana chapter has a long way to go, in our view. We maintain a positive stance on Hess, as the company is focused on returns-driven growth, optimizing the portfolio, improving the cost structure and balance sheet and ultimately shareholder returns. Our updated price target is now $55 versus the prior $56. The price target is based on a 20% discount to our updated NAV estimate of $68 per share. Our new/old 2017, 2018 and 2019 EPS estimates are -$4.66/-$4.95, -$3.84/-$3.44, and -$1.32/-$1.30, respectively, and now exclude contributions from Vahall and EG and assume lower opex and DD&A. Our initial 2020 EPS estimate of $0.31 includes the Guyana Phase 1, Bakken growth and further cost reductions.

Asset Sales Serve Multiple Purposes. Asset monetization will fund the Guyana development, high-grade the portfolio, reduce debt and eliminate significant abandonment liabilities. Hess plans to use proceeds from divestitures to reduce debt by $500 million in 2018, fund Guyana and further ramp activity in the Bakken with the likely addition of 2 rigs in 2018.

Expect Additional Divestitures Beyond 2017. With the Denmark sale in 2018 and the continued high-grading of the portfolio, we estimate at least $500 million in assets are left to divest - this should further support the balance sheet and funding investments in core assets (Guyana and the Bakken). We note that in addition to the Bakken and Guyana, Malaysia remains a core asset and will further support future investments and cash flow, in our view.

Cost Structure Improving. Divesting mature, high cost, lower return assets should improve Hess' overall cost structure, in our view. With the portfolio changes and planned cost reductions, Hess expects to reduce cash opex to below $10/bbl - a 30% reduction by 2020. The optimized portfolio should also carry a lower DD&A rate as higher return developments come online. Excluding the immediate impact of the divestitures, we expect per barrel DD&A rate will gradually decline with the ramp up of the Bakken and then stair-step lower following the start-up of Guyana Phase 1.

Initial 2020 Estimates. Our 2020 forecast assumes the ramp up of Guyana Phase 1, fully implemented cost reduction efforts and an overall improved cost structure based on the Guyana contribution. By our estimates, earnings should be positive in 2020 - a considerable improvement from meaningful losses in 2017-2019E.

Price Target Basis & Risks Our price target is based on a discount to our NAV estimate of $68/share, which includes value for both proven and potential reserves as well as other net assets and liabilities. (1) Systematic risks include uncertainties surrounding future oil and gas prices, energy services costs, 3rd party provider failures, proven reserves, and environmental and political risks that could lead to lower than expected cash flows and returns; and (2) Hess specific, including operational production shortfalls, civil strife in international locations, and potential balance sheet missteps.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/HES102517-163350.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/KO102517-191155.pdf

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Industry Financial Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) AFLAC Inc.(AFL) Dargan $84.07 DEC. $6.73 $6.82 2 $34,435.1 Last Reporting Date: 10/25/17 After Close AFL: Beats On Reserve Release, Tax Summary: Aflac reported Q3 operating EPS of $1.70, beating our estimate of $1.66 and consensus of $1.63. Backing out $0.04 per

share of favorable cancer claim reserve adjustment, normalized EPS was $1.66, in line with our estimate. The operating tax rate of 33.3% was lower than our modeled 34.6%. Pre-tax margins were roughly in line with our forecast in the US and missed our estimate in Japan adjusting for the reserve release. See Figure 1 for a detailed comparison between the actuals and our expectation. We don't think the quarter was strong enough on an underlying basis to move the shares upward from current levels.

Q4 guidance brackets consensus. AFL increased 2017 EPS guidance to a range of $6.75-6.95 from a prior range of $6.40 to $6.65 assuming the average exchange rate in 2016 of 108.70 yen to the dollar. Q4 EPS guidance is $1.42-1.66 assuming a Yen/Dollar range of 110-115 (versus existing consensus of $1.55 and our estimate of $1.57). The yen is now at 113.6 to the dollar.

Japan third sector sales slightly below our estimate; profit margins higher than our forecast on reserve release. Sales in Japan decreased 10.5% from a year ago, but the entirety of the decrease was from low-margin first sector products, which we think is prudent. Third sector sales were up 2.1% in the quarter versus our forecast of +5.0%. Aflac maintained its Japan third sector sales long-term compound annual growth expectation of +4% to +6% through 2019. The reported pretax margin of 19.9% was slightly favorable to our forecast of 19.5%, but excluding the impact of the reserve adjustment it was below our estimate at 19.3%.

U.S. sales up and profit margins expand on improved persistency, claims trends. In the U.S., sales were up 7.5% in the third quarter versus the year ago quarter and above our expectation of +4%. Aflac expects sales in the U.S. to grow at a compound annual rate of +3% to +5% through 2019. Looking at U.S. margins, the company posted a pretax profit margin of 20.1% versus our estimate of 20.0%.

Capital management. AFL bought $219 million of its shares in Q3, versus our forecast of $438 million. Full-year 2017 repurchase guidance is still $1.3 to $1.5 billion, implying repurchase of $300 million to $500 million in Q4. Our model assumed share repurchase of $162 million in Q4 2017. The Q4 quarterly dividend was raised 4.7% to $0.45. AFL has increased its dividend for 35 consecutive years.

Conference call. Aflac is hosting a Q3 earnings conference call at 9:00am ET on October 26. The dial in number is 210-234-0075; passcode: QUACK.

Price Target Basis & Risks Our price target is based on applying roughly 1.7x price to book multiple on our 12-month forward BVPS estimate of roughly $48, ex. accumulated other comprehensive income (AOCI). Risks to our target include U.S. and Japanese sales weakness, higher-than expected loss costs, a weaker yen, and asset quality deterioration.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/AFL102017-154332.pdf

Industry Financial Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Arch Capital Group Ltd.(ACGL) Greenspan $102.11 DEC. $3.53 $5.75 2 $13,927.8 Last Reporting Date: 10/25/17 After Close ACGL: Q3 Misses--Cats Within Guided Range SUMMARY: Arch reported a Q3 operating loss of $0.79, missing estimate for a loss of $0.55 and consensus for a loss of

$0.61. The majority of the downside was due to higher cats than we had modelled, lower reserve releases, and weaker underwriting results in reinsurance, which was partially offset by stronger results in mortgage and a lower tax rate than we had expected. Cat losses came in at $347.8 million pre-tax, or $319.8 million after-tax, within the $285-345 million of after-tax losses Arch previewed. We had been looking for $315 million of pre-tax cats. ACGL's book value was essentially flat at $59.61 and the operating ROE was (5.3%). We do not expect much movement in the Arch shares due to earnings instead the shares should respond to the market outlook on the conference call.

Premium growth driven by mortgage, but Arch found opportunities in reinsurance. Gross premiums rose 28% (excluding Watford), higher than our +10% due to stronger growth in reinsurance and mortgage. Reinsurance rose 30% (vs our 0.4%) driven off of a retroactive cover (which added $45 million), reinstatements following the hurricanes ($25 million), and growth in international motor. Insurance saw modest growth and was up 3.8% (vs our -1.3%). Mortgage rose over 164% gross (we had been looking for just over 99% growth). New insurance written was $17.7 billion in mortgage, higher than $17.3 billion in Q2.

Margins offset by cats, underlying modestly weaker than we had expected. Arch's combined ratio (excluding Watford) was 101.0%, missing our 108.2% estimate. The majority of the delta was due to higher cat losses and lower reserve releases. Underwriting results exceeded our estimate in mortgage, were in-line in reinsurance (lower cats hit reinsurance than we had modelled, which offset a weaker-than-expected underlying margin), and missed in insurance (higher cats hit insurance than we modelled). The mortgage result stood out with a 41.3% underlying margin, better than our 39.5% estimate, due to 20.6% expense ratio. Reserve releases were $58 million, lower than our $63 million estimate, and down from $75 million last Q3.

Underlying margin slightly weaker than our estimate. The underlying combined ratio was 84.4%, modestly higher than our 84.1% estimate. The underlying loss ratio was 55.8% (higher than our 54.3%) reflective of a weaker reinsurance margin. The expense ratio improved by 4.6 points to 28.6% (better than our 29.8%) as mortgage and reinsurance expense ratios (reinsurance expense ratio benefited from the LPT) were better than we had expected.

Conference call. Arch is holding a conference call on Thursday, October 26 at 11am ET. The dial-in number is 877-858-8215; passcode: 93724925.

Price Target Basis & Risks Our price target of $100 is based on 1.5x our 2018 book value estimate of around $66. Risks to achieving the price target include large catastrophe and investment losses, increased competition, and a deterioration in loss costs.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/ACGL102517-115359.pdf

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Industry Financial Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Axis Capital Holdings Limited(AXS) Greenspan $56.34 DEC. ($2.24) $4.40 3 $4,685.1 Last Reporting Date: 10/25/17 After Close AXS: Q3 Just Misses Our Estimate--Cat Losses In-Line With Preannouncement SUMMARY: AXIS reported a Q3 operating loss of $5.35 per share, just missing our estimate for a loss of $5.32, but beating

consensus for a loss of $5.38. The downside when compared to our estimate reflects lower reserve releases and a lower-than-expected tax benefit. This more than offset lower than expected expenses. Cat losses were $617 million, in-line with our estimate, which was also the level the company previewed. Reserve releases were $47.8 million, lower than the $60.8 million we had expected. On an underlying basis, AXS' margins were better than we had modelled in both insurance and reinsurance due to better expense ratios as the underlying loss ratios in both segments fell short of our estimates. Fee income from strategic partners was $6 million, compared to $12 million in Q2 2017, and $8 million last year. Book value declined by 8.5% reflective of the cat losses. We do not expect much movement in the AXS shares in response to earnings.

Premium growth driven by reinsurance. Gross premiums grew by 23.5%, better than our 3.2% estimate and improving from 3.2% in Q2 2017 primarily driven by reinsurance growth. Net premiums were up 39.9% (vs our estimate for 13.2% growth). AXS' reinsurance book was up 55.1% gross and a higher 105.0% net. The growth mostly reflects timing differences and reinstatements following the hurricanes. Insurance business grew by 8% ex FX (above our +1.6%) reflecting growth in liability, credit, political risk, and aviation (from the Aviabel acquisition).

Combined ratio benefited from a lower expense ratio. The combined ratio was 152.9%, better than our 162.9% estimate due to a better expense ratio. Reserve releases were $47.8 million, lower than our $60.8 million estimate, and down from $76.0 million last Q3. Cat losses offset the combined ratio by 61.4%, lower than our 70.0% estimate, due to a higher level of earned premium.

Underlying margin better than our estimate on lower expenses. The underlying combined ratio was 96.1%, improving from 98.4% last year, and better than our 99.7% estimate. The expense ratio was better than expected in both segments and came in at 31.4%, vs. our 36.0% estimate and 35.6% last Q3 reflective of lower G&A costs (due to lower performance-related comp). The underlying loss ratio was 64.8% rising from 62.8% last Q3, and higher than our 63.7%. AXS saw its underlying loss ratio deteriorate in both segments - in reinsurance (by 3.6 points) due to mid-sized losses and the Ogden impact and in insurance (by 0.5 points) due to attritional property losses and the adverse impact of rate and trend.

Minimal shares repurchased prior to Novae deal. AXS suspended buybacks when it announced the Novae deal at the start of July. Prior to the deal AXS repurchased a modest $3 million.

Conference call. AXIS is holding a conference call on Thursday, October 26 at 9:00am ET. The dial-in number is 888-317-6003; access code: 3755829.

Price Target Basis & Risks Our price target of $54 is based on a 0.95x price to book multiple extended against our year-end 2018E GAAP book value of around $58. Risks to exceeding our price target include AXS reporting better than expected margin improvement, seeing a pick-up in its reserve releases, and the stock being supported by M&A in the sector.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/AXS102517-143954.pdf

Industry Financial Services M. Cap Analyst Price FY FY18E FY19E Rating (MM$) Legg Mason, Inc.(LM) Harris $37.70 MAR. $2.89 $3.30 1 $3,479.7 Last Reporting Date: 10/25/17 After Close LM: F2Q EPS Beats, Strong Performance Fees--F3Q And FY'18 EPS Estimates Up Out-year EPS estimates unchanged. For F2Q18, LM reported material upside surprises for EPS both including and excluding unusual

items. Key positives included stronger-than-forecast performance fees (with favorable performance fee guidance for the December quarter as well), demonstrated expense control, a better-than-expected margin, and a fairly resilient average fee rate (although there was modest q/q decrease). The relatively ''clean'' nature of the results, including fewer and less significant unusual items, was a welcome development. Reflecting the $0.08/sh F2Q upside surprise and performance fee and compensation ratio guidance for F3Q, we are raising our FY'18 EPS estimate from $2.74 to $2.89. However, our estimates remain unchanged at $3.30 for FY'19 and $3.60 for FY'20. No change to our price target of $45.

F2Q ex-items EPS beat on performance fees and margin. F2Q EPS was $0.78, well above our estimate of $0.70 and the $0.69 consensus. The quarter's results included three special items that combined to reduce EPS by $0.01 (as detailed in Exhibit 3). Net of these items, EPS was $0.79, or $0.07 above our like estimate (see Exhibit 1) of $0.72. Compared to our ex-items expectations, the upside surprise was the result of a favorable variance of $0.08 for operating income (largely on performance fee strength and well contained expenses), in part offset by an unfavorable variance of $0.01 for non-operating income and other minor items. We adjust LM's results and present a ''core'' operating income and margin figure (see Exhibit 2), and on that basis, F2Q margin surpassed our estimate by roughly 130bps. The margin strength for F2Q was mainly revenue related, but margin also benefitted from lower-than- expected compensation ratio and non-comp expenses.

Seemingly favorable outlook for near-term flows. LM's F2Q long-term net outflows of $1.2B included $5.6B in previously disclosed redemptions for low-fee fixed income mandates. But in July, LM forecast that the related revenue effect would be more than offset by scheduled institutional fundings. LM reported preliminary October net flows described by management as ''solid'' (positive in all three asset classes as well as for the retail business). This seems promising, particularly in the context of deterioration during F2Q for LM's 1-year, 3-year and 5-year equity performance figures vs Lipper averages and the F2Q switch from net inflows to net outflows for Clearbridge. LM's pipeline of unfunded wins fell by $0.9B q/q to $7.2B. However, as of the time of the October 25 conference call, unfunded wins had climbed to a more favorable $9.3B.

Price Target Basis & Risks Our 12-mo price target of $45 is based on an 11.5x multiple on our CY'18 GAAP EPS estimate of $3.18 plus our NPV estimate of future tax shields ($8/sh). Risks to our price target include, but are not limited to, deteriorating fund flows and performance, market volatility and less aggressive capital return.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/LM102517-202902.pdf


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Industry Financial Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) UMB Financial Corporation(UMBF) Shaw $73.07 DEC. $3.56 $3.80 2/V $3,617.0 Last Reporting Date: 10/25/17 Before Open UMBF: Modest Qtr As Lower Tax Rate Drives Penny Beat, 4Q Pipeline Solid Summary. UMBF posted operating EPS of $0.94, topping Street estimates and our estimate by a penny. Quarterly trends were mixed,

as a higher NIM and lower expenses worked to offset a higher provision and lower than expected fee income. The announced Scout divestiture, which generated a net loss of $730k ($0.01/share) in the quarter, is still on track to close in 4Q17. Incorporating 3Q results, we lower our FY2017/2018E EPS to $3.56/$3.80, from $3.58/$4.00, and establish FY2019E EPS of $4.30. We reiterate our $71 price target and Market Perform rating.

Asset sensitivity driving higher loan yields. NIM improved 4bps sequentially to 3.16%, driven primarily by a 15bps increase in loan yields. Loan yields benefitted from the repricing of variable rate loans (+13bps contribution), net loan growth (+7bps), loans to new customers (+5bps), and were partially offset by pay downs (-10bps) in the quarter. NIM also benefited 2bps from higher fees generated from asset based lending and factoring businesses. Cost of interest bearing deposit rose 9bps Q/Q, mainly driven by higher rates on index deposits, which account for 27% of total deposits. Going forward, management anticipates any future rate hikes to increase cost on index deposits 1:1, while Healthcare Services accounts (11% of deposits) will be more resilient to rate changes.

Loan growth was weak, as deposits remained flat. Linked quarter loan growth of 1.4% fell short of our +1.9% estimate, as $604MM in loan production (8.7% increase from 2Q), was partially offset by $476MM in payoffs/paydowns. Heading into 4Q, mgt. is optimistic about overall loan growth, as they see continued strong demand in its asset based lending (ABL) (added 10 new borrowers in the quarter), and factoring business, while the CRE construction pipeline looks strong.

Agriculture credit charged-off, but overall asset quality stable. During the quarter, UMBF charged-off a $4MM agriculture loan, and experienced a 3bps (to 40bps) linked quarter increase in net charge-offs to total loans. Mgt. is hopeful that it will be able to recover a portion of the balance. Excluding this credit, overall asset quality remains strong.

Scout divestiture to be finalized in 4Q. UMBF is still on track to divest Scout in 4Q17, which is now accounted for as Discontinued Operations and generated a $730k ($0.01/shr) loss in the quarter.

Use of capital. Mgt. continues to actively evaluate all of its options to deploy capital, from share repurchases to M&A, stating that it is interested in pursuing a sizeable whole-bank M&A transaction over the next couple of years. UMBF repurchased 150,000 shares in 3Q.

Price Target Basis & Risks Our valuation is based on a combination of traditional banking operations and a premium for the HSA business. Our price target represents 18.7x FY2018 EPS estimates and 175% of Q4 2017 TBV. This is a premium PE valuation to the broader mid-cap bank group, which currently trades at 15.3x FY2018E EPS.

Risks to our price target include: Downside: 1) deterioration in asset quality; 2) flattening of the yield curve; 3) adverse regulatory actions/rulings. Upside: 1) more rapid rise in interest rates; 2) capturing market share in newly entered regions; 3) increased M&A activity in the bank space driving higher valuations.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/UMBF102517-185615.pdf

Industry Health Care M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Allergan plc(AGN) Maris $180.34 DEC. $16.20 $17.27 1 $64,327.3 Last Reporting Date: 08/03/17 Before Open AGN: 3Q17 Preview - Can AGN Regain Control Of The Narrative? In this note, we provide a summary of key points ahead of AGN reporting 3Q 2017 results next Wednesday (11/1). We are -$0.02 below

consensus - our 3Q17 estimate remains $4.03 vs. consensus $4.05. We believe investors will be looking closely at Allergan's cash flow conversion in 3Q, as the company has said it should begin to converge in 2H17. Our $1.99 billion estimate of cash from operations in 3Q is in line with AGN's guidance of $3 billion to $4 billion in cash flow from operations in 2H17. Investors will also be looking for continued strength in Allergan's aesthetics franchise, keeping in mind the regular seasonality which typically dulls 3Q performance in this segment. While we do not anticipate Allergan will give detailed 2018 guidance on the 3Q17 earnings call, management may provide some general guidance around the impact it would expect to see should Restasis face generic competition in early 2018, as well as any planned cost reduction measures to aid in offsetting that impact.

Allergan expects 3Q17 revenues to be similar to 2Q17, which is in line with our estimate and consensus of $4.0 billion in 3Q revenue. Our 86.2% gross margin estimate (vs. cons. 86.3%) accounts for Allergan's guidance that gross margins for 2H17 will be lower than 87.3% seen in 1H17. Our $1.15 billion SG&A estimate (vs. cons. $1.15 billion) is in line with Allergan's guidance that promotional activities were expected to be higher in 3Q vs. 4Q. Likewise, our $424 million R&D estimate is slightly higher than consensus $415 million, and reflects guidance that 3Q will be higher than 4Q.

We reviewed TRx trends and pricing changes ahead of the quarter, and found that while the TRx for Allergan's top prescription products are down 2% year-over-year in 3Q17, the majority have increased in price since the close of 3Q16, with Linzess and Restasis between 9% and 9.5% higher. Botox list price is up 3.8%, although we note that WAC price data is not adjusted for discounts and that IMS does not follow key growth products, such as Botox and fillers.

We expect AGN to give an update on the status of its TEVA shares, as well as its plans to execute the $2 billion buyback announced in September. We expect the buyback to be largely a 2H18 event given debt repayment plans. While losing the Restasis patent trial was a big blow to AGN, we believe the majority of the decline in the share price has been driven by a shift in investor sentiment. We view the 3Q17 call as a valuable opportunity for Allergan management to deliver a clear outlook for the company's strategy to endure the anticipated LOEs in 2018 and return to mid- to high-single digit top line growth expected of Allergan. We maintain our Outperform Rating and $258 price target.

AGN is to host a conference call on Wednesday (11/1) at 8:30am EST. The call is available at (877) 251-7980, with the conference ID 65879759, or at https://www.allergan.com/investors.

Price Target Basis & Risks Our DCF-derived price target of $258 is based on a discount rate of 6.5% and a terminal EV/EBITDA multiple of 9.0x. Risks include: further competition on key franchises, pipeline delays and failures, and increased regulatory oversight.

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Industry Health Care M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Amgen, Inc.(AMGN) Birchenough $177.50 DEC. $12.70 $12.77 2 $130,108.0 Last Reporting Date: 10/25/17 After Close AMGN: 3Q17 Trends Disappointing, Growth Strategy Not Emerging We are maintaining our MARKET PERFORM rating on shares of Amgen (AMGN) following review of 3Q17 operating results. Overall, we

found results disappointing with slight decline in revenues and below consensus results for newer growth products. Focus on highly competitive managed markets like osteoporosis, lipids and migraine fails to instill confidence in growth, in our opinion, and AMGN remains under-exposed to new growth areas of immuno-oncology, cell therapy, gene therapy, RNA therapeutics and neuroscience.

Amgen (AMGN) reported 3Q17 operating results after market close yesterday (10/25) and provided an update on key initiatives on a call with investors. Non-GAAP EPS of $3.27 was ahead of $3.11 Consensus, on in-line revenues and lower than expected operating expense.

Total revenues and product sales were down 1% year over year (YOY), with mixed results for legacy product sales and slightly weaker than expected sales for newer growth products.

Key legacy product sales included ARANESP sales of $516MM vs $522MM Consensus, NEULASTA sales of $1.17B vs $1.09B Consensus and ENBREL sales of $1.36B vs $1.39B Consensus.

Key growth product sales included PROLIA sales of $464MM vs $468MM Consensus, XGEVA sales of $387MM vs $413MM Consensus, KYPROLIS sales of $207MM vs $218MM Consensus and REPATHA sales of $89MM vs $106MM Consensus.

In terms of pipeline progress in support of future growth AMGN highlighted ongoing AIMOVIG regulatory review for migraine prevention with approval expected in 2018, REPATHA sNDA for CV risk reduction, KYPROLIS sNDA for ENDEAVOR survival data in myeloma, PROLIA sBLA for steroid induced osteoporosis and MVASI approval in September as a biosimilar to AVASTIN.

Price Target Basis & Risks We arrive at our price target on AMGN by applying a 14x multiple to our 2017 EPS estimate of $12.70.

Risks include greater than expected erosion of AMGN'S base biologics business, competition to KYPROLIS from generic Velcade and emerging myeloma treatments, and failure to gain approval for proprietary biosimilars.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/AMGN102517-174619.pdf

Industry Health Care M. Cap Analyst Price FY FY17E FY18E Rating (MM$) C.R. Bard, Inc.(BCR) Biegelsen $328.03 DEC. $11.90 $13.08 2 $25,028.7 Last Reporting Date: 10/25/17 After Close BCR: Solid Q3 - Hurricane & Supply Issue Are Short-Term Disruptions Summary. On 10/25, BCR reported Q3 EPS that exceeded expectations and raised 2017 EPS guidance. The company reported Q3 EPS

of $3.02, beating consensus of $2.94 and our $2.90 estimate (and guidance of $2.85-$2.90). Earnings upside relative to our model reflected lower OpEx ($352MM vs. our $367MM estimate) and a lower tax rate (20.8% vs. our 22.0% estimate). Total revenue of $990MM (+5% organic) just missed consensus of $992MM and our $991MM estimate due to impact from the hurricanes and supply issues for surgical sealant products. Excluding these disruptions, Q3 top-line growth would approximate 6.5%, more in-line with our estimate and 1H performance. Management maintained 2017 sales guidance of 6-7% ex-FX growth and raised the low-end of its EPS guidance by $0.15 to a range of $11.85-$11.90 (15-16% growth). Raising our 2017 EPS estimate by $0.02 to $11.90 and maintaining our 2018 EPS estimate of $13.08. Increasing our price target to $330 from $315 to reflect current offer price of the BDX deal. We believe the transaction remains on track to close by year-end.

Q4 sales guidance reflects continued disruptions. BCR expects Hurricane Maria and the surgical sealant supply issue to reduce Q4 revenue by nearly $30MM or ~3%. The company guided to 4-4.5% ex-FX sales growth in Q4. While supply constraint due to Hurricane Maria is expected to resolve by year-end, the sealant supply issue will likely last into 1H18 and represents an estimated 70-80bps of growth headwind in Q1 and Q2 next year.

Vascular outperformed while Surgical underperformed due to supply issues. Vascular revenue of $289MM beat our $278MM estimate. Vascular sales growth accelerated to 12% ex-FX from +10% in Q2, driven by Lutonix AV access and LifeStream Balloon Expandable Covered Stent. We estimate Lutonix sales of ~$39MM (+16%). Surgical revenue of $158MM (-1% ex-FX) missed our $171MM estimate due to supply issue with the surgical sealant and hurricane impact. Excluding these disruptions, Surgical growth would approximate 5%. Urology revenue of $248MM, in-line with our forecast, grew 3% ex-FX vs. +2% in Q2. Oncology revenue $271MM, also in-line with our model, grew 5% ex-FX vs. +7% in Q2.

Lutonix AV access launch off to a good start - BTK could be next. We understand that BCR's Lutonix AV (arteriovenous) access launch is off to a good start, contributing to an acceleration in the peripheral PTA sales growth in Q3 to 14% from +10% in 1H. We expect AV access to remain an important Lutonix growth driver as it will be the sole drug-coated balloon DCB with this indication through 2019. We remain optimistic that the Lutonix BTK (below-the-knee) trial will be positive and could be approved later next year. See our BDX note ''Lutonix BTK Indication Represents Upside Potential To Estimates'' dated 10/23/17 for additional details.

Price Target Basis & Risks Our $330 price target is the cash and stock offer under terms of the BDX acquisition. Key risks include worsening of the macroenvironment, unexpected pricing pressure, lack of visibility on Gore royalty and litigation uncertainty.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/BCR102317-105026.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/AGN102517-184253.pdf


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Industry Health Care M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Merit Medical Systems, Inc.(MMSI) Biegelsen $41.70 DEC. $1.28 $1.44 1/V $2,151.7 Last Reporting Date: 10/25/17 MMSI: Q3 Sales Miss; Guidance Implies Q4 Acceleration Summary. On 10/25 after the close, MMSI reported Q3 2017 revenue of $179.3 MM (+14.2% reported; +13.6% ex-FX; +4.5% organic

ex-FX), which missed both our $183.0MM estimate and Street expectations ($181.9MM). The company reported non-GAAP EPS of $0.32, which was $0.02 / $0.03 above consensus and our estimate, respectively. Q3 organic growth of +4.5% ex-FX represents a meaningful deceleration vs. Q2 (+10.4%), which management attributed primarily to Q3 seasonality and a modest impact from the hurricanes. On the margin front, gross margin expansion continued in Q3 with non-GAAP gross margin of 48.1% (+125bps y/y) vs. 46.8% in the prior year period. MMSI reaffirmed its 2017 top-line guidance of $722-727MM (+19.6-20.4% reported; 8%+ organic) and non-GAAP EPS guidance of $1.23-1.28 (+22-27% reported), which implies a sequential acceleration to organic growth in Q4. Management noted its business has seen a strong start to begin Q4, which has given the company additional confidence that the softness in Q3 was temporary.

We are increasing our 2017 sales forecast by $0.3MM to $726.3MM (+20.3%; +8.8% organic ex-FX) and our non-GAAP EPS estimate by $0.03 to $1.28 (+26.1%). We increase our 2018 sales forecast by $24MM to $812.8MM (+8.0% organic ex-FX) and non-GAAP EPS estimate by $0.03 to $1.44 (+12.8%) to reflect the contribution from several tuck-in acquisitions. We maintain our price target of $46, which assumes a ''50-50'' weighting of about 16x our 2019 EBITDA and 26x our non-GAAP 2019 EPS estimates.

P&L Recap; Top-Line Miss and EPS Beat. MMSI reported Q3 total revenue of $179.3MM (+14.2% reported; +13.6% ex-FX), falling short of both consensus ($181.9MM) and our forecast ($183.0MM). Q3 organic growth (ex-FX) of +4.5% compared to Q2 (+10.4%). The deceleration in growth was primarily attributed to summer seasonality though MMSI did see a modest adverse impact from the US hurricanes. The top-line performance was again led by the stand-alone devices business. Q3 MMSI non-GAAP gross margin came in at 48.1% (vs. our 48.3% estimate) and was driven by product mix, manufacturing efficiencies/utilization, and cost management. MMSI reported Q3 non-GAAP operating margin 13.7%, which was roughly 90bps above our estimate of 12.8%. Q3 non-GAAP EPS of $0.32 topped both consensus of $0.30 and our estimate of $0.29. Relative to our model, EPS upside largely reflected lower R&D expense and tax rate than we forecasted.

Continued on the next page. Price Target Basis & Risks

Our $46.00 price target is based on an equal weighting of about 16x our 2019E EBITDA and 26x our 2019E non-GAAP EPS estimates. Risks include possible dissynergies associated with MMSI's M&A strategy, potential product pricing pressure, and competitive headwinds.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/MMSI102517-214352.pdf

Industry Industrial M. Cap Analyst Price FY FY17E FY18E Rating (MM$) General Dynamics Corp.(GD) Pearlstein $207.25 DEC. $9.80 $10.70 1 $63,273.4 Last Reporting Date: 10/25/17 Before Open GD: Q3 Margins Make Up For Revenue Decline Summary. GD reported Q3 earnings above consensus and raised full-year guidance, but much of the increase in guidance was a lower-

than-expected tax rate. Overall, sales were below expectations, but margins were stronger. In addition, we think investors were disappointed with comments that the company will return 100% of its FCF ''less the amount spent on acquisitions'' on dividends and share buybacks rather than 100% of FCF. Despite the negative reaction to Q3, we have a positive view on the stock. The expected double-digit EPS growth out 2020 remains intact. In addition, we are seeing encouraging signs in the business jet market and now GD has the Columbia class submarine under contract. As a result, we continue to believe GD stock is positioned for strong performance over a multi-year time frame. At 19.4x 2018E EPS, GD shares trade below the 22.7x average P/E of other large cap defense peers. In addition, since GD earnings do not benefit from pension income, the stock discount relative to operating earnings is even larger.

Q3 2017 EPS of $2.52 was above our $2.42 / consensus $2.44. Compared to our estimate, the upside was from: (1) higher segment margin (13.9% vs. our 13.3% est.; +$0.08; led by Info Systems & Technology, Marine Systems, and Combat Systems); and (2) a lower tax rate (+$0.11) that more than offset the (3) lower revenues ($7.6B vs. our $8.0B est.; -$0.09). Street revenue expectations were $7.95B.

Q3 2017 FCF of $751MM (98% of net income) was lower than our $869MM estimate. It did not change the 2017 outlook calling for free cash flow to ''approach 100%'' of earnings from continuing operations which means Q4 needs to be about 190% of net income. Importantly, GD said it will return 100% of its FCF ''less the amount spent on acquisitions'' on dividends and share buybacks. Any acquisition would have to be earnings accretive in its first full year.

Revenue Softness. Q3 sales of $7.6B (down 2%; -$0.09) was below our $8B forecast and the Street's $7.95B, mainly driven by an 8% decline in Information Systems & Technology (Warfighter Information Network-Tactical, Common Hardware Systems-4) and 7% decline in Marine Systems (Virginia Class Block III timing, slowdown in Columbia program design work from extended negotiations, and a wind-down of work at NAASCO as auxiliary and commercial ships were down 32% y/y). Within IS&T, sales to the DoD were down 13% y/y and IT services were only down 1%.

G500 Certification. The G500 is still on track to meet its contractual delivery but there has been a delay associated with concurrent FAA and EASA certifications for one supplier. GD said the supplier delay is ''strictly a paperwork exercise'' and not related to flight test, flying capabilities, or readiness of the program.

Price Target Basis & Risks We believe the stock could trade to $225 based on a little higher than 5% 2019E FCF yield. Risks include cost overruns, order cancellations, and delays in foreign contracts.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/GD101717-074444.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/MMSI102517-214352.pdf

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Industry Industrial M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Ingersoll-Rand Plc(IR) Kwas $91.32 DEC. $4.50 $5.10 1 $23,441.8 Last Reporting Date: 10/25/17 Before Open IR: Op Leverage Should Improve In '18-Maintain Outperform Summary. Share price reaction (-4.5% vs. -0.4% for SPX on 10/25) was almost a replay of the Q2 release date (July

26th) and for similar reasons (price/cost, higher international growth affecting mix). Management communicated it has a plan to get margin back on track. Hypergrowth in the emerging markets should provide tail benefits in the future (service, etc.). Fundamentals are good. The institutional market should experience stronger growth in 2018 based on leading indicators. Industrial revenue growth should accelerate in 2018 and margin flow should be healthy (considering the way margin has expanded this year on little revenue growth). Capital deployment remains optionality. There is a lot of potential going into 2018 and that keeps us backing the stock. Execution remains good (the company expects to hit the high end of its 2017EPS range despite more significant price/cost headwinds). Our 2018 adj. EPS estimate assumes $250MM of repurchases (vs. $1B+ this year). We have raised our 2017 adj. EPS estimate to $4.50 (from $4.49). We have increased our 2018 adj. EPS estimate to $5.10 (from $5.05). We introduce a 2019E EPS estimate of $5.60 (no significant capital deployment modeled for 2018/19). We have maintained our price target at $102 (20x our '18 adj. EPS estimate, 13.5x '17E EBITDA). Maintain Outperform.

Early thoughts on 2018. Inflation is expected to moderate. Productivity initiatives are intensifying to improve incremental margin. CEO Lamach expects operating leverage to improve in China in 2018. CEO Lamach believes the company can get Climate incrementals back into the 25-30% range. Industrial mix should be stronger because of bookings growth in large compressors. CEO Lamach believes North American commercial should grow in the low to mid-single-digit range for 2018.

2017 EPS guidance was maintained at ~$4.50. This implies Q4 EPS of ~$1.02 vs. $1.05 consensus. We expect to see some recovery of the $0.04-$0.05 storm impact in Q4. 2017 revenue growth was also maintained (4.5%). Share count estimate is 258MM vs. 259MM prior. Tax rate is 21% vs. 21-22% prior.

Quarter summary. Q3 EPS from cont. ops was $1.44 vs. our $1.40E and the $1.43 consensus. GAAP EPS was $1.43. Versus our expectations, Industrial (+$0.01 in EPS) and Climate (+$0.02 in EPS) were offset by higher Corporate (-$0.04). Operating income missed slightly (-$0.01 vs. our E). Total revenues were $3.67B (+3% yr/yr, +2% organic) and below the $3.70B consensus but in line with our $3.67B estimate. Adj. operating margin was 14.1% (-26bp yr/yr) and below our 14.2%E.

Price Target Basis & Risks Our price target applies a price/earnings multiple of 20x to our 2018 adjusted EPS estimate. Risks include a potential slowdown in the U.S. non-residential cycle, share loss in the applied and/or residential markets, and an inability to drive productivity improvements. Risks include a potential slowdown in the U.S. non-residential cycle, share loss in the applied and/or residential markets, lack of demand recovery in the company's key industrial markets later in 2017 and in 2018 and an inability to drive productivity improvements.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/IR102517-085354.pdf

Industry Industrial M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Northrop Grumman(NOC) Pearlstein $304.75 DEC. $13.10 $13.50 2 $57,689.2 Last Reporting Date: 10/25/17 Before Open NOC: Strong Q3 Pension Outlook Improves Summary. NOC's Q3 2017 earnings were above the Street, driven by stronger sales, margins, and pension income plus non-recurring

tax benefits. As a result, guidance was increased despite an additional $0.15 of interest expense related to funding the OA transaction as well as one-time transaction costs. Overall, NOC continues to perform well. We think the company has executed a great strategy - it is being thoughtful in the businesses that it pursues or chooses not to pursue (like the MQ-25); the Orbital ATK transaction was not expensive and offers significant growth potential; and NOC has several growing, franchise programs like the F-35 and B-21. The biggest issue we see is the valuation of the stock. On 2018E P/E, NOC (22.6x) trades modestly below Lockheed Martin (23.8x) and Raytheon (23.3x). However, on a 2017 free cash flow yield, we think NOC looks expensive (3.6% vs. 4.4% peer average) due to the company's elevated capital spending that should continue for a few more years. Only if NOC is given full credit for the Orbital ATK transaction, refinancing and extracting synergies does the FCF yield begin to approach the peer average.

Q3 2017 EPS of $3.68 was way ahead of our $2.72 and consensus $2.91 mostly from lower taxes and higher pension income. Compared to our estimate, the upside was from: (1) pension income (+$0.22); (2) sales ($6.5B vs. our $6.3B est.; +$0.10); (3) margins (11.6% vs. our 11.3% est.; +$0.07); and (4) a lower tax rate (17.8% vs. our 31% est.; +$0.59). Importantly, the upside was despite $27MM of transaction costs for the Orbital ATK transaction.

Improved Pension Income Outlook. Based on the completed demographic study, NOC now expects FAS/CAS pension income of $585MM (vs. prior $500MM) in 2017. This includes CAS recovery of $1.02B and FAS expense of $435MM. In addition, despite other contractors expecting worse pension income in 2018 due to the lower interest rates, NOC's pension income outlook for next year has improved. Since the return on the plans are 12% YTD but rates are down 25bps - we estimate FAS/CAS could be $700MM in 2018 (vs. consensus $600MM) if there were no changes to year end.

Debt Costs Until OA Closes in H1 2018. In connection with the Orbital ATK transaction, NOC issued $8.25B in Senior Notes. This debt has a $0.15 per share net negative carry in Q4 2017 and $0.20 per quarter in 2018 based on the net interest (as the proceeds are invested until the transaction closes). However, our 2018-2019 estimates are standalone NOC estimates and do not include the impact of the Orbital ATK acquisition. This means we did not include the $0.20 / quarter of incremental interest because we typically do not include the revenue/earnings from acquisitions until we approach the closing of the transaction. 

Price Target Basis & Risks Our $310 price target is based on almost 4.5% free cash flow yield on 2019E FCF (including Orbital ATK).

Risks include lower defense budget growth, poor program execution, and competitive program losses. https://www.wellsfargoresearch.com/Research%20Publications/2017/October/NOC101617-083632.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/IR102517-085354.pdf

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Industry Industrial M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Packaging Corporation of America(PKG) Manuel $118.16 DEC. $6.34 $6.95 2 $11,083.4 Last Reporting Date: 10/25/17 After Close PKG: Solid Q3 Performance; Q4 Outlook Below Expectations PKG reported Q3 2017 adjusted EPS of $1.68 (up 30% y/y). Results were slightly below our $1.70 estimate, in-line with the

FactSet mean of $1.68 and management guidance of $1.68/share. PKG did realize a $0.02/share benefit related to insurance recoveries (not in guidance) offset by a $0.02/share headwind associated with hurricane activity (also not in guidance). Operating income was $269 million or $1 million below our estimate, driven by an $11 million miss in the Paper operations mostly offset by a better-than-expected performance in the Packaging segment ($+10 million). Turning to the outlook, management guidance of $1.50/share for Q4 2017 earnings is well below our $1.85/share estimate and $0.08 below the current consensus estimate of $1.58/share. PKG is set to incur $0.12/share in higher outage costs (relative to both Q3 2017 and Q4 2016) and elevated logistics and wood fiber costs are estimated to offset lower Old Corrugated Container costs during the quarter.

Reiterate Market Perform rating and anticipate modest negative response in shares. PKG shares have outperformed thus far in 2017 (increasing 39% compared to a 14% return in the S&P 500), in part, due to expected benefits from the spring containerboard price increase and favorable redeployment activity (namely acquisitions and Wallula conversion). Given the lower-than-expected Q4 guide, we would expect a modest negative reaction in the stock during morning session trading.

Sales of $1,640 million were slightly above our estimate of $1,626 million, while operating income of $269 million was slightly below our $270 million forecast. Sales in Q1 benefited from higher corrugated shipments of 4.0%, or 7.3% on a per workday basis, including benefits from the Columbus Container acquisition. Excluding acquired business, we estimate organic corrugated volumes increased ~1.0%. EBIT was favorably impacted by higher containerboard and corrugated prices/mix (+$0.61/share), acquired business and increased organic corrugated shipments (+$0.07/share), and a partial insurance recovery (DeRidder Mill incident) of +$0.02/share. These profitability tailwinds were partially offset by lower paper segment price/mix (-$0.05), reduced paper segment sales volumes (-$0.02/share), higher input costs (-0.14/share), elevated operating expenses and annual outage costs of $0.05/share and higher corporate costs (-$0.06/share). For reference, inventory levels at the end of Q3 were up 20k tons from Q2 2017 as the company prepares to serve the recently acquired Sacramento Container business.

Price Target Basis & Risks Our price target of $114 reflects 7.6x EBITDA or a 7.4% FCF yield, using our 2019 estimates. Risks that could cause the stock to move away from our price target include significant shifts in raw material pricing & demand for corrugated products.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/PKG102517-202324.pdf

Industry Industrial LNG Terminals M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Teekay LNG Partners, L.P.(TGP) Webber $17.05 DEC. $2.18 $2.94 1/V $1,326.8 Cheniere Energy, Inc.(LNG) Webber $44.40 DEC. ($0.07) $2.15 1/V $2,008.9 Golar LNG Partners, LP(GMLP) Webber $22.69 DEC. $2.63 $2.68 2/V $465.1 Golar LNG Ltd.(GLNG) Webber $19.89 DEC. ($1.87) $0.44 1/V $908.7 GasLog Ltd.(GLOG) Webber $16.40 DEC. $0.09 $0.47 1/V $1,592.8 GasLog Partners LP(GLOP) Webber $23.30 DEC. $2.53 $2.80 1 $1,358.9 Dynagas LNG Partners LP(DLNG) Webber $13.10 DEC. $1.44 $1.14 2/V $9,458.6 Cheniere Energy Partners LP(CQP) Webber $27.52 DEC. $1.66 $2.73 1/V $10,163.2 Wells Fargo LNG Weekly LNG Supply China Warns Of Potential Gas Supply Shortage During Winter Peak Season. China's National Development & Reform Commission (NDRC)

has warned the country could face a severe supply shortage during the winter as gas demand continues to surge (largely driven by China's pro-gas/clean fuel policy) while infrastructure (pipeline connections, storage) remains inadequate. NDRC urged state-run producers to ensure sufficient supply of gas ahead of the peak demand season and has called on Sinopec to speed up the construction of its four gas pipeline projects. LNG demand in China continues to climb with September imports rising to 3.45mtpa (up 37% m/m) - its 2nd highest monthly figure after 3.7mtpa imports broke record last December. YTD imports are at 25.6mtpa (up 43% y/y). According to the IEA, China's LNG imports are expected to grow by 41bcm/annum by 2022, making it the second largest LNG importer after Japan by 2022. We note the surge in Chinese demand has contributed to the recent opening of export arb with spread between JKM and HH at $5.8/MMBtu.LNG Tender

Egypt's Tender Reflects Declining Import Requirement As Domestic Field Nears Production. State-run EGAS has issued a tender seeking 12 LNG cargoes for delivery in Q118 (vs. 100+ cargoes it had originally planned for the year). A number of recent discoveries in Egypt (BP's West Nile Delta, Eni's Zohr, Nooros field) have reduced the number of LNG shipments to the country as it targets self-sufficiency in natural gas by 2020-2021. The Zohr field (the largest gas discovery in the Mediterranean Sea) is nearing first production, potentially ending large LNG tender awards for traders like Glencore, Trafigura, and Vitol that have been lifting volumes for Egypt on short-term basis for the past two years. In the near-term, Egypt expects to import roughly five cargoes per month (down from ~eight/month) once Zohr starts production by year-end. Most of the gas from the Zohr field will go to the domestic markets, with some being shipped to Europe. The Zohr gas field is owned by Eni (60%), Rosneft (30%), and BP (10%).

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/OCSHIPS102517-194614.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/PKG102517-202324.pdf

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Industry Media & Telecommunications M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Digital Realty Trust, Inc.(DLR) Fritzsche $122.98 DEC. $5.55 $6.12 2 $26,305.4 Last Reporting Date: 10/25/17 After Close DLR: Hot Ashburn Market Drives Accelerated Leasing In Q3 DLR reported solid Q3 results in its first quarter following the DFT acquisition. Leasing volumes accelerated meaningfully both

sequentially and yr/yr - although we believe legacy DFT signed ~20 of the total 33 MW signed in the quarter. Core FFO/share beat our estimates as DLR was able to overcome the negative carry from pre-funding part of the DFT transaction on its balance sheet. DLR noted a significant portion of bookings in the Ashburn market, where it strategically has significant capacity to expand due to its existing land bank and the inherited DFT assets. DLR has also been active since the end of Q3, recycling 2 separate assets, entering a 50/50 joint venture with Mitsubishi to expand its presence in Japan, and agreeing to acquire a $315MM data center in the greater Chicago area market. While it's early days into the DFT integration, we believe DLR's initial guidance for ~2% Core FFO/share accretion and 4% AFFO/accretion for FY2018 remains very achievable as they ramp up synergies. For now, we remain at Market Perform until we get more visibility into the progress of the DFT integration and its leasing velocity in the hyperscale sector. We are raising our price target to $122 (from $118 prior). Our new FY2017E revenue and AFFO/share are $2.45B and $5.55 (vs. $2.44B and $5.52 prior) and our FY2018E are $2.99B and $6.12 (vs. $3.03B and $6.09 prior).

Q3 RESULTS - DLR reported Q3 total revenue and Adjusted EBITDA of $609.9MM and $351.9MM, ahead of our $598.3MM and $341.0MM projections. Core FFO/share and AFFO/share were $1.51 and $1.37, vs. our $1.47 and $1.35 estimates. Adjusted EBITDA margin of 57.7% was ahead of our 57.0% projection. DLR leased $58.1MM of annualized rent, including a $7.7MM contribution from colocation. North America leasing was $49.6MM and 33 MW. Total development capex was $226.8MM.

STRONG ASHBURN LEASING BOOSTS BACKLOG - DLR's backlog pro-forma DFT is now ~$106MM, which was boosted by many wins in the quarter in Ashburn. Management noted that DFT executed nearly 20 MW in Ashburn with a single customer (likely, we believe, at their ACC9 facility). They noted strong customer wins in the quarter, particularly from international customers in Europe and Asia, and also an emerging interest in data center solutions for AI (artificial intelligence) applications.

UPDATED FY2017 GUIDANCE - DLR now expects FY2017 consolidated revenues (including DFT) to be $2.4-2.5B (from $2.2-2.3B prior). They now expect Core FFO/share of $6.00-6.10 (from $5.95-6.10 prior) and constant currency Core FFO/share of $6.05-6.20 (from $6.00-6.25 prior). Same capital cash NOI growth is now expected to be 3.0-3.5% (vs. 2.0-3.0% prior). DLR's other guidance metrics for FY2017 remain unchanged.

Price Target Basis & Risks We value DLR at 19.8x 2018E EV/EBITDA. Risks include potential churn or lower leasing growth from large tenants, increased supply in certain markets and integration risks with DuPont Fabros.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/DLR102517-180926.pdf

Industry Media & Telecommunications Wireless Towers M. Cap Analyst Price FY FY17E FY18E Rating (MM$) American Tower REIT, Inc.(AMT) Fritzsche $137.33 DEC. $6.69 $7.54 1 $55,412.7 Crown Castle International Corp.(CCI) Fritzsche $104.12 DEC. $4.64 $5.52 1 $33,276.8 SBA Communications Corp.(SBAC) Fritzsche $146.48 DEC. $6.91 $7.42 2 $18,368.6 AGL Dallas - Tower Conference Take-Aways On 10/24 we attended the Above Ground Leasing (AGL) local summit in Fort Worth, TX. We were the only sell sider there (likely due to

busy earnings week). We learned so much. In our view, towercos continue to expect a S/TMUS merger announcement (reported by CNBC, both companies have commented about the possibility), and have for some time now. Panelists highlighted that 5G network architecture requires more integration, and towers stand to benefit as companies (carriers and software companies alike) look to push network processing closer to the edge. The competitive impact of SoftBank's 10/17 agreement with Lendlease was downplayed by attendees (not a huge surprise), and (last) FirstNet was cited as the biggest near-term catalyst to the industry.

TOWERS INDUSTRY CONTINUES TO WIDELY EXPECT S / TMUS MERGER ANNOUNCEMENT. Private tower companies that presented on panels continue to expect a S-TMUS merger announcement to come. Interestingly, one representative noted it considered S/TMUS M&A when underwriting tower acquisitions and BTS (build to suit) opportunities because it had expected the announcement for some time now. Attendees were quick to point out that TMUS has been aggressive in its ''painting of the map'' initiative and even with a merger - the low band (600MHz) spectrum which TMUS recently bought still would be an incremental build even if a S / TMUS merger is seen.

FIRSTNET REMAINS MOST NEAR-TERM CATALYST FOR TOWERS & SOME MOVEMENT IS BEING SEEN. T has received confirmation from 27 states that they have chosen to opt-in, and the balance have until 12/28 to decide. Our checks would show T is ready to build as early as Q1'18, and AGL attendees noted they have received applications for tri-band deployments (AWS/WCS/FirstNet) in states that HAVEN'T yet opted in. This was NEW NEWS to us as we had not heard this in recent tower conferences we attended.

TOWERS UNIQUELY POSITIONED TO BENEFIT FROM 5G ARCHITECTURE PUSH TOWARD THE EDGE. Towers are expected to play an important role in 5G architecture. Towers that own the land under them have the ability to lease it out to carriers and software companies alike, who are looking to push network processing further out to the network edge. We believe these findings gives greater credibility to CCI's recent investment in Vapor IO which plays in this colo at the edge type theme.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/TCOMSERV102517-172502.pdf

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Industry Real Estate, Gaming, And Lodging M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Hersha Hospitality Trust(HT) Donnelly $18.32 DEC. $2.21 $2.30 2 $822.6 Last Reporting Date: 10/25/17 After Close HT: Q3 Softer-Than-Expected, October Improving SUMMARY. Hersha Hospitality Trust posted Q3 EBITDA and FFO per share below consensus, with comparable RevPAR down 2% and

margins down 240bps. Two of its six south Florida hotels remain closed following Hurricane Irma, and management has chosen to accelerate renovation projects at these hotels in order to be well positioned upon a return in demand expected in 2018. Management reduced its 2017 EBITDA guidance by $10MM at the midpoint, with Q3 $3MM lower than expected and 2H 2017 $7MM lower as a result of the hurricane. With the reduction in EBITDA guidance partially in the past (Q3) and partially known ($7MM disclosed in early October), and with management highlighting the improvement in demand October to date, we expect the shares to trade in line with peers tomorrow (10/26).

Q3 BELOW CONSENSUS. The company reported Q3 FFO per share of $0.61, $0.05 below consensus. EBITDA of $44.1MM was 6.2% below consensus, and management's internal expectations.

REVPAR DOWN 2%, MUTED BY PHILADELPHIA'S TOUGH COMP. Comparable RevPAR declined 2.0% and hotel EBITDA margins contracted 240bps. The tough comp to the DNC in Philadelphia last year muted RevPAR by 270bps and margins by 70bps. Consolidated RevPAR declined 4.6% in Q3 and margins contracted 410bps. Results were softer-than-expected in Washington and on the West Coast.

HURRICANE UPDATE. The company closed its 6 south Florida hotels ahead of Hurricane Irma, and its 2 largest remain closed. Earlier this month, the company estimated $7MM of EBITDA would be lost in 2H 2017 as a result. Occupancy has begun to improve but leisure demand in the area remains weak.

NEW CREDIT FACILITY. In August, HT closed on a new $475MM credit facility, consisting of a $250MM revolving line of credit (L+150-225bps) and a $225MM unsecured term loan (L+145-220bps).

2017 GUIDANCE LOWERED. Management raised its expectations for 2017 RevPAR to 1-2%, from 0-2%, but lowered its EBITDA margin guidance to (125-175bps), from flat to down 100bps (unchanged ex. south Florida), resulting in EBITDA of $162-166MM, down $9-11MM, and FFO per share of $2.06-2.15, down $0.19-0.23. Consensus is below both ranges at $168.5MM and $2.23, respectively.

Price Target Basis & Risks Our price target is based on a discount to HT's historic EV/EBITDA at 12.4x our FTM estimated consolidated EBITDA and 15.0x our FTM estimated unconsolidated EBITDA. Risks include recession, acts or threats of terrorism, market concentration, an inability to maintain efficiencies as expected, a slower than expected ramp up in operations, a slowing in international visitation, and rate pressure as a result of new supply in key markets.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/HT102417-093529.pdf

Industry Real Estate, Gaming, And Lodging M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Kimco Realty Corporation(KIM) Donnelly $18.49 DEC. $1.54 $1.60 2 $7,869.3 Last Reporting Date: 10/25/17 After Close KIM: First Look - Shares May Be Pressured On Lower 2017 NOI Outlook Summary. Expect KIM shares will underperform in initial trading 10/26 following a 75 bps reduction in annual same-store (SS) NOI

growth expectations for 2017 and a narrowed FFO/sh, as adjusted, guidance range with a midpoint $0.01 below our est. The SS reduction is due to disruption at its properties in Puerto Rico following Hurricane Maria, redevelopment timing, and delayed rent commencements for signed leases. It does not appear to reflect a change in broader retailer behavior as Q3 operations were generally good. While KIM missed our Q3 FFO/sh, as adj., est by $0.01, SS NOI growth was a solid 3.1%, leased occupancy rose to 95.8%, and releasing spreads accelerated to 16% on a blended basis. Skepticism around bricks and mortar retail real estate and concerns about the impact Amazon will have on the grocery-anchored segment with its acquisition of Whole Foods have weighed on the sector. KIM shares have fared particularly poorly, underperforming the SNL U.S. REIT Retail Shopping Center Index YTD by 720 bps (-23.5% total return YTD).

Q3 FFO/sh, as adj, was $0.38 vs. our est of $0.39. NAREIT FFO/sh was $0.39, $0.02 ahead of our estimate. Our estimates did not include transactional income but our NAREIT FFO/sh estimate included non-cash charges related to recently announced capital markets activities. Variances to our FFO/sh, as adj., est included lower equity in other real estate investments net of transactional income and slightly lower interest expense offset by higher equity in income from JVs, adjusted for impairment charges. NOI was slightly better than we modeled due to lower property operating expenses.

Guidance. KIM narrowed its FFO/sh, as adj, guidance of $1.50-$1.54 to $1.51-$1.52 with the midpoint essentially unchanged but with the top end off the table. NAREIT FFO/sh guidance is now $1.55-$1.56 vs. $1.53-$1.57 to include Q3 transactional activities (net positive $3.9MM, $0.01/sh). Our NAREIT FFO/sh est/consensus are currently $1.54/$1.53. Adjusted FFO/sh guidance does not account for the insurance deductible of up to $1.2MM related to damages to properties in Puerto Rico. KIM narrowed its acquisition target from $300-$400MM at 5.25-5.75% cap rates to $340-$375MM (cap rates unchanged) and its disposition target from $300-$400MM at 6.5-7.5% cap rates to $350-$400MM (cap rates unch.). While the yr-end occupancy target of 95.8-96.2% (+40-80 bps vs. 2016) was unchanged, SS NOI growth guidance was lowered 75 bps at the midpoint to 1.5-2%. This will come as a disappointment as mgt. defended a 2-3% guidance range on its Q2 call. About 25 bps of the 75 bps decline is due to hurricane impact in Puerto Rico, 25 bps is due to redevelopment timing (no contribution YTD -at low end of its expectation for 0-40 bps and partially reflects earlier de-leasing of a large project), and delayed rent commencements (still wide leased/commenced occupancy). (Continued Next Page)

Price Target Basis & Risks Our price target assumes KIM should trade in line with peers on a price/NAV basis. Our NAV/share estimate of $25 is based upon a 5.9% nominal cap rate on forward 12-month estimated NOI plus value for other investments and the development pipeline. Risks to achieving our estimates and price target include but are not limited to prolonged economic weakness, deteriorating consumer spending, unanticipated weakness in operating profit and/or market pricing for assets, and/or an inability to raise capital or sell assets.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/KIM102517-211900.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/HT102417-093529.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/KIM102517-211900.pdf



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Industry Technology & Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) CoreLogic, Inc.(CLGX) Warmington $48.63 DEC. $2.32 $2.61 1 $4,187.0 Last Reporting Date: 10/25/17 After Close CLGX: First Take: Solid Execution Despite Market Headwinds, Buyback Raised Summary: Corelogic reported 3Q17 revenue modestly below expectations and adj. EBITDA and EPS in line with or modestly ahead of

expectations. CLGX significantly outperformed the US mortgage industry in Q3: total revenue declined 7.8% vs. an est. 25% decline in mortgage unit volumes - the result of market share gains, pricing, and new products. Backing out the impact of the mortgage market decline (estimated at -12%) and acquisitions (+1%), underlying revenue growth was about 3%. Adj. EBITDA margin increased 150bp yr/yr, helped by favorable VSG revenue mix (higher mix of platform revenue from FNC & Mercury), cost initiatives (headcount and real estate), and growth in Insurance & Spatial and International. CLGX repurchased 2MM shares in Q3 (3MM YTD) and increased its 2017 share repurchase target by 10% to 3.65MM shares.

Mortgage Market Volume Analysis: The Mortgage Bankers Association (MBA) Weekly Mortgage Applications Index for Q3 2017 declined 25% yr/yr from 556.7 to 417.3. The MBA's originations forecast for Q3 is -16% yr/yr (by dollar value) plus yr/yr housing price appreciation of 6.4%. The combination of dollar volume and price appreciation implies new mortgage origination unit volume declined 22-23%. We note that CLGX's Automated Valuation Models (AVM), Credit, Flood, Fraud Screening and VSG (appraisal) businesses are driven primarily by new mortgage applications while CLGX's Tax business is driven primarily by new mortgage closings.

Q3 2017 Results: CLGX reported revenue/ adj. EBITDA/ non-GAAP EPS of $483MM (-7.8% yr/yr)/ $138.7MM (-2.8%)/ $0.72 (-1%) vs. our estimates of $488.5MM/ $138.6MM/ $0.73 and consensus of $490.1MM/ $136.8MM/ $0.71.

Property Intelligence (PI): Property Intelligence revenue (ex. eliminations) / adj. EBITDA was $258MM (-8% yr/yr, 53% of total)/ $71.8MM (27.8% margin) vs. our est of $245MM (-12.9% yr/yr)/ $63.6MM (26.0% margin). The decline in PI was driven by lower VSG revenue from (1) a 25% decline in US mortgage application volumes and (2) vendor diversification by a large VSG client. This lower VSG revenue, however, was partially offset by growth in Insurance & Spatial and International.

Risk Management and Workflow (RMW): Risk Management and Work Flow revenue (ex. eliminations) / adj. EBITDA was $227MM (-0.6% yr/yr, 47% of total)/ $76MM (33.5% margin) vs. our est of $247MM (0.5% yr/yr)/ $84MM (34.0% margin). CLGX used market share gains, pricing, and new products to offset an est. 25% decline in mortgage application volumes.

Price Target Basis & Risks Our target is based on 12.0x our CY2018 EV/adj. EBITDA estimate. Risks to our thesis include mortgage market exposure, acquisition integration, client and industry concentrations and regulatory risk.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/CLGX101617-114049.pdf

Industry Technology & Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) GrubHub, Inc.(GRUB) Stabler $57.79 DEC. $1.12 $1.38 2/V $5,114.4 Last Reporting Date: 10/25/17 After Close GRUB: Noisy Quarter, Guide As Expected Summary. GRUB reported results largely as expected-in our view-where the focus of the call centered around expectations for the

integration and impact of recent Foodler, OrderUp, and Eat24 acquisitions, closed 8/23, 9/14, and 10/10, respectively. 4Q'17 guidance bracketed our recently revised estimates that included expected impacts, and detailed management commentary leads us to leave our first pass at FY'18 acquisition impacts intact. Active diner growth beat our estimate handily, as results incorporated full trailing twelve month impact of Foodler and OrderUp, while the more material daily average grub (DAG) impact reflected respective closing dates. Closely watched underlying ''organic'' DAG growth of 13% was a bit light of our estimate, where mgmt called out difficult Olympics comps, Jewish Holidays shifting to September, and modest hurricane impacts. Incorporating 3Q results and model adjustments, our estimate revisions are relatively minor. Our revised estimates for FY'17 revenue, adjusted EBITDA, and non-GAAP EPS are lifted to $680.4MM/$181.9MM/$1.12 from $678.7MM/$178.2MM/$1.04, while our FY'18 outlook is revised to $933.4MM/$252.8MM/$1.38 from $932.8MM/$248.2MM/$1.43. We maintain our Market Perform rating and $58 price target.

Foodler and OrderUp saw ''hard migrations''; Eat24 on extended timeline. Management noted that Foodler and OrderUp saw ''hard migrations'' on their respective transaction closing dates, as legacy websites were instantly redirected to GrubHub. Resulting user attrition was modest and within expected range. However, the Eat24 integration may not be concluded until 3Q'18, as scale of integration and risk of disrupting Eat24 user base likely presents greater potential downside. Despite the lack of tech platform migration, steady progress is expected on improving core Eat24 per order profitability, where a steady ramp from essentially zero today is expected as Eat24 operations become more efficient. Overall, we believe the revenue synergies associated with the porting of the Eat24 franchise onto GRUB's infrastructure may materialize a bit more slowly than initially expected, as the Eat24 and GrubHub offerings will operate in parallel, each with marketing support.

Competition threat easing, in our view. While bearish investors continue to point to the threat posed by large platforms (notably AMZN and UBER), our concern is moderating. Recent datapoints suggest in particular that UberEats continues to invest behind their platform, but we believe GRUB's growing scale is widening the competitive moat, making GRUB a potentially more attractive partner to both chains and other platforms (note nascent FB relationship). Further, as off-premise dining continues to expand we expect restaurants will necessarily coalesce around a widely distributed leader, particularly as point-of-sale integrations see broader adoption.

Price Target Basis & Risks Our price target of $58 is based on comparable multiples and our DCF, equating to 18.5x EV/EBITDA based on our FY'18 estimates. Risks include slowing consumer demand, rising competitive pressure that could threaten profitability, and exposure to Google search traffic risk

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/GRUB102517-181137.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/CLGX101617-114049.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/GRUB102517-181137.pdf

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Industry Technology & Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) On Assignment, Inc.(ASGN) Caso $56.09 DEC. $2.99 $3.20 1 $2,984.0 Last Reporting Date: 10/25/17 After Close ASGN: Q3 Results And Q4 Guide Both Better On Assignment (ASGN) Q3 Better Top to Bottom, as is Q4 Guidance; Growth Remains Led by Apex Business, Creative Circle was as

Expected, and Oxford Still Muted but Management Confident of 2018 Improvement as Restructuring Takes Hold; Raising Our Estimates and Price Target. Q3 revenue of $667MM grew 6% yr/yr and was a touch better than our/Street expectations primarily due to the $3 million contribution from the StratAcuity acquisition, offset by hurricane related weakness. Adjusted EPS was a very strong $0.83, beating our/Street estimates even backing-out the $0.04 tax benefit. Adjusted EBITDA margin (12.5%) was particularly strong despite lower (higher margin) permanent placement revenue. Guidance for Q4 was better across the board. In our view, business trends have remained steady since Q2, with the Apex business continuing to perform very well, Creative Circle growth stabilizing in the mid-single digits (down from prior growth rates, but consistent with management's expectations), and Oxford growth remaining challenged until at least Q4 given grow over from some large projects. Non-GAAP EPS Estimate Revisions: 2017 to $2.99 from $2.85; 2018 to $3.20 from $3.10 as we include StratAcuity. Our View. Price target to $62 (19x CY18E pro forma EPS) from $53. Our rating remains Outperform given industry-leading growth, strong margin expansion despite limited contribution from (very high margin) permanent placement revenue and the ongoing restructuring of Oxford, attractive free cash flow conversion, and management's demonstrated value-adding capital deployment capabilities over time.

Q4 Guidance - Better Than Expected. Q4 revenue guided to $658-668MM. Our/Street estimates were $665MM / $662MM. Adjusted EBITDA margin of 11.8-12.1% versus our estimate of 11.6%. Adjusted EPS guided to $0.74-0.77. Our/Street estimates were $0.71 / $0.73.

Q3 Results - Also Better. Revenue of $667MM +6% yr/yr , above our/ Street estimate of $665MM / $666MM as StratAcuity acquisition adds $3MM and the hurricanes hurt revenue by about $1MM. Adjusted EBITDA margin 12.5, above our 12.1% estimate and up 10bps yr/yr. Tax rate 35.1%, below our 39.0% estimate and guidance. Non-GAAP EPS was $0.83, above our/Street estimate of $0.75/$0.75 and guidance of $0.73-$0.76 even adjusting for the $0.04 benefit from the lower tax rate.

Price Target Basis & Risks Our price target is $62 which is 19x our CY18E adjusted (management defined) EPS. We believe the company remains well-positioned to sustain market share gains and look for estimate changes to remain positively biased. Risks include sensitivity to general macroeconomic conditions, near-term movements in information technology demand, and the potential for integration risks from acquisitions.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/ASGN102517-120142.pdf

Industry Technology & Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) ServiceNow Inc.(NOW) Winslow $124.62 DEC. $1.14 $1.75 2/V $21,883.3 Last Reporting Date: 10/25/17 NOW: Now Gaining Traction In New Products Results: Market Perform-rated ServiceNow reported Q3 results of EPS of $0.38 and $498.2 million in revenue versus consensus

expectations of EPS of $0.32 and $491.6 million in revenue, respectively. Subscription revenue of $455.4 million exceeded consensus of $444.9 million, while services revenue of $42.7 million fell below consensus of $46.7 million. Billings equaled $546.1 million versus consensus expectations of $544.1 million.

Analysis: ServiceNow reported Q3 results with revenue, billings, and EPS above consensus expectations due to continued traction of newer products (HR, Security Operations, Customer Service Management, and Performance Analytics) and notable success in the federal vertical, particularly with core IT Service Management (ITSM). Specifically, ServiceNow's HR Employee Services Experience was included in 3 of the company's top 20 deals and ServiceNow signed 2 deals over $1 million for Customer Service Management and closed its first Security Operations deal over $1 million. Management attributed the strong growth to the company's intrinsic understanding of workflow management that can be applied to multiple use cases, which gives the company a large opportunity to upsell its solutions. Notably, 15 out of the top 20 deals in the quarter included 4 or more products and ACV per Global 2000 customer increased 18.6% year-over-year.

ServiceNow raised 2017 revenue and billings guidance to $1.918-1.923 billion and $2.274-2.279 billion from $1.901-1.911 billion and $2.271-2.281 billion, respectively. However, despite the raised revenue and gross margin targets for the year, management reiterated operating margin guidance of 16.0% and provided Q4 operating margin guidance of 17% versus consensus of 19.6%. The company suggest that the guidance reflect their intention to reinvest some of the revenue upside in both go-to-market and R&D initiatives and, as a result, remain with the company's stated growth:margin framework.

Estimates: We are revising our revenue and EPS estimates for 2017 to $1.922 billion and $1.14 from $1.911 billion and $1.19, respectively.

Outlook: We expect ServiceNow to continue to grow billings and revenue at a healthy rate and to approach its 2020 revenue guidance of $4 billion, as well as continue to scale its investments in sales and marketing, which we believe should moderate as a percentage of revenue over time, enabling the company to near its 2020 operating margin guidance of 28.0-30.0%. Therefore, we will focus on the ability of these newer products (which we believe may have indeed reached an inflection point) to enable ServiceNow to exceed new billings targets implied by the company's 2020 guidance before potentially turning more positive on the stock. (See Strong Growth Is NOW Priced In.) We maintain our price target of $115.

Price Target Basis & Risks Our price target is based on an EV/NTM UFCF multiple of 32.2 and an EV/LTM Recurring Revenue multiple of 9.2. ServiceNow's business is susceptible to adverse changes in global macro trends and events. Additionally, the sudden loss or departure of its executive officers could negatively impact the business.


https://www.wellsfargoresearch.com/Research%20Publications/2017/October/ASGN102517-120142.pdf

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Industry Technology & Services Analyst Transaction and Business Services Willi Quick Thoughts From Money 2020 Summary Viewpoint; While not attending any of the formal presentations at Money 2020 we did have a variety of meetings with

industry participants on a variety of topics. Thoughts are as follows; 1) The integrated payments channel may be seeing its best days for margins as software companies are going to get more aggressive with revenue share agreements and exclusivity may slowly become a thing of the past. 2) Overall, several conversations lead us to believe that merchant acquirers focused on small/mid-size businesses (SMB) may be at a point of sustainable price increases. 3) We believe that GPN is beginning to make some moves on pricing with the HPY franchise. 4) Consistent with other events we attended, the reviews of FDC and Clover continue to trend decidedly positive.

Revenue share agreements in the integrated payment channel may begin to feel some pressure in the next 24 months. We don't think that investors should panic but it appears that over the next couple of years that revenue sharing and exclusivity agreements could pressure the economics of the integrated channel. There is still a healthy amount of runway for the channel (driving volume) but economics for acquirers may begin to feel some pressure. That being said, we look for some payments companies to step up their efforts to acquire vertical-leading software companies and wouldn't be surprised to see software companies acquire payment platforms or build them out on their own. We believe the move by Chase to acquire WePay may put them in a position to work more closely with software companies than they currently do.

Several people that we met with indicated that that they believe that traditional acquiring industry could be set to enjoy rising revenue yields versus concerns about persistent price pressure. This is the most the most optimistic that we have seen industry participants and is driven by; 1) Consolidation in the market and fewer competitors. 2) An emerging class of premium payment providers while second tier providers struggle to be competitive the premier players gain share with stickier solutions. 3) The increased complexity of payments is resulting in cross-sells (security, data) as well as the ability to just raise prices. However, there were those that also expressed some concern that acquirers may be pushing the envelope a bit with some the security and compliance fees that have been created in the last couple of years.

Company specific takeaways were somewhat limited but we do have some thoughts; 1) First Data; Continues to see positive commentary on partner relationships and Clover. Clover continues to get good reviews, entities that don't sell Clover, want to sell Clover. 2) Global Payments; We heard in a couple conversations that they may have made some moves recently with pricing, particularly the HPY merchants. We don't expect it to impact 3Q results but could show up in later quarters. 3) Vantiv; Like GPN we picked up chatter on price moves though it seems it is more incremental than anything else.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/TRBUSV102517-204458.pdf

Industry Technology & Services M. Cap Analyst Price FY FY18E FY19E Rating (MM$) Xilinx Inc.(XLNX) Wong $70.72 FEB. $2.58 $2.90 2 $18,896.4 Last Reporting Date: 10/25/17 XLNX: Earnings - Steady 7% Year/Year Growth Xilinx's September quarter sales were in line with guidance, with reported EPS a little above consensus estimates. The midpoint of

December quarter sales guidance implies an expectation for 8% year/year growth, close to the 7% growth of each of the prior three quarters. We think that Xilinx has an attractive business model with stable growth and high profitability, but believe that this is already reflected in the company's stock valuation. Our FY 2018 EPS estimate increases to $2.58 from $2.52 previously and our FY 2019 EPS estimate increases to $2.90 from $2.77 previously. Our price target remains unchanged at $66, based on approximately 23x our FY18 EPS estimate of $2.90.

For the September quarter, Xilinx's reported revenues of $620 million (up 1% sequentially, up 7% year/year), in line with the midpoint of Xilinx's original guidance range of $605-$635 million. Reported EPS of $0.65 was above the consensus estimate of $0.63 and our own estimate of $0.62. Gross margin was 70.2%, up from 68.8% in the prior quarter. Internal inventory was $215 million, flat from the prior quarter. Operating expenses amounted to $250 million, up 3% sequentially and was slightly below the company's guidance of roughly $253 million.

Xilinx guided for sales to be $615-$645 million in the upcoming quarter, the $630 million (+8% year/year) midpoint of which is a little above the consensus estimate of $626 million and our $625 million estimate prior to the call. Xilinx is guiding for gross margin of 69-71% in the next quarter. Operating expenses are expected to total roughly $260 million in the upcoming quarter. Other income is expected to be roughly $4 million in the upcoming quarter. The effective tax rate for the upcoming quarter is expected to be 11-14%. Outstanding shares in Q4 FY2018 are expected to be 255-260 million shares.

Xilinx's Communications & Data Center segment revenue was down 10% sequentially and down 5% yr/yr. Xilinx's Industrial, Aerospace & Defense segment revenue was up 7% sequentially and up 17% yr/yr. Xilinx's Broadcast, Consumer and Automotive segment was up 11% sequentially and up 12% yr/yr.

Price Target Basis & Risks Our price target is based on approximately 23x our FY2019 EPS estimate of $2.90. We think this P/E is justified given our expectation that Xilinx will be able to gain market share in PLDs and penetrate new high growth end markets. Company-specific risks include competition, chiefly from Altera, and competitive pressure to move quickly to each new technology node that becomes available. Sector risks include cyclical swings.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/XLNX102517-183754.pdf


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10/26/17 05:30:10 ET . Page 1

Price Target Change Price Target Company Price M.Cap

(MMs) From To Title Rating Analyst

Bloomin' Brands, Inc.(BLMN) $17.52 $2,116.4 $20 $18 BLMN: We See Few Positive Catalysts For Shares With 3Q Results

2 Farmer/Consumer

Mattel, Inc.(MAT) $15.45 $5,300.9 $24 $20 MAT: Sentiment Very Negative. Turnaround Details And TRU Update Needed

1 Conder/Consumer

NIKE, Inc.(NKE) $54.94 $92,128.9 $52 $56 NKE: Analyst Day Recap; Doing The Right Things, But Still Have Work To Do

2 Nikic/Consumer

Owens Corning(OC) $76.67 $8,801.7 $83 $88 OC: Pullback Provides Buying Opportunity

1 East/Consumer

Six Flags Entertainment Corporation(SIX)

$60.70 $5,214.1 $64 $65 SIX: Growth Outlook Intact For 2018+ 1 Conder/Consumer

TRI Pointe Group, Inc.(TPH) $16.54 $2,656.3 $14.5 $18 TPH: No Longer California Dreaming 2 East/Consumer YUM! Brands, Inc.(YUM) $74.67 $29,718.7 $72 $75 YUM: We Expect Limited Ado

Surrounding 3Q 2 Farmer/Consumer

Castlight Health, Inc.(CSLT) $4.25 $562.3 $4.75 $5 CSLT: This Little Light Of Mine 2/V Stockton/Health Care Prologis(PLD) $64.20 $35,239.4 $60 $65 PLD: Strong Operations Continue But

Appear Priced In 2 Heck/Real Estate,

Gaming, And Lodging

Cognizant Technology Solutions Corp.(CTSH)

$74.25 $43,733.3 $78 $86 CTSH: Q3 2017 Preview 1 Caso/Technology & Services

trivago N.V.(TRVG) $8.34 $2,239.3 $13 $9 TRVG: Key Customer Weakness Clouds Outlook, Weak View Of 1H'18 Offered

2/V Stabler/Technology & Services

Earnings Estimate Revised Up FY2017 FY2018 Company Price M.Cap

(MMs) Rating Old New Old New Price


Fortune Brands Home & Security, Inc.(FBHS) $66.88 $10,292.8 2 $3.06 NC $3.33 $3.34 69.5 East/Consumer Six Flags Entertainment Corporation(SIX) $60.70 $5,214.1 1 $5.89 $5.83 $6.72 $6.74 65 Conder/Consumer TRI Pointe Group, Inc.(TPH) $16.54 $2,656.3 2 $1.29 $1.39 $1.51 $1.77 17.5 East/Consumer YUM! Brands, Inc.(YUM) $74.67 $29,718.7 2 $2.73 $2.80 $3.13 $3.25 75 Farmer/Consumer RPC, Inc.(RES) $22.17 $4,822.0 1/V $0.85 $0.79 $1.46 NC 26 Bailey/Energy Amgen, Inc.(AMGN) $177.50 $130,108.0 2 $12.59 $12.70 $12.77 NC 179 Birchenough/Health Care Castlight Health, Inc.(CSLT) $4.25 $562.3 2/V ($0.25) ($0.22) ($0.09) ($0.08) 4.5 Stockton/Health Care Prologis(PLD) $64.20 $35,239.4 2 $2.81 $2.80 $2.87 $2.88 65 Heck/Real Estate, Gaming,

And Lodging CA, Inc.(CA) $34.13 $14,334.6 3/V NE NE $2.44 $2.47 27.5 Winslow/Technology &

Services Cognizant Technology Solutions Corp.(CTSH) $74.25 $43,733.3 1 $3.69 NC $4.33 $4.35 86 Caso/Technology &

Services Earnings Estimate Revised Down

FY2017 FY2018

Company Price M.Cap (MMs)


Analyst /Industry

Bloomin' Brands, Inc.(BLMN) $17.52 $2,116.4 2 $1.40 NC $1.45 $1.42 18 Farmer/Consumer Mattel, Inc.(MAT) $15.45 $5,300.9 1 $0.71 $0.53 $0.89 $0.77 20 Conder/Consumer Owens Corning(OC) $76.67 $8,801.7 1 $4.33 $4.32 $5.09 $5.04 88 East/Consumer Six Flags Entertainment Corporation(SIX) $60.70 $5,214.1 1 $5.89 $5.83 $6.72 $6.74 65 Conder/Consumer Nabors Industries Ltd.(NBR) $6.41 $1,790.3 2/V ($1.47) ($1.55) ($0.57) ($0.64) 8 Bailey/Energy RPC, Inc.(RES) $22.17 $4,822.0 1/V $0.85 $0.79 $1.46 NC 26 Bailey/Energy Prologis(PLD) $64.20 $35,239.4 2 $2.81 $2.80 $2.87 $2.88 65 Heck/Real Estate, Gaming,

And Lodging trivago N.V.(TRVG) $8.34 $2,239.3 2/V (€0.04) (€0.05) €0.05 (€0.09) 9 Stabler/Technology &

Services


October 26, 2017


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Bloomin' Brands, Inc.(BLMN) $17.52 $2,116.4 2 BLMN: We See Few Positive Catalysts For Shares With 3Q Results

18 Farmer/Consumer

Fortune Brands Home & Security, Inc.(FBHS)

$66.88 $10,292.8 2 FBHS: Conflicting Results, RM Inflation, Valuation Keep Us On Sideline

69.5 East/Consumer

Mattel, Inc.(MAT) $15.45 $5,300.9 1 MAT: Sentiment Very Negative. Turnaround Details And TRU Update Needed

20 Conder/Consumer

NIKE, Inc.(NKE) $54.94 $92,128.9 2 NKE: Analyst Day Recap; Doing The Right Things, But Still Have Work To Do

56 Nikic/Consumer

Owens Corning(OC) $76.67 $8,801.7 1 OC: Pullback Provides Buying Opportunity 88 East/Consumer Six Flags Entertainment Corporation(SIX)

$60.70 $5,214.1 1 SIX: Growth Outlook Intact For 2018+ 65 Conder/Consumer

TRI Pointe Group, Inc.(TPH) $16.54 $2,656.3 2 TPH: No Longer California Dreaming 17.5 East/Consumer Wingstop, Inc.(WING) $31.99 $927.7 1 WING: Expect Positive Updates On Delivery &

Split Menu Pricing 35 Farmer/Consumer

YUM! Brands, Inc.(YUM) $74.67 $29,718.7 2 YUM: We Expect Limited Ado Surrounding 3Q 75 Farmer/Consumer Nabors Industries Ltd.(NBR) $6.41 $1,790.3 2/V NBR: Strategic Initiatives Moving Forward But

Near-Term Results Disappoint 8 Bailey/Energy

RPC, Inc.(RES) $22.17 $4,822.0 1/V RES: Executing On Disciplined Strategy 26 Bailey/Energy Arch Capital Group Ltd.(ACGL) $102.11 $13,927.8 2 ACGL: Q3 Misses--Cats Within Guided Range 100 Greenspan/Financial

Services Axis Capital Holdings Limited(AXS) $56.34 $4,685.1 3 AXS: Q3 Just Misses Our Estimate--Cat Losses

In-Line With Preannouncement 54 Greenspan/Financial

Services Amgen, Inc.(AMGN) $177.50 $130,108.

0 2 AMGN: 3Q17 Trends Disappointing, Growth

Strategy Not Emerging 179 Birchenough/Health Care

Castlight Health, Inc.(CSLT) $4.25 $562.3 2/V CSLT: This Little Light Of Mine 4.5 Stockton/Health Care KapStone Paper & Packaging Corp.(KS)

$22.57 $2,227.7 2/V KS: Unexpected Items Cause Q3 Miss; Q4 Outlook Below Expectations

23 Manuel/Industrial

Duke Realty Corporation(DRE) $28.79 $10,151.4 2 DRE: Q3'17 Operating Metrics Moderate As Expected, Acquisitions Commence

30 Heck/Real Estate, Gaming, And Lodging

Kilroy Realty Corporation(KRC) $71.14 $6,808.1 1 KRC: Mixed Q3'17; Operating Metrics Decelerate 80 Heck/Real Estate, Gaming, And Lodging

Prologis(PLD) $64.20 $35,239.4 2 PLD: Strong Operations Continue But Appear Priced In

65 Heck/Real Estate, Gaming, And Lodging

Public Storage, Inc.(PSA) $210.00 $36,561.0 2 PSA: First Look - Q3 FFO Below Our Estimate 225 Stender/Real Estate, Gaming, And Lodging

CA, Inc.(CA) $34.13 $14,334.6 3/V CA: Organic Growth Disappoints 27.5 Winslow/Technology & Services

Citrix Systems, Inc.(CTXS) $82.43 $13,040.4 1/V CTXS: On The Starting Line 95 Winslow/Technology & Services

Cognizant Technology Solutions Corp.(CTSH)

$74.25 $43,733.3 1 CTSH: Q3 2017 Preview 86 Caso/Technology & Services

trivago N.V.(TRVG) $8.34 $2,239.3 2/V TRVG: Key Customer Weakness Clouds Outlook, Weak View Of 1H'18 Offered

9 Stabler/Technology & Services

Sector Overviews

Sector Subject Companies Title Analyst Food

Food: Q3 Survey Suggests Weak Outlook Baumgartner

Tobacco

BAT's Investor Day Takeaways Herzog

Telecom Services

5G Travels Teach Us Much Fritzsche

Transaction and Business Services

Quick Thoughts From Money 2020 Willi

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Industry Consumer M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Bloomin' Brands, Inc.(BLMN) Farmer $17.52 DEC. $1.40 $1.42 2 $2,116.4 Last Reporting Date: 07/26/17 BLMN: We See Few Positive Catalysts For Shares With 3Q Results We expect share gains to narrow for Outback in 3Q and see few near-term catalysts for multiple expansion or upward EPS revisions.

BLMN is scheduled to report 3Q earnings on 11/3 (BMO). We've modeled EPS of $0.17 (Street at $0.16), and -1.7% combined same-store sales (SSS, Street at -1.4%). We expect investors to focus on: (1) 3Q SSS and relative performance, specifically at the core Outback concept, where the company planned to take less menu pricing in the quarter, (2) changes to 2017 guidance, (3) updates on key initiatives including the loyalty program (Dine Rewards had over 3.9MM members as of 2Q) and the delivery push (in 250 stores as of 2Q), and (4) a first look at 2018 commodity basket guidance (we expect 1% inflation). For the stock, we remain on the sideline with the Street EPS estimate appearing too aggressive for 2018 on the back of (1) another year of likely MSD wage rate inflation and limited pricing, (2) eroding commodity deflation tailwinds and (3) a deceleration in share repurchase activity (with BLMN's $700MM sale leaseback program near completion). Our 2018E EPS moves to $1.42 from $1.45 and price target falls to $18 from $20.

Consolidated SSS likely outpaced the industry, but we expect trends slipped further into negative territory during 3Q17. Our -1.7% combined SSS estimate reflects -1.5% SSS at Outback, -2.0% SSS at Carrabba's and -3.0% SSS at Bonefish. The combined SSS estimate represents a 40 bps outperformance to the casual dining SSS index (which was -2.1% in 3Q17), or in line with the outperformance delivered in 2Q17. For Outback, our estimate assumes negative check growth in 3Q as the brand laps the initial investment in food quality (i.e., center-cut sirloin), the roll out of the Dine Rewards loyalty program and as the company took less pricing in the quarter. Partially offsetting the lower check growth will be benefits from the exterior remodel program (150 units in 2016 with the majority late in the year and an additional 150 remodels in 2017), which have provided a 4-5% SSS tailwind per store on average.

BLMN to remain mum on 2018 guidance (aside from a first look at commodities), but Street estimates look too aggressive, in our view. We expect detailed financial guidance to come with 4Q results, but if precedent holds, BLMN will discuss its outlook for commodities in 2018 (we think 1% inflation vs. flat to 1% deflation guidance for 2017). Looking at the year ahead, we believe the current 2018 Street EPS estimate of $1.48 (represents 1% to 5% growth yr/yr vs. 2017 guidance range of $1.40 to $1.47), could prove aggressive - especially with BLMN lapping a 53rd week, and our expectations for the company to see flattish SSS, ~1% unit growth, continued wage rate inflation and the return of commodity inflation.

Price Target Basis & Risks Our $18 price target equates to 7.0x our 2018E EBITDA. We believe the in-line multiple (vs. peers) is warranted given BLMN's flat to low single-digit % growth trends for both unit development and SSS. Risks include (1) weaker-than-expected SSS, (2) greater-than-expected labor cost pressure and (3) the return of mid single-digit % or greater beef price inflation.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/BLMN100317-115514.pdf

Industry Consumer Analyst Food Baumgartner Food: Q3 Survey Suggests Weak Outlook Q3 Consumer Survey Suggests Households are Still Stretched. Our quarterly food consumer survey indicated that 18% of

respondents saw household financial conditions as having improved during the last six months (+320bps yr/yr) but 21% reported a worsening (+70bps yr/yr). Net, the -300bps spread was the weakest since 3Q16 and conditions remained very much bifurcated between those at the low end (feeling pressure) and those at the high end (reporting favorability). The net spread also weakened sequentially after four consecutive quarters of improvement. We think that it continues to reflect limited disposable income growth at +2.7% Q3 yr/yr through August and moderating purchasing power. Net, we see the tepid financial improvement as indicative of little relief into 2018 from the economization habits which are depressing food-at-home spending.

Shopping Intentions Reinforce Retail Split. Consistent with the consumer bifurcation, shopping intentions for the next six months by channel showed the largest growth at the low end (dollar stores at 18% and +380bps yr/yr) and the high end (specialty outlets at 11% and +440bps yr/yr). Each was a Q3 record high and suggests that the trade-up/trade-down phenomenon will persist. Elsewhere, internet food spending is poised to maintain momentum as a Q3 record 9% plan to increase purchases (+200bps yr/yr); the fourth consecutive increase.

Waste is Still the Key Factor Driving Lower Grocery Purchases. 18% of households reported having decreased food purchases over the past six months as a result of increased consumption of leftovers; -150bps yr/yr and -200bps seq. but still modestly above the 5-yr Q3 median (17.4%). We see the reduction of waste as a meaningful headwind against volume growth; it remains the leading factor for reduced grocery purchases as compared with 14% having reported eating less food overall and another 14% stocking less food at home.

Private Label Intentions Increased Modestly but Sentiment Warming to Promo. Across our 13 focus center-store categories, a median 21% of respondents expected to increase private label purchases over the next six months; +120bps yr/yr (vs. -240bps comp). All categories exhibited yr/yr increases with the largest being nuts (+380bps vs. -500bps comp), pasta (+340bps vs. -330bps), and sauces/salsa (+280bps vs. -310bps). Although it suggests further near term share gains for store brands (vs. easy comps), 38% also reported being more inclined to buy branded items on deal and pantry stock; +450bps yr/yr and a 4-yr high with all income tiers showing increased interest in promotional programming.

Reiterate Market Weight; POST and BN are Top Picks. For POST, we see an increasingly compelling FY18 story as eggs normalize, cereal and Active Nutrition distribution continue to gain, and Weetabix synergies build. The anticipated addition of BOBE should also enhance H2 growth. Net, we see the name as possessing potentially the largest upside revisions to growth in Food over the next 12 months. For BN, we see it as a unique sales and margin growth story driven by on-trend categories and significant upside to net cost savings estimates.


https://www.wellsfargoresearch.com/Research%20Publications/2017/October/BLMN100317-115514.pdf

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Industry Consumer M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Fortune Brands Home & Security, Inc.(FBHS) East $66.88 DEC. $3.06 $3.34 2 $10,292.8 Last Reporting Date: 10/25/17 After Close FBHS: Conflicting Results, RM Inflation, Valuation Keep Us On Sideline Yet again, FBHS quarterly results were mixed and fell short of expectations. The key Segment Operating Profit metric missed our $230M

estimate by $10M, or 4%, and fell short of the Consensus by $8M. While EPS of $0.83 was inline, the result was lower quality as a beneficial tax rate added $0.03.Unfortunately, FBHS's shortfall this quarter was demand driven as Revenue missed in all segments with the exception of doors. However, we believe FBHS likely gets a pass on this metric given noise created by the hurricanes. Positively, the price/cost dynamic was generally favorable as Margins beat in all segments but Cabinets. This said, premium and semi-custom cabinet demand improved in the quarter which should provide profitability benefit moving forward. Likewise, we believe management deserves credit for generating 30% incremental cabinet operating margins despite a challenging demand environment.

Similar to last quarter, Plumbing remains FBHS's key driver. For 3Q, the segment's operating margin continued surprising to the upside. However, we have concerns margins are peaking given commentary on the call that metals' inflation will be an '18 event. That said, we continue believing the company will be successful in its efforts to grow at a LDD pace in an industry yielding MSD market growth, partially thanks to acquisition growth.

The company's Doors segment continues outperforming the market, in part, as the consumer continues transitioning to fiberglass purchases, of which FBHS has a dominant position. The Security segment, on the other hand, continues facing near-term challenges as sales shift from 4Q into 1Q and some commercial product lines are exited. Likewise, the company is anniversarying synergies from its Sentry safe acquisition.

M&A remains a priority in the Capital Allocation process. We remind investors FBHS recently closed on two deals that should add $45M to Revs., while being margin accretive. The company expects to deploy in excess of $3B over the next several years of which we expect the lion's share will be dedicated toward M&A with an eye toward geographic expansion.

Earnings and Segments. Our 2017 EPS estimate remains flat at $3.06 as a lower tax rate and lower share count offset a $13M decline in our Operating Income estimate. Our 2017 Revenue Growth estimate falls by 130 bps to +5.7%, while our OM estimate remains unchanged at 13.9%(up 68 bps YoY), though our estimates fluctuate by segment. Our 2018 EPS estimate increases 1 cent to $3.34 as a lower tax rate and lower share count offset a $19M decline in our Operating Income estimate. We are introducing our 2019 EPS estimate of $3.68.

Price Target Basis & Risks Our $69.50 Price Target implies a 20.8X 2018 PE multiple, a 4.8% FCF Yield and a 12.7X 2018 EV/EBITDA multiple. Risks include acquisition sourcing and integration, and exposure to the volatile New Residential Market. Additionally, equity risks include stalling home prices and Existing Home Sales, rising mortgage rates or a slackening employment landscape.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/FBHS102517-214359.pdf

Industry Consumer M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Mattel, Inc.(MAT) Conder $15.45 DEC. $0.53 $0.77 1 $5,300.9 Last Reporting Date: 07/27/17 After Close MAT: Sentiment Very Negative. Turnaround Details And TRU Update Needed Investor sentiment is decisively negative ahead of Q317 earnings (post-close 10.26.17) given limited turnaround details and Toys R Us

(TRU) uncertainty. We believe buyside 2017 EPS expectations approximate $0.40-$0.50. Any further clarity on turnaround progress/details, incremental investment cost allocation, and TRU bankruptcy implications could enhance investor confidence to build positions and precipitate short covering (21% of float). Key Q317 earnings call items: (1) TRU impact, (2) UK/Brazil trends, (3) Power brand point-of-sale (POS), (4) Cars 3 2017 revenues, (5) company/channel inventories. What we want to hear: (1) 2017 EPS baseline, (2) cadence/mix of net incremental spend, (3) turnaround timeline/benchmarks, (4) strategy to minimize 2019 Barbie share loss vs. Frozen 2, (5) 2018+ organic/partner content. Lowering ests to reflect Q317 TRU bad debt charge ($0.09), more conservative revenue and increased investment assumptions. We assume NO liquidation of TRU N Amer operations in 2018. Elevated investment in IT, content, and manufacturing will likely constrain earnings near-term. 2017E/18E/19E rev $5.46B/$5.53B/$5.83B (prior $5.60B/$5.65B/ $5.96B), EPS $0.53/$0.77/$1.02 (prior $0.71/$0.89/$1.14). Price target $20 (prior $24) at 19.7x more normalized 2019E.

2017-2019. Primary 2018 benefit to revenue/margins should be the absence of 2017 company/channel inventory reductions and TRU charge. 2017YE inv. and A/R could be even better absent the TRU disruption. Key 2018 revenue drivers include turnaround execution, Justice League carryover, Jurassic World, and a potential Barbie movie. 2019 focus is on minimizing Barbie share loss to Frozen 2, Toy Story 4, and other incremental content and product innovation.

Capex/OpEx Cadence.We now assume $175MM (prior $125MM) net incremental spend. $350MM cumulative gross (guidance high-end) investment allocated 25%/75% Capex/OpEx $63MM in 2017, $152MM in 2018 and the remainder in 2019/2020 (see page 4).

TRU Implications. On 10.24.17, TRU was granted access to the full $3.1B debtor-in-possession financing. We estimate MAT will take a Q317 $41MM or $0.09 EPS bad debt charge based on $135.6MM of pre-petition claims, similar 30.3% write-off as HAS, and 21% tax rate. We continue to believe TRU will likely come through Christmas/holiday 2017, with U.S. asset liquidation risk (currently perceived 25-35%) dependent on TRU minimally achieving US FQ417 comps of down MSD% AND a H118 refinancing of 2019 debt.

Leverage. MAT's recent credit amendment provides for 4.5x max leverage as of Q417 and 4.25x thereafter. Assuming the 4.5x maximum for Q417, would imply minimum 2017 EBITDA of ~$537MM and EPS of ~$0.43. Our estimates reflect 2017YE leverage of 4.2x, 2018YE of 3.4x, and 2019YE of 2.9x.

Price Target Basis & Risks Our price target represents a 26.1x P/E and 12.4x EV/EBITDA multiple to our 2018 EPS and EBITDA ests of $0.77 and $2.03. Price target risks: 1) weaker than expected consumer toy spending, 2) loss of key license relationships, 3) loss of a major customer, 4) significant decline in Barbie, 5) significant input cost inflation, 6) significant strengthening of the US$, and 7) US tax law changes.


https://www.wellsfargoresearch.com/Research%20Publications/2017/October/FBHS102517-214359.pdf

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Industry Consumer M. Cap Analyst Price FY FY18E FY19E Rating (MM$) NIKE, Inc.(NKE) Nikic $54.94 MAY $2.30 $2.58 2 $92,128.9 Last Reporting Date: 09/26/17 After Close NKE: Analyst Day Recap; Doing The Right Things, But Still Have Work To Do Our Call. NKE hosted a remarkably upbeat Analyst Day (particularly in light of the some of the marketplace/competitive headwinds), in

which management clearly articulated the companies strategies to drive growth over the next 5 years (medium-term algo largely unchanged at high single digit top-line and mid-teens EPS). We believe the ''Triple Double'' strategy (2x innovation/speed/consumer-direct) makes perfect sense in today's rapidly-evolving marketplace, and we feel the company's track record of growth/execution is unrivaled in the industry. That said, we are not ready to turn positive on the name, as we believe they still need to navigate through several key headwinds: (1) the North American retail environment remains extremely choppy (particularly for athleticwear), presenting risk to the company's plans for mid-single-digit growth domestically, in our view (2) while there's a plethora of new innovation platforms in the pipeline, we're not sure that any of them are as revolutionary as flyknit was when launched 5 years ago (which we believe provided a significant ''halo'' to the brand overall, aiding even non-flyknit product), (3) given the significant size of the business today (nearly $60 billion in sales at retail), it's unclear how much some of the initiatives discussed at the Analyst Day can actually move the needle, (4) the digital environment is a key opportunity for NKE, but it also makes it easier for competitors to gain mind share (less need to fight for shelf space with wholesale partners, easier to do ''grassroots'' marketing, etc.). So, while we came out of the event incrementally positive (and are thus taking our price target to $56 from $52), we remain in ''wait-and-see'' mode for now.

5-Year Targets Largely Unchanged, But This 5-Year Plan Needs to Work Better Than the Last One. Right off the bat, management stated their goal of growing revenues high single digits and EPS mid-teens over the next 5 years (mostly in line with their medium-term goals laid out two years ago). These projections are based on North America growing mid-single-digits, EMEA growing mid-to-high singles, APLA growing high singles to low doubles, Greater China growing low-to-mid teens, as much as 50bps of gross margin expansion, slight SG&A leverage and stock buyback. If the company does attain these goals, we believe it implies $53 billion of revenues by FY23 and roughly $5.00 of EPS, and the stock price would likely see tremendous upside from current levels (a conservative 18x multiple would yield a $90 share price). Where We See Risk: The biggest issue we see is that the 5-year plan that was laid out 2 years ago ($50 billion of revenues by FY20) is falling well short of plan (we believe they are on track for more like $42 billion), so the investment community may view the 5-year targets with skepticism until we see a stabilization of the domestic marketplace (we see the North American growth plan as the biggest risk at this time) and the fundamentals of NKE's business specifically re-accelerate (as is implied by the 5-year targets).

Price Target Basis & Risks Our price target of $56 is based on 20x our CY19 EPS estimate of $2.78. Risks: The company is operating in an increasingly competitive and promotional environment. New innovations might not drive as much demand as expected.


Industry Consumer M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Owens Corning(OC) East $76.67 DEC. $4.32 $5.04 1 $8,801.7 Last Reporting Date: 10/25/17 Before Open OC: Pullback Provides Buying Opportunity We believe OC's 5.2% equity sell-off today (S&P -0.5%) was the wrong reaction, and we are reiterating our Outperform

rating. While OC's 3Q earnings release was messy and had what appeared to be-at first glance--Operating Margin issues as each of the 3 segments missed expectations, we believe investors sold first and asked questions later, taking money off the table in an ugly tape. We believe that action was inevitable with the equity up more than 50% year-to-date (prior to 3Q's earnings release) compared to S&P up 15%. Notably, this action occurs frequently as the equity has traded down in 5 of the past 7 earnings days, despite beating EPS in each quarter. After digesting the data flow, we believe many of the (margin) issues are largely transitory in nature, as we explain below. Further, little changes in our thought process as the company sports a discounted valuation relative to the group, should continue growing Operating Income at a mid-teens pace and generates strong Free Cash Flow for shareholder friendly activities.

We believe many of 3Q's issues are transitory in nature. Investors were focused on Insulation Revenues and Margins this quarter-Revenues missed Consensus modestly by 1.5 PPs. On a 2-year stacked basis, Insulation Core Revenue Growth was flat in 2Q, but decelerated a touch to -1% in 3Q after adjusting for the Hurricane. Given the comps and a rebound in Hurricane repairs, we expect 4Q Insulation Revenues bounce back to +7%. Reported Insulation Op Margins missed our estimates, but were inline when adjusted for the $5M cost headwind associated with Hurricanes (2/3rds of which should not repeat in 4Q). We believe some investors have gotten ahead of the ''pricing'' curve. We estimate 3Q pricing was up in the 4%-5% range for the New Construction portion of the segment, a product of the 2-3% price acceptance for each of the January and June 2017 price announcements. Often, these price hikes take a couple quarters to work through the P&L. With September's price hike sticking and modest improvement from the Jan '18 hike, we believe pricing in the high single digit range YoY can be achieved through the first 3 quarters of 2018 before tailing off.

We believe the company did itself a disservice by not adjusting the Composites OM for the $10M in bad debt expense from a Brazilian customer. Excluding this charge, Composite OMs improved 170 bps YoY to 14.0%, beating estimates by 50 bps.

Price Target Basis & Risks Our $88.00 Price Target implies a 17.5X 2018E P/E Multiple, 5.7% FCF Yield, and an EV/EBITDA multiple of 8.6X. Risks include Insulation domestic cyclicality, Global Industrial Production cyclicality, rising oil prices and volatile input costs and product pricing.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/OC102517-213347.pdf


https://www.wellsfargoresearch.com/Research%20Publications/2017/October/OC102517-213347.pdf

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Industry Consumer M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Six Flags Entertainment Corporation(SIX) Conder $60.70 DEC. $5.83 $6.74 1 $5,214.1 Last Reporting Date: 10/25/17 Before Open SIX: Growth Outlook Intact For 2018+ Core SIX/industry fundamentals remain solid despite a second year of weather driven challenges driven by unprecedented Q317/early

Q417 natural disasters. Core business remains steady and growth strategies on track, given (1) good underlying broad consumer fundamentals (i.e. wage growth, confidence, strong housing market), (2) Q317 active pass +13% and deferred revenues +21%, and (3) ability to take price +3-5% 2017/2018 without impacting demand. Looking ahead, we believe SIX should achieve its Project 600 financial targets in 2018 considering, (1) easy comparisons against two consecutive years of adverse weather, (2) solid demand evidenced by active pass and deferred revenue gains, (3) additional 100 operating days from year round Magic Mountain operations (accretive to adj. EBITDA), (4) likely at least one H118 incremental international park announcement (China and/or Saudi Arabia), and (5) growing all-season program (season pass/membership, dining, beverage) sales and penetration. Revised estimates. 2017E/2018E adj. EBITDA $519.5MM/$581.4MM (prior $530.5MM/$589.7MM), and adj. EBITDA/share $5.83/$6.74 (prior $5.89/$6.72). Minimal federal taxes expected in 2018/2019 (see next bullet).

Extended cash tax liability timeline. Softer than expected 2017 results plus ongoing tax minimization strategies will produce minimal Federal cash tax liabilities through 2019. SIX should then see Federal cash taxes ramp beginning in 2020 and reach a full statutory rate in 2024. NOL shield usage on taxable income is limited to $30MM a year between 2020 and 2023. A cash tax rate of 30% is expected beginning in 2024.

International developments. We believe at least one additional international park will be finalized and announced by mid-2018, most likely in China, followed by Saudi Arabia and Vietnam. Specifically, management did not dismiss leaked news of a pending additional park development announcement in China. Discussions for a Saudi Arabian park remain active with plans still yet to be finalized. No material incremental news on Vietnam as SIX's existing partner continues to work to resolve a land title issue while SIX is simultaneously seeks new park development partners.

Key Takeaways. Positives: (1) Attendance up yr/yr driven largely by new waterparks despite several natural disasters, (2) total per capita +1.4%, balanced between admissions +1% and in-park +2%, (3) active pass and deferred revenue up solid +13% and +21%, respectively, (4) minimal federal taxes expected in 2018 and 2019. Negatives: (1) Unprecedented natural disasters adversely impacted several parks in Texas, Atlanta, East Coast, and California, (2) elevated operating costs in Q317, and (3) achievement of Project 600 in 2017 no longer ''probable''.

Price Target Basis & Risks Our price target implies a 14.4x EV/EBITDA multiple, a FCF yield of 5.5%, and a 4.4% dividend yield to our 2018E $6.74/share Adjusted EBITDA, $3.59/share FCF, and $2.87/share dividend. Valuation risks: (1) economic challenges negatively impacting ticket prices and in-park spending, (2) adverse weather impacting multiple parks, (3) competitive entertainment alternatives, (4) park accidents, and (5) inadequate insurance coverage.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/SIX102517-133820.pdf

Industry Consumer Analyst Tobacco Herzog BAT's Investor Day Takeaways British American Tobacco (BAT, not rated) Outlined an Impressive Next Gen/Reduced-Risk Products (NGPs/RRPs) Strategy During its

Investor Meeting in London Today (10/25)- We attended BAT's mtg where CEO Nicandro Durante laid out an ambitious plan to substantially accelerate momentum behind its multi-category NGP strategy with the goal of: (1) more than doubling NGP revenue to over 1B in 2018 and more than 5B in 2022 (or 15-20% of total revs); and (2) achieving breakeven profits on NGPs by end of 2018 followed by ''substantial'' profits by 2022. While we came away quite impressed by BAT's robust innovation pipeline filled with multiple products across the vapour and heated tobacco spectrum, we have some concerns with execution risk given the shear breadth and complexities of its product offerings. While, BAT firmly believes its multi-category NGP approach is the right strategy given the multi-faceted consumer, mgmt noted its strategy is not necessarily easier, but smarter than its competitor's who to-date is putting everything behind one category (iQOS Platform 1). While on the surface, BAT's strategy appears in stark contrast to PM's more focused strategy, we believe PM's l.t. strategy is actually more similar to BAT's since it also includes: multiple categories under different iQOS platforms including heat-not-burn & vapor technology, a deep understanding of the consumer, digital capabilities and customization & personalization offerings. However, we tend to believe PM's strategy of being more focused n.t. is smart since it allows them to build scale more rapidly which is critical to ultimately driving greater profitability. Regardless, we think it's far too early in this multi-decade global race to determine who will win and in fact, continue to believe the runway is long enough for multiple winners, importantly one being the consumer. Bottom line, we believe BAT's increased focus on NGP development bodes well for the category as it helps build broader consumer awareness & interest in RRPs, ultimately benefiting PM.

BAT is Strengthening its Focus on NGPs & Accelerating Investments Across Multiple NGP Categories - BAT's presentation on next gen products was, in our view, the highlight of the event as it outlined in great detail the global opportunity for RRPs generally, echoing PM's bullish sentiment about the future of the category and the inevitability of a smoke free world. BAT forecasts the global NGP category will reach 30B by 2020 and similar to PM, BAT expects NGPs will represent 30% of their revenue by 2030. To date, BAT has spent far less on NGP development than PM (~2.5B BAT vs >$3B by PM) and is taking a slower approach to NGP product rollout than PM (e.g., glo is present in just five mkts globally & Vype/Vuse 12 mkts vs PM's iQOS which is now in 31 mkts. Granted, part of the reason for BAT's slower rollout has been due to capacity constraints but this is expected to ease by the end of 2018 when its capacity will reach 52B sticks (up from 18B in 2017). In terms of profitability, BAT expects tobacco heating product (THP) margins will be higher than combustible cigs and sees vapour margins even higher than THP given that vaping taxes are lower. Importantly, BAT expects to generate high-single digit EPS growth while it continues to invest in NGPs.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/TOBAC102517-221828_2.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/SIX102517-133820.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/TOBAC102517-221828_2.pdf



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Industry Consumer M. Cap Analyst Price FY FY17E FY18E Rating (MM$) TRI Pointe Group, Inc.(TPH) East $16.54 DEC. $1.39 $1.77 2 $2,656.3 Last Reporting Date: 10/25/17 Before Open TPH: No Longer California Dreaming It is hard to find fault with TPH's 3Q results. Management met or exceeded all internal and external expectations, while essentially re-

iterating a compelling '18 outlook. On a fundamental basis, it appears TPH could generate several quarters of outperformance barring an overall pull-back in the CA housing market. We are loathe to chase the equity at this point, given a current valuation providing only modest upside potential to fair value, not to mention its strong equity performance today (10/25) (+6.2% vs S&P -0.5%). This said, we would wait for a market pull-back or even greater fundamental acceleration to give us another shot at a missed opportunity, all else being equal.

While positive attributes are numerous, we struggle finding anything to be critical of regrading this quarter's performance. In our opinion, the largest impediment to the story moving forward would obviously be falling short of the '18 targets presented at the company's 2016 investor day. Moving forward, we expect TPH continues benefiting from a mix shift toward CA and its assets purchased from Weyerhaeuser that provide above average margins in the mid- to upper 20% range. This quarter, 18% of Orders came from these projects versus 10% a year ago. We expect the GM also benefits from a decline in Incentives (3.9% YTD vs 4.7%) and the absence by year-end of Inland Empire GM headwinds on land purchased prior to the reduction in FHA loan limits. Up 150 bps YoY to 17%, Maracay's (PHX) Gross Margin is also recovering from certain legacy land deals entered into when capital was constrained while under WY's ownership.

Our revised 2017 EPS estimate increases $0.10 to $1.39 from $1.29. For 2017, we now estimate Homebuilding Revenue increases 17.8% versus our prior 15.8% growth estimate on a 12.4% increase in Closings and 4.8% increase in pricing. Our OM forecast is 10.3%, as we now forecast a 72 bps YoY decline in GM to 20.5%, which is up 20 bps from our prior forecast.Our SG&A expense ratio projection falls to 10.2% from 10.4%. We now forecast a 19.7% Orders increase in 2017 compared to our prior 16.3% growth forecast. Our aggressive 2018 EPS estimate of $1.77 is predicated on 30.5% Revenue Growth, an 11.4% OM, a 21.1% GM and 9.7% SG&A ratio. We are introducing a 2019 EPS estimate of $2.09 based on 15.5% Revenue growth, a 21.3% GM and an 11.7% OM. Our revised Price Target of $17.50 is based on a 1.31X 2018E Book Value Multiple and a 9.9X P/E Multiple.

Price Target Basis & Risks Our Price Target implies a 1.31X 2018 BV multiple and a 9.9X 2018 EPS multiple.

Risks include rising mortgage rates, stalling household formation rates or a slackening employment landscape. https://www.wellsfargoresearch.com/Research%20Publications/2017/October/TPH102517-214729.pdf

Industry Consumer M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Wingstop, Inc.(WING) Farmer $31.99 DEC. $0.73 $0.82 1 $927.7 Last Reporting Date: 08/03/17 After Close WING: Expect Positive Updates On Delivery & Split Menu Pricing Heading into 3Q17, we continue to believe WING shares remain one of the most attractive restaurant investments driven by the

company's unit development momentum, same-store sales (SSS) drivers, cash flow visibility and special dividend potential. WING is scheduled to report 3Q earnings on 11/2 (AMC). We've modeled EPS of $0.15 (+14% yr/yr), a penny below the Street, and 2.0% system SSS, just below the 2.4% Street estimate and equating to a 420bps relative outperformance to the Black Box sector index. We expect investors to focus on: (1) October SSS trends with the concept almost 9 months into national TV advertising launch, (2) results from the expanded delivery test, & (3) impact from the brand's shift to split menu pricing (boneless vs. bone-in wings) across more markets. We continue to believe WING shares offer investors the best mix of the high-quality unit growth, with visibility into same-store sales (SSS) drivers (national TV intro and delivery), and attractive free cash flow profile (>100% free cash flow conversion).

We expect WING to provide greater detail on (and likely strong results from) the expanded delivery market tests. In mid-April, WING began testing third-party delivery in 10 Las Vegas franchise units (5 company and 5 franchise). Over the course of the 3+ month test, the Las Vegas market units saw delivery drive a 10 point SSS outperformance to the control group. WING believes that the majority of the delivery sales were incremental and noted that the average check for delivery was higher than the average check for takeout. WING continues to keep the delivery card close to the vest, but planned to expand the test to a much larger market (50+ units in our estimation) during 3Q17. WING worked with multiple 3rd - party delivery providers in Las Vegas and planned to narrow this group of providers with the second larger test. We expect WING to be in a position to introduce delivery to 75% or more of its system over multiple quarters in 2018, providing a sizeable system SSS tailwind well into 2019.

Special dividend likely to be paid in 2Q18, in our view. After initiating a quarterly dividend program ($0.07 per share quarterly dividend, or ~$2 million, paid on 9/18) we think the company is still in line to pay a special dividend in mid-2018. During the 2Q call, management commented that the quarterly dividend, for the foreseeable future, will be paid in addition to the special dividend. Based on our expectation that WING will maintain a leverage ratio within the 3.0-5.0x net-debt to adjusted EBITDA ratio, we think the company could pay a special divided between $2.50-$2.60/share, or about 8% of market cap.

Price Target Basis & Risks Our $35 price target equates to ~26x our 2018E EBITDA, a premium to the growth peer group average but merited, in our view, given WING's track record of delivering the rare combination of unit growth, SSS and EBITDA margin expansion. Risks include: (1) decelerating SSS growth, (2) inability to deliver on unit growth targets, and (3) eroding cash-on-cash returns.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/WING102517-090013.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/TPH102517-214729.pdf

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Industry Consumer M. Cap Analyst Price FY FY17E FY18E Rating (MM$) YUM! Brands, Inc.(YUM) Farmer $74.67 DEC. $2.80 $3.25 2 $29,718.7 Last Reporting Date: 08/03/17 Before Open YUM: We Expect Limited Ado Surrounding 3Q Lather, rinse, repeat: we expect another quarter of limited fireworks, but progress on the path to 2019 targets. YUM is due

to report 3Q17 earnings on 11/2 BMO. We're modeling EPS of $0.64, or $0.03 lower than the Street, but would note that since the cadence of refranchising and G&A cuts are unknown, there is a $0.04 standard deviation to the mean for the 22 analyst estimates. We believe investors will focus on: (1) 3Q same-store sales (SSS), particularly at Taco Bell (TB, where the concept came up shy of Street expectations last quarter) and Pizza Hut U.S. (PH, where the concept launched a brand turnaround effort during the 3Q), (2) updates on progress with the company's key long-term initiatives including refranchising, G&A cuts and unit growth, (3) any changes to 2017 guidance, and (4) management comments on new sales initiatives across the brands, with a particular emphasis on delivery. We continue to believe that the ebbs and flows associated with quarterly results will serve more as a check-up along the way to long-term 2019 targets, and as long as the targets remain unchanged, we don't see much happening with the shares on 3Q earnings. Raising our 2017E EPS to $2.80 (Street at $2.81) from $2.73, 2018E EPS to $3.25 (Street at $3.18) from $3.13 on better China numbers and FX tailwind. Price target moves to $75 from $72.

For 3Q17 we expect sequential SSS improvement on the back of healthy KFC China results. With YUM's largest franchisee (Yum China Holdings, Not Covered) already reporting 3Q SSS that bested Street expectations (+6.0%, including +7% at KFC and flat at Pizza Hut), we think YUM is poised to post in-line global SSS of +2.0% (vs. the Street's +1.6% estimate). We're modeling KFC SSS of +4% (vs. the Street's +2.6%) as we balance strong China results (+7%) against the brand's most difficult compare in the U.S. since 1Q16 (+6%). At PH, we're modeling flat SSS (vs. the Street's down 0.5%) which is a sequential improvement on the back of early turnaround efforts in the U.S. For TB, we expect 2% SSS (vs. the Street's 2.5%) which is a modest sequential acceleration on a 2-year basis.

PH U.S. revitalization plan in effect, but we expect modest progress on SSS turnaround in 3Q. We expect the PH U.S. business to demonstrate sequential SSS improvement in 3Q (from down 3% in 2Q and down 7% in 1Q) as the brand laps easier comparisons and begins to see early traction from YUM's reinvestment back into the brand. At the mid-September 2017 investor meeting, management outlined plans for the ~$130MM investment by YUM back into PH U.S. brand over the next 18 months including a large investment into digital (~$50MM), incremental advertising ($37.5MM, with franchisees committed to boosting the national ad fund contribution by 50bps over time), improved packaging and delivery operations (~$40MM).

Price Target Basis & Risks Our $75 price target equates to ~17x 2018E EBITDA. We believe the multiple is appropriate given the company's below peer-average unit & SSS growth balanced against increasing free-cash flow generation. Risks include (1)decelerating SSS, (2) slower-than-expected unit growth (3) prolonged top-line weakness in YUM's largest franchise market (China).

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/YUM100217-160048.pdf

Industry Energy M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Nabors Industries Ltd.(NBR) Bailey $6.41 DEC. ($1.55) ($0.64) 2/V $1,790.3 Last Reporting Date: 10/25/17 After Close NBR: Strategic Initiatives Moving Forward But Near-Term Results Disappoint Key Takeaway. Given 3Q results and guidance that suggest more ground to cover in the Lower 48 to get to expected ''normalized''

margin/day near $5,800-$6,000, we modestly lower our 2018 EBITDA estimate (-2%) to $746 MM while our 2019 estimate is approximately unchanged ($932 MM). In terms of the stock, we continue to see long term potential from several NBR initiatives including growth in Rig Services and Sanad (Saudi JV), but remain cautious on the prospects for growth across most international markets.

Lowering Near Term Lower 48 Outlook. We lower our 2018 EBITDA forecast for the Lower 48 to account for lower than expect margin/day guidance for 4Q17 ($4,500-$4,700 compared to our prior $5,100 forecast) and therefore a longer time to achieve ''normalized'' margin/day - we expect $5,800-$5,900 by 3Q18 compared to 1Q18 previously. NBR's Lower 48 rig count guidance was in line with our expectations, and we make only modest changes to our U.S. Offshore and Alaska assumptions. Overall, our U.S. Drilling EBITDA forecast declines modestly in 4Q and to $226 MM in 2018 from $231 MM previously.

International Outlook Largely Intact. We make only minor changes to our International Drilling forecasts. While NBR beat international margin/day expectations again in 3Q ($18,233 compared to our $17,500 forecast), 4Q guidance was essentially in line with expectations, and accordingly we maintain our expectations for 101/113 rigs in 2018/2019, and margin/day of $17,400.

Rig Services On Track. While we expect Canrig to continue to be lumpy, NDS continues to show progress (+28% QoQ) and management reaffirmed synergy targets for the Tesco acquisition which lends confidence in our prior EBITDA forecasts for Rig Services (unchanged at $95 MM/$147 MM in 2018/2019).

Delevering Remains A Priority. Following elevated capex in 2017 associated with rig upgrades, newbuilds, and acquisitions, we expect NBR to focus on cash flow generation and debt reduction in 2018. We forecast free cash flow of $160 MM/$265 MM in 2018/2019 (capex $480 MM) compared to an expected -$357 MM in 2017 (capex $546 MM), and note that the Company's net debt/cap covenant on its revolver stands at 0.54 (0.60 limit) and is forecasted to decline to 0.50 by 1Q19 (currently ~$350 MM of flexibility).

Price Target Basis & Risks Our price target is based on 6.0x estimated 2019 TEV/EBITDA (8.0x 2018), which reflects transition to a mid cycle multiple in 2019 as margins and EBITDA begin to normalize. Key risks include (1)a pullback in commodity prices, and (2) political/market risk across Latin America.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/NBR102517-220830.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/YUM100217-160048.pdf

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Industry Energy M. Cap Analyst Price FY FY17E FY18E Rating (MM$) RPC, Inc.(RES) Bailey $22.17 DEC. $0.79 $1.46 1/V $4,822.0 Last Reporting Date: 10/25/17 Before Open RES: Executing On Disciplined Strategy Key Takeaway. We modestly lower 4Q17 EBITDA to $155 MM (from $161 MM) for slightly lower HP deployment, maintain our 2018

EPS of $1.46 and increase 2019 to $1.58 from $1.48 to account for higher incremental HP deployment in late-2018 (that largely benefits 2019). Overall, we continue to expect RES to generate superior margins and returns compared to smid-cap peers as well as strong cash flow given its disciplined investment strategy.

Pressure Pumping Outlook Remains Solid. Although the market seems concerned by the lack of EPS beats in 3Q17 (RES included), increasing logistical pressures, and moderating pricing increases, we believe that the supply/demand outlook for pressure pumping remains attractive for the foreseeable future. Based on our macro outlook, we expect aggregate Lower 48 pressure pumping demand to increase by 1-1.5 MM HP from estimated 3Q17 levels, an environment that will allow for modest pricing gains and reward the most efficient service companies.

RES Maintains Market Leading Profitability. Although we estimate that RES' stage count efficiency per fleet was slowed down modestly in 3Q17 from some logistical constraints, which were partially offset by an increase in zipper frac activity, the Company maintains pressure pumping profitability metrics well above its smid cap peers on per fleet and HP metrics. Based on our estimates for pressure pumping EBITDA, we estimate that RES generated $560-$565 in EBITDA/active HP and annualized EBITDA per fleet of approximately $25-26 MM, significantly above other smid cap service companies that we estimate are tracking EBITDA/fleet in the $14-18 MM range over 2H17.

Modestly Increasing Deployed HP Assumptions. With RES now adding 127K HP to its fleet in 1H18 (vs prior disclosures of ~100k HP), we bump up our deployed HP estimates to 1 MM by 4Q18 from 977K HP previously with one incremental fleet deployment assumed in 1H18 and another in 2H18. From a fleet profitability standpoint, we assume that EBITDA/fleet remains in line with 3Q17 levels in the $25-26 MM range through 2019.

Expect Profitability To Continue To Advance Across All Businesses. Outside of the forecasted growth in pressure pumping, where we forecast revenue growth of 12% in 4Q17 and 44% incremental margins, we forecast 4-5% growth for the remainder of Technical Services (T.S.) with ~30% incrementals. For 2018/2019, we expect T.S. revenues of $2.1/$2.2 Bn with 25% margins. For Support Services we expect slight improvement in revenues and margins in 4Q17 and +18%/+14% YoY in 2018/2019 with -11%/-6% margins).

Price Target Basis & Risks Our price target is based on 7.5x estimated 2019 TEV EBITDA (8.5x 2018), which reflects a transition to a mid cycle multiple in 2019 as margins and EBITDA begin to normalize. Risks include (1) drop in oil prices or natural gas prices materially impacting customer cash flow, (2) spot pricing risk in the US pressure pumping market, and (3) potential frac oversupply in 2018.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/RES102517-215616.pdf

Industry Financial Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Arch Capital Group Ltd.(ACGL) Greenspan $102.11 DEC. $3.53 $5.75 2 $13,927.8 Last Reporting Date: 10/25/17 After Close ACGL: Q3 Misses--Cats Within Guided Range SUMMARY: Arch reported a Q3 operating loss of $0.79, missing estimate for a loss of $0.55 and consensus for a loss of

$0.61. The majority of the downside was due to higher cats than we had modelled, lower reserve releases, and weaker underwriting results in reinsurance, which was partially offset by stronger results in mortgage and a lower tax rate than we had expected. Cat losses came in at $347.8 million pre-tax, or $319.8 million after-tax, within the $285-345 million of after-tax losses Arch previewed. We had been looking for $315 million of pre-tax cats. ACGL's book value was essentially flat at $59.61 and the operating ROE was (5.3%). We do not expect much movement in the Arch shares due to earnings instead the shares should respond to the market outlook on the conference call.

Premium growth driven by mortgage, but Arch found opportunities in reinsurance. Gross premiums rose 28% (excluding Watford), higher than our +10% due to stronger growth in reinsurance and mortgage. Reinsurance rose 30% (vs our 0.4%) driven off of a retroactive cover (which added $45 million), reinstatements following the hurricanes ($25 million), and growth in international motor. Insurance saw modest growth and was up 3.8% (vs our -1.3%). Mortgage rose over 164% gross (we had been looking for just over 99% growth). New insurance written was $17.7 billion in mortgage, higher than $17.3 billion in Q2.

Margins offset by cats, underlying modestly weaker than we had expected. Arch's combined ratio (excluding Watford) was 101.0%, missing our 108.2% estimate. The majority of the delta was due to higher cat losses and lower reserve releases. Underwriting results exceeded our estimate in mortgage, were in-line in reinsurance (lower cats hit reinsurance than we had modelled, which offset a weaker-than-expected underlying margin), and missed in insurance (higher cats hit insurance than we modelled). The mortgage result stood out with a 41.3% underlying margin, better than our 39.5% estimate, due to 20.6% expense ratio. Reserve releases were $58 million, lower than our $63 million estimate, and down from $75 million last Q3.

Underlying margin slightly weaker than our estimate. The underlying combined ratio was 84.4%, modestly higher than our 84.1% estimate. The underlying loss ratio was 55.8% (higher than our 54.3%) reflective of a weaker reinsurance margin. The expense ratio improved by 4.6 points to 28.6% (better than our 29.8%) as mortgage and reinsurance expense ratios (reinsurance expense ratio benefited from the LPT) were better than we had expected.

Conference call. Arch is holding a conference call on Thursday, October 26 at 11am ET. The dial-in number is 877-858-8215; passcode: 93724925.

Price Target Basis & Risks Our price target of $100 is based on 1.5x our 2018 book value estimate of around $66. Risks to achieving the price target include large catastrophe and investment losses, increased competition, and a deterioration in loss costs.


https://www.wellsfargoresearch.com/Research%20Publications/2017/October/RES102517-215616.pdf

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Industry Financial Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Axis Capital Holdings Limited(AXS) Greenspan $56.34 DEC. ($2.24) $4.40 3 $4,685.1 Last Reporting Date: 10/25/17 After Close AXS: Q3 Just Misses Our Estimate--Cat Losses In-Line With Preannouncement SUMMARY: AXIS reported a Q3 operating loss of $5.35 per share, just missing our estimate for a loss of $5.32, but beating

consensus for a loss of $5.38. The downside when compared to our estimate reflects lower reserve releases and a lower-than-expected tax benefit. This more than offset lower than expected expenses. Cat losses were $617 million, in-line with our estimate, which was also the level the company previewed. Reserve releases were $47.8 million, lower than the $60.8 million we had expected. On an underlying basis, AXS' margins were better than we had modelled in both insurance and reinsurance due to better expense ratios as the underlying loss ratios in both segments fell short of our estimates. Fee income from strategic partners was $6 million, compared to $12 million in Q2 2017, and $8 million last year. Book value declined by 8.5% reflective of the cat losses. We do not expect much movement in the AXS shares in response to earnings.

Premium growth driven by reinsurance. Gross premiums grew by 23.5%, better than our 3.2% estimate and improving from 3.2% in Q2 2017 primarily driven by reinsurance growth. Net premiums were up 39.9% (vs our estimate for 13.2% growth). AXS' reinsurance book was up 55.1% gross and a higher 105.0% net. The growth mostly reflects timing differences and reinstatements following the hurricanes. Insurance business grew by 8% ex FX (above our +1.6%) reflecting growth in liability, credit, political risk, and aviation (from the Aviabel acquisition).

Combined ratio benefited from a lower expense ratio. The combined ratio was 152.9%, better than our 162.9% estimate due to a better expense ratio. Reserve releases were $47.8 million, lower than our $60.8 million estimate, and down from $76.0 million last Q3. Cat losses offset the combined ratio by 61.4%, lower than our 70.0% estimate, due to a higher level of earned premium.

Underlying margin better than our estimate on lower expenses. The underlying combined ratio was 96.1%, improving from 98.4% last year, and better than our 99.7% estimate. The expense ratio was better than expected in both segments and came in at 31.4%, vs. our 36.0% estimate and 35.6% last Q3 reflective of lower G&A costs (due to lower performance-related comp). The underlying loss ratio was 64.8% rising from 62.8% last Q3, and higher than our 63.7%. AXS saw its underlying loss ratio deteriorate in both segments - in reinsurance (by 3.6 points) due to mid-sized losses and the Ogden impact and in insurance (by 0.5 points) due to attritional property losses and the adverse impact of rate and trend.

Minimal shares repurchased prior to Novae deal. AXS suspended buybacks when it announced the Novae deal at the start of July. Prior to the deal AXS repurchased a modest $3 million.

Conference call. AXIS is holding a conference call on Thursday, October 26 at 9:00am ET. The dial-in number is 888-317-6003; access code: 3755829.

Price Target Basis & Risks Our price target of $54 is based on a 0.95x price to book multiple extended against our year-end 2018E GAAP book value of around $58. Risks to exceeding our price target include AXS reporting better than expected margin improvement, seeing a pick-up in its reserve releases, and the stock being supported by M&A in the sector.


Industry Health Care M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Amgen, Inc.(AMGN) Birchenough $177.50 DEC. $12.70 $12.77 2 $130,108.0 Last Reporting Date: 10/25/17 After Close AMGN: 3Q17 Trends Disappointing, Growth Strategy Not Emerging We are maintaining our MARKET PERFORM rating on shares of Amgen (AMGN) following review of 3Q17 operating results. Overall, we

found results disappointing with slight decline in revenues and below consensus results for newer growth products. Focus on highly competitive managed markets like osteoporosis, lipids and migraine fails to instill confidence in growth, in our opinion, and AMGN remains under-exposed to new growth areas of immuno-oncology, cell therapy, gene therapy, RNA therapeutics and neuroscience.

Amgen (AMGN) reported 3Q17 operating results after market close yesterday (10/25) and provided an update on key initiatives on a call with investors. Non-GAAP EPS of $3.27 was ahead of $3.11 Consensus, on in-line revenues and lower than expected operating expense.

Total revenues and product sales were down 1% year over year (YOY), with mixed results for legacy product sales and slightly weaker than expected sales for newer growth products.

Key legacy product sales included ARANESP sales of $516MM vs $522MM Consensus, NEULASTA sales of $1.17B vs $1.09B Consensus and ENBREL sales of $1.36B vs $1.39B Consensus.

Key growth product sales included PROLIA sales of $464MM vs $468MM Consensus, XGEVA sales of $387MM vs $413MM Consensus, KYPROLIS sales of $207MM vs $218MM Consensus and REPATHA sales of $89MM vs $106MM Consensus.

In terms of pipeline progress in support of future growth AMGN highlighted ongoing AIMOVIG regulatory review for migraine prevention with approval expected in 2018, REPATHA sNDA for CV risk reduction, KYPROLIS sNDA for ENDEAVOR survival data in myeloma, PROLIA sBLA for steroid induced osteoporosis and MVASI approval in September as a biosimilar to AVASTIN.

Price Target Basis & Risks We arrive at our price target on AMGN by applying a 14x multiple to our 2017 EPS estimate of $12.70.

Risks include greater than expected erosion of AMGN'S base biologics business, competition to KYPROLIS from generic Velcade and emerging myeloma treatments, and failure to gain approval for proprietary biosimilars.



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Industry Health Care M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Castlight Health, Inc.(CSLT) Stockton $4.25 DEC. ($0.22) ($0.08) 2/V $562.3 Last Reporting Date: 10/25/17 After Close CSLT: This Little Light Of Mine Summary. CSLT reported a pretty solid September quarter with revenue of $34.6 million (up 36% reported and an estimated 18%

organic) that was in line. Some extra pro services from Anthem were able to offset a slight miss on subscriptions. Op ex fell sequentially on Jiff integration and allowed an EPS loss of $0.05 vs. the consensus loss of $0.07. CSLT signed 26 gross new customers (including 16 from Anthem), although attrition of transparency-only customers was high (~11). The company continues to go through a difficult period of renewals around the core transparency solution where pricing is coming down and/or customers are leaving for cheaper standalone offerings that can check the box. However, the broader Engage platform is seeing strong traction and Jiff seems to have momentum. 2017 revenue guidance was trimmed a little on transparency-only attrition and a heavily customized Jiff contract that was ended, although op ex trends drove a better bottom line. While growth is implied to slow down in Q4 and Q1 (~5-10% organic), the platform business (two-thirds of backlog) is doubling yr/yr. It is a light at the end of the tunnel that should be reached around Q2 and drive organic revenue growth back into the 20s. Transparency is severely lacking in healthcare and CSLT has an expanding platform. We remain on the sideline for now, though. Our 2017 EPS improves $0.03 to a loss of $0.22 and 2018 improves $0.01 to a loss of $0.08. Our 12-month price target is now $4.50.

Full Analysis Attached. This note includes a full analysis of the income statement and other business metrics. Price Target Basis & Risks

Our 12-month price target of $4.50 is based on an EV/Sales of 3.5x our 2019 revenue estimate of $200 million. We arrive at this valuation by assuming CSLT trades in-line with similar growth and profitability SaaS companies. Risks to our valuation include capital markets volatility, client losses, and acquisition integration.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/CSLT102017-105825.pdf

Industry Industrial M. Cap Analyst Price FY FY17E FY18E Rating (MM$) KapStone Paper & Packaging Corp.(KS) Manuel $22.57 DEC. $1.32 $1.70 2/V $2,227.7 Last Reporting Date: 10/25/17 After Close KS: Unexpected Items Cause Q3 Miss; Q4 Outlook Below Expectations KapStone Paper and Packaging (NYSE: KS) reported adjusted Q3 2017 EPS of $0.37, up $0.01 from the prior year (Note: we

do not add back stock based compensation). KS delivered results below our $0.44 estimate and the FactSet mean of $0.43. Net sales increased 11.8% y/y to $868 million, and were slightly above our $861 million estimate. The revenue increase was driven by $57 million of higher pricing (+$72/ton) in domestic and export containerboard, extensible kraft paper, and Kraftpak. Volumes increased by 4.8% (+35k tons), as higher shipments in Containerboard/Corrugated Products was complimented by a 4.5% increase Specialty Paper volumes. EBIT in Q3 2017 of $70 million increased $8 million from Q3 2016 (+13% y/y), but was $9 million below our estimate (of which $7 million was related to non-recurring events discussed below). The increase from prior year was due to favorable price (+$57 million) and higher volumes (+$4 million). These positive contributors were partially offset by higher material costs (-$12 million), higher benefits (-$12 million), increased planned outage expense (-$9 million), and unfavorable other costs (-$8 million, including $7 million of higher freight/maintenance costs). In addition, KS incurred $7 million of unexpected headwinds (unplanned outages, bankruptcy, and inclement weather). The company's net leverage stands is 3.9x at the end of Q3 2017 (down from Q2) and Q3 2017 FCF was a $92 million source of cash compared to $96 million source in the prior year comparable period. KS reiterated the company is focused on realizing the recent kraft paper increase, indicating that the annual benefit should approximate $25 million (assuming full implementation), with only $2 million achieved in Q4 given timing (October 2017 post in Price Watch).

Expect negative reaction in light of below consensus outlook. Despite positive commentary around containerboard/kraft paper pricing dynamics and demand trends, we expect a negative reaction in KapStone's stock in morning session trading (10/26) due an unfavorable guide for Q4. Specifically, the Q4 outlook implies a sequential EBITDA decline of ~$5 million or $113 million. This compares to our current $124 million estimate and the consensus forecast of $125 million. We attribute a portion of the delta to higher wood fiber costs and increased maintenance expenses (extended boiler outage); though we intend to gain additional clarity on tomorrow's conference call.

Conference Call Information. KS will host a telephone conference regarding its Q3 2017 results tomorrow morning (10/26) at 11:00 a.m. EDT with a dial in of 888.608.7946 and password of 97997521. Issues we are interested to learn more about include: (i) export pricing environment in both containerboard and kraft paper grades; (ii) further clarity for expected EBITDA improvement in Q4; (iii) progress on mill investments and cost reduction measures as well as associated contribution in 2018; and (iv) market factors or indicators suggesting the recent kraft price increase is supportable.

Price Target Basis & Risks Our price target of $23.00 is based on an EV/EBITDA multiple of 7.3x or an 8.7% FCF yield, using our 2018 estimates. Risks that could cause the stock to move away from our price target include material shifts in pricing of OCC & demand for corrugated products.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/KS102517-221923.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/CSLT102017-105825.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/KS102517-221923.pdf

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Industry

Media & Telecommunications

Analyst Telecom Services Fritzsche 5G Travels Teach Us Much This has been a 5G deep dive week for us. On Monday (10/23) we traveled with Peter Rysavy (Founder of Rysavy Research) and

yesterday (10/25) we attended the Massive Broadband Network Densification conference in DC put on by the Wireless Technology Association and Georgetown University Center for Business and Public Policy. We were the only sell sider in attendance. Bottom line -5G will be a confluence of more fiber and more spectrum that together should enable the carriers to provide high speed mobile broadband with lower latency and a lot more capacity. The use cases for 5G range from massive IoT to fixed wireless to autonomous cars to mission critical operations. Protracted and expensive processes for siting small cells could add significant cost and delay to large scale 5G deployment.

IN THE SIMPLIST FORM 5G = FIBER DENSIFICATION - These events increased our (somewhat unabashed) enthusiasm for the fiber space and those who supply it. According to Rysavy both telecom and cable are pushing fiber deeper into the plant. Cable seems to be pushing toward a N + 0) architecture. What does this mean? In layman terms it means MSOs are pushing fiber to co-ax conversion to eventually not use amplifiers to deliver service. This positions it well in the small cell and 5G game, in our view.On the telecom side, it is clear VZ is being more aggressive and focused in its fiber build (within and outside of its ILEC footprint). T also is upping its high speed footprint expansion now aiming for 50MM homes by 2020 with ''high speed'' capabilities through a combination of VDSL2, Fiber to the Premise and 5G. All of these initiatives require a more fiber deep strategy.

NEW EQUIPMENT IS INDEED NEEDED - Our contacts indicated that unlike past ''G'' conversions (i.e. 2G to 3G), 4G equipment will not be software upgradable to 5G. Put another way - there will be NEW INCREMENTAL equipment needed for 5G network. While most of this equipment will likely be centered around small cells and fiber - the macro tower will participate as in many ways it may be viewed as the ''core'' of the network with much of the C-RAN (Cloud radio access network) and low band 5G spectrum networks needing additional equipment on the macro site.

ON SPECTRUM FRONT - MORE OPTIONS COMING - There are more options coming on the spectrum front which should offer capacity help for the carriers. Two of the most talked about spectrum initiatives are the unlicensed band (5GHz) and the 3.5GHz (CBRS spectrum) band. On the 3.5GHz front - this is one to watch. As it stands now ~ 150MHz of this spectrum will be auctioned off. Timing of theauction is unclear but we heard estimates as soon as 2018 to sometime after that. We also heard a lot more chatter about thepossibilityof up to 500MHz of more spectrumfreeingupin the 3.6GHz-4.2GHs bands, which our sources tell us is prime for 5Gmillimeterwave applications.In summary, 5G will use spectrum more efficiently and there will be thechance to deploy 5G on existing allocations, but the overwhelming point we heard reiterated over andover isthat more spectrum will be needed tofill that 5Gpipeline.


Industry Real Estate, Gaming, And Lodging M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Duke Realty Corporation(DRE) Heck $28.79 DEC. $1.28 $1.29 2 $10,151.4 Last Reporting Date: 10/25/17 After Close DRE: Q3'17 Operating Metrics Moderate As Expected, Acquisitions Commence Summary: DRE reported Q3 Core FFO of $0.30/sh, above our estimate and consensus of $0.29/sh, as interest & other income was

higher than forecasted (due to income from notes receivable associated with the Medical Office Building portfolio seller financing). Core FAD was $0.26/sh vs our $0.23/sh estimate; the delta was due to lower capex. 2017 FFO guidance was narrowed, yet essentially unchanged at the midpoint. BOTTOM LINE: We view Q3 as a decent quarter, with a slight Core FFO beat and strong leasing volume, though ssNOI growth and rent spreads decelerated as expected. We expect shares to trade slightly below peers ahead of the 10/26 call at 3:00pm EST. Dial: (612) 332-0632.

Guidance: Core 2017 FFO guidance was narrowed to $1.21-1.25/sh. All operating assumptions were reiterated. Operations: The in-service portfolio leased rate was 95.7% from 96.0% in Q2, yet we estimate asset recycling activity caused a

~140bp drag on occupancy. Cash rent spreads on new and renewal leases were +5.4% from +5.5% in Q2 and GAAP rent spreads were +15.9% from +18.7%. The concession ratio was 7.4% from 6.3% last quarter; the long-term average is 10.9%. Total leasing volume was 5.9MSF, above the 4.6MSF in Q2 and the retention ratio was 70.2% from 71.5%. Cash ssNOI growth was +2.2% from +3.6% last quarter; same-store occupancy fell 30bps y/y, revenues were +2.9% and expenses were +4.7%. Notably, the hhgregg bankruptcy negatively impacted ssNOI growth by 80bps during the quarter.

Asset Recycling: Q3 dispositions totaled $301MM including seven MOB assets (519KSF) and three suburban office assets (391KSF); the assets were sold at a 4.8% in-place cap rate and were 87.3% leased. Q3 acquisitions totaled $390MM at a 2.9% in-place cap rate though the stabilized investment is expected to total $402MM with a 4.6% stabilized yield. Included in Q3 acquisitions is the first tranche of the Bridge Portfolio (1.7MSF, 70% leased), which DRE closed in late September for $219MM. The second tranche is expected to close in late 4Q and cost $297MM.

Investment/Financing Activity: DRE started $166MM of wholly-owned development projects (2.4MSF) in the quarter that were 66% pre-leased. DRE placed eight wholly-owned development projects into service in Q3; total project costs were $223MM (3.4MSF) and the projects were 79% leased with an initial stabilized cash yield of 6.8%. The pipeline (DRE' share) totaled $696MM (63% pre-leased, $282MM costs remain) with a stabilized projected cash yield of 6.4% vs $774MM (65% pre-leased) with a 6.6% projected yield at 6/30. The same-store development pipeline was 65.4% pre-leased at 9/30, from 63.9% at 6/30. On 10/11, the company amended and restated its revolver, extending the maturity by three years and lowering the interest rate to L+0.875% from L+0.925%.

Price Target Basis & Risks Our price target is based on a ~15% premium to spot NAVe. Risks: Increases in industrial supply could jeopardize lease-up of development projects, and the company is currently going through a portfolio transformation with the sale of its MOB portfolio.

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Industry Real Estate, Gaming, And Lodging M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Kilroy Realty Corporation(KRC) Heck $71.14 DEC. $3.40 $3.71 1 $6,808.1 Last Reporting Date: 10/25/17 After Close KRC: Mixed Q3'17; Operating Metrics Decelerate Summary: KRC reported Q3 Core FFO of $0.91/sh, above our estimate of $0.88/sh and consensus of $0.85/sh due to higher property

NOI and lower interest expense than modeled. Core FFO excludes the $0.04/sh negative impact from the preferred equity redemption and we believe some Street estimates likely included the charge, weighing down consensus. Core FAD was $0.63/sh vs our estimate of $0.60/sh, the difference mainly attributable to the FFO beat. 2017 FFO guidance was raised by $0.02/sh at the midpoint for one-time items. BOTTOM LINE: We view Q3 as a mixed quarter, with an FFO beat and slight occupancy increase, but rent spreads, leasing volume and ssNOI growth were sluggish. Some of the moderation in growth was expected, but we think shares will trade below peers ahead of the 10/26 call at 1:00pm EST. Dial: (866) 312-7299.

Operations: Stabilized portfolio occupancy was 94.0% from 93.9% last quarter and the leased rate was 96.2% from 96.0%. Same-store occupancy decreased 2.4% y/y. Cash ssNOI was +0.8% from +1.9% in Q2; GAAP ssNOI was +2.4% from 0% in Q2. Leasing volume was weaker q/q at 209KSF, from 490KSF in Q2; the long-term average is 411KSF and the Q3 average is 422KSF. Cash rent spreads decreased substantially to +0.8% (+9.5% GAAP) from +12.6% (31.7% GAAP) in Q2--ex two leases in Orange County, cash spreads were +9.7%. Leasing costs were $8.24/SF/YR, below the $8.53/SF/YR in Q2 but above the long-term average of $4.91/SF/YR. The concession ratio was 17.1% from 18.2% in Q2 and the retention ratio on commenced leases was only 19.7% from 57.5% in Q2. KRC previously announced that the company signed Dropbox to a 15 year, 736KSF lease for 100% of the office space at the Exchange on 16th. Dropbox will take possession between Q4'18-Q4'19.

Guidance: Prior 2017 NAREIT FFO guidance of $3.35-3.45/sh was raised to $3.40-3.44/sh. We'll look for commentary on any changes in assumptions on the call, but we understand the increase was due to one-time income offset by an increase in bad debt expense.

Investment/Financing Activity: The construction pipeline consists of 333 Dexter, The Exchange on 16th, 100 Hooper, and One Paseo-Phase I with a total estimated investment of $1.4B at 9/30 ($737MM of costs remaining), flat from 6/30. The pre-leased rate (office only) is 62% from 18% at 6/30, with the Dropbox lease accounting for the difference. On 8/15, KRC redeemed 4MM shares of 6.375% Series H preferred stock for a cost of $100MM, resulting in a $0.04/sh negative impact to FFO due to a write-off of original issuance costs.

Asset Recycling: During Q3, KRC sold Sorrento Mesa and Mission Valley Properties (675KSF), including a 5 acre land parcel, for gross proceeds of $174.5MM. In October, KRC acquired a 1.2 acre development site in San Diego for $19.4MM.

Price Target Basis & Risks Our price target is based on a slight premium to our NAVe of ~$75.

Risks include high expiring rents and required occupancy gains in sub-markets with sluggish demand. Some of KRC's submarkets cater to tech and related tenants, where demand can be volatile.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/KRC102517-160602.pdf

Industry Real Estate, Gaming, And Lodging M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Prologis(PLD) Heck $64.20 DEC. $2.80 $2.88 2 $35,239.4 Last Reporting Date: 10/17/17 Before Open PLD: Strong Operations Continue But Appear Priced In Summary: PLD set a solid tone for the industrial REIT peer group with a respectable Q3 print and healthy outlook for the remainder of

2017. Operating results decelerated but remained strong and 2017 guidance was narrowed. That said, shares underperformed the RMZ (REIT Index) by 110bps on the day of the earnings release, which we believe reflects the high expectations for the sector. Given our view that strong operations and future growth from development seems priced in at current levels, we're reiterating our Market Perform rating and updating our 2017 Core FFO estimate to $2.80/sh from $2.81/sh prior and our 2018 Core FFO estimate to $2.88/sh from $2.87/sh. Our price target is now $65/sh from $60/sh.

Fundamentals Remain Strong: PLD management indicated that fundamentals in the US and Europe are robust, with net absorption constrained by a shortage of space. In the US, the company believes in-place rents are 18% below market with consumption growing at a faster pace than available stock and development starts have slowed compared to earlier in the year. In Europe, PLD expects a continued recovery that should drive the company's growth trajectory. Cap rate compression in Europe continued in Q3 and while construction costs are rising, PLD expects rental rates will rise on improved customer sentiment and very low vacancy.

Leverage: We calculate PLD's current Debt/Adj EBITDA at 5.8x (34% Net Debt/GAV), and believe the company could potentially bring down Debt/Adj EBITDA by 0.8x to 5.0x (32% Net Debt/GAV) by 2018 year-end. This continues a trend of meaningful de-leveraging for PLD; after the company's Q4'15 print, we calculated Debt/Adj EBITDA at 7.3x.

Development: PLD raised development starts guidance by $450MM at the midpoint with Q3 results and raised stabilization guidance by $100MM at the midpoint. The development portfolio (at PLD's share) stood at $2.83B, from $2.89B at 6/30. Q3 stars were $432MM, from $897MM in Q2. Given healthy supply/demand dynamics and the accompanying increase in dispositions/contributions guidance, we believe the increase in starts guidance is warranted.

Valuation: We calculate that PLD trades at a 4.7% implied cap rate and an 11% premium to our spot NAVe; P/FAD is 26.3x our 2018 estimate. We believe this valuation is fair and in line with PLD's industrial peers. Our spot NAV estimate is roughly $58/sh and our forward NAV estimate is roughly $64/sh. Our forward NAV assumes that ssNOI hovers around +4.5% (assuming flat occupancy) for the next 2 years, driven by a high-single-digit cash mark-to-market on expiring leases and strong rent bumps of 2.75% on average across the portfolio.

Price Target Basis & Risks Our price target is based on a 12% premium to our spot NAVe of $58/sh. Risks include (1) large amount of capital tied up in development (2) exposure to European/Asian economies, (3) high expectations that may be tough to meet.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/PLD101817-153453.pdf

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Industry Real Estate, Gaming, And Lodging M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Public Storage, Inc.(PSA) Stender $210.00 DEC. $10.28 $10.69 2 $36,561.0 Last Reporting Date: 10/25/17 After Close PSA: First Look - Q3 FFO Below Our Estimate Q3 Miss To Our Estimate. PSA reported Q3 core FFO of $2.61/share, which reflects add-backs of +$0.08 related to FX losses and

+$0.10 related to preferred stock redemption, offset in part by ($0.07) of hurricane-related losses. The adjusted result fell in-between our estimate ($2.62) and consensus ($2.60). Relative to our target, the result reflected better NOI offset by higher-than-expected G&A in our model. No FFO guidance was provided, which is standard practice for PSA.

Decelerating Same-Store Pace Moderated In Q3. Same-store revenue growth came in at +3.2% yr/yr in Q3 and a slight moderation in growth rate from the Q2 pace (+3.3%). While the trend of yr/yr deceleration continued in Q3, the drop was not nearly as severe as we have witnessed in recent quarters (results had been declining by 50-60bps quarter by quarter stretching back to 2015). Weighted average occupancy for the same store pool dropped by 80bps from Q316 to 94.5%, which is still quite high relative to industry norms. Realized rental rates per available square foot (REVPAF) were up 2.6% yr/yr at $16.56 in the quarter. Operating expenses were up 3.6% yr/yr in Q3 and down from the +5.4% pace in Q2, +3.9% in Q1, and +6.4% in Q316. Same-store (SS) NOI growth came in at +3.1% yr/yr and above the Q2 pace of +2.6%, which should gain investor attention as PSA's NOI growth trend has been decelerating for the past several quarters along with the other storage REITs.

Acquisition Flow Continues, Funding In Part With Debut Debt Offering. In Q3, PSA acquired 7 self-storage facilities across 5 states containing 0.4MM sq. ft. for $47MM; so far in Q4, an additional 8 properties containing 0.5MM sq. ft. have either been acquired or are under contract to be acquired for $68MM. On the construction/expansion front, PSA completed 9 development and redevelopment projects in Q3 totaling $145MM in invested capital. As of Q3, new development and expansion projects totaled $365MM with $378MM remaining to be funded, the majority of which is expected to be funded over the next 18 months. On the capital front in Q3, PSA issued $300MM of 5.05% Series G Preferred Shares (and redeemed $463M of 5.75% Series T Preferred Shares) in addition to floating $1B of unsecured debt across 2 tranches of 5yr (@2.37%) and 10yr (3.094%) paper; this was previously announced. See our note, ''PSA: Debut Bond Offering Announced After Years Of Hinting. Company Issues $1B Of Unsecured Debt,'' dated 9/14 for further details.

Conference Call On Thursday, October 26 at 1pm ET. Dial-in: (866) 406-5408; Conference ID: 94094559. Price Target Basis & Risks

Our 12-month price target is based on the shares trading at a 13% premium to our current NAV estimate of $199, which is derived by applying a cap rate of 5.5% to forward cash NOI. The 13% premium to NAV is consistent with how the shares have traded relative to NAV over the past 12 months. Risks include an inability to sustain operating margins, deterioration in pricing power, untested yield management strategies, and deterioration in consumer demand for storage.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/PSA102517-114324.pdf

Industry Technology & Services M. Cap Analyst Price FY FY18E FY19E Rating (MM$) CA, Inc.(CA) Winslow $34.13 MAR. $2.47 $2.66 3/V $14,334.6 Last Reporting Date: 10/25/17 CA: Organic Growth Disappoints Results: Underperform-rated CA reported Q2 FY2018 results of EPS of $0.62 and $1.034 billion in revenue versus consensus

expectations of EPS of $0.62 and $1.053 billion in revenue, respectively. Bookings equaled $720.0 million versus consensus expectations of $736.1 million. Operating margin equaled 37.9% versus consensus of 36.5%

Analysis: CA reported Q2 FY2018 revenue and billings below consensus expectations due to lackluster sales performance, deal slippage, and a lighter renewal base. Total revenue grew 2% year-over-year (1% constant currency [CC]). Despite a 12% year-over-year growth contribution from Automic and Veracode, Enterprise Solutions (ES) only grew 7% year-over-year (6% CC), which would imply the business contracted by 5% year-over-year (6% CC) on an organic basis, with new sales down in the low single digits (down approximately 20% organically). Management is targeting organic growth in FY2019 for ES in addition to growing contributions from Automic and Veracode. Although the company's legacy Mainframe Solutions business (MS) declined 2% year-over-year (3% CC), in part due to a smaller renewal portfolio, management noted that new sales were strong driven by new product growth, particularly Mainframe Operations Intelligence, Data Content Discovery, and Dynamic Capacity Intelligence, with new sales up in the low-20s. We would also note CA was able to hold their MS operating margins at 65% and expects to maintain their strict cost controls.

We will monitor the growth in ES and whether the segment can offset CA's shrinking MS business, which is expected to structurally decline in the low single-digits. We continue to believe CA has extracted nearly all possible operating leverage from its Mainframe Solutions business and, therefore, needs to focus on growing Enterprise Solutions, adding net new customers, and selling outside of the renewal base to maintain its current revenue trajectory and drive earnings and cash flow growth over the medium-to-long term. (See CAutious About Growth And Margins.) Although we support management's strategy to promote growth in its Enterprise Solutions portfolio, we do not believe this segment has enough operating profit growth potential to offset the structural headwinds in the Mainframe Solutions business.

Guidance: CA raised FY2018 revenue guidance to $4.220-4.250 billion and maintained EPS guidance of $2.42-2.48 versus consensus of $4.211 billion and $2.46, respectively. CA continues to expect the renewal portfolio will be back-end loaded, which will therefore significantly impact the trajectory of bookings throughout FY2018.

Estimates: We are revising our revenue and EPS estimates for FY2018 to $4.219 billion and $2.47 from $4.206 billion and $2.44, respectively.

Outlook: We reiterate our Underperform rating for CA Technologies which is rooted in our expectation of continued headwinds stemming from the secular decline in the high-margin mainframe software market and keeps us cautious on CA's revenue growth potential and the resulting overall operating margin.

Price Target Basis & Risks Our price target of $27.50 is based on an NTM PE multiple of 11.2 as well as an NTM EV/UFCF multiple of 17.8. CA's business is susceptible to adverse changes in global economic and political conditions. Additionally, the sudden loss or departure of CA's executive officers could negatively impact the business.

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Industry Technology & Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Citrix Systems, Inc.(CTXS) Winslow $82.43 DEC. $4.79 $5.97 1/V $13,040.4 Last Reporting Date: 10/25/17 CTXS: On The Starting Line Results: Outperform-rated Citrix reported Q3 results of EPS of $1.22 and $690.9 million in revenue versus consensus of EPS of $1.04

and $691.6 million in revenue, respectively. Operating margin of 31.6% exceeded consensus of 29.0%. Citrix announced plans to return $2 billion of capital to shareholders through 2018.

Analysis: Citrix reported revenue slightly below but margins and EPS above consensus due to lower operating expenses and taxes. While Software Licenses and Products declined 6.8% year over year (due to a 16% decline in NetScaler product revenue), Workspace Services license revenue grew 3%. License Updates and Maintenance revenue exceeded consensus due to the impact of the migration to Customer Success Services (CSS), which we believe consensus has not properly accounted for (as highlighted in our recent upgrade). Overall, we view Q3 results as solid-given the stability in Workspace Services, upside to LUM revenue, and greater focus on cost controls.

Guidance: Citrix also provided extensive detail on the company's accelerating shift to an increasingly subscription- and cloud-based business. Specifically, Citrix guided to a 50%+ CAGR in subscription revenue growth between 2017 and 2020 as customer purchases shift away from perpetual models as compared to a 10% compounded annual decline rate for license+maintenance revenue.

As with most subscription and cloud transitions in software, Citrix expects near-term revenue to be negatively impacted by the shift away from perpetual license sales. Specifically, Citrix provided 2018 guidance for revenue of $2.848-2.887 billion and margins of 29.0-30.0%, as compared with consensus (which had not reflected an acceleration in subscription transition) of $2.933 billion and 32.0%, respectively.

Despite the near-term pressure on reported revenue due to this mix-shift, Citrix noted that sales under its subscription-based pricing models reach revenue break-even in approximately 2.5 years and are accretive to revenue-and operating income-thereafter. As such, Citrix expects to reach a +4% revenue growth at a +33% operating margin in 2020, driving more than $7.00 in free cash flow per share in the 2020-2021 timeframe.

Estimates: We are revising our revenue and EPS estimates for 2017 to $2,826 million and $4.79, respectively, from $2,821 million and $4.60, respectively.

Outlook: We believe that Citrix is positioned to exceed management's guidance for both 2018 revenue and operating margin and 2020-2021 free cash flow per share, given our analysis that this outlook does not fully account for (1) the more than $200 million in incremental maintenance revenue from the CSS migration, (2) the potential to use incremental leverage for additional share repurchases, or (3) the full impact from the shift to subscription and cloud. (See Better Service, Better Stock; Upgrading To Outperform.) We reiterate our Outperform rating and our $95 target price.

Price Target Basis & Risks Our price target of $95 is based on an EV/NTM UFCF multiple of 12.1. Citrix's business is susceptible to adverse changes in global economic and political conditions. Additionally, the sudden loss or departure of Citrix's executive officers could negatively impact the business.

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Industry Technology & Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) Cognizant Technology Solutions Corp.(CTSH) Caso $74.25 DEC. $3.69 $4.35 1 $43,733.3 Last Reporting Date: 08/03/17 Before Open CTSH: Q3 2017 Preview Cognizant (CTSH) Q3 2017 Preview - Focus Remains on Operating Margin Expansion Progress, But We Expect Limited New Information;

Read-Through From Peers Increases Pressure on Healthcare for Delivering Upside as Financial Services Spend Appears to Remain Muted; Raising Our Price Target as We Roll Out New 2019 Estimates. We continue to believe that progress on operating margin expansion towards CTSH's targeted 22% in 2019 is the key metric for the shares, although we expect limited new information on this effort. Our focus questions in this area are 1) management's view on the ability to further increase utilization (we estimate in the mid-80% currently on a global, x-trainee basis), 2) progress on pyramid restructuring, including details of the previously announced employee buyouts, 3) update on employee reskilling efforts as digital revenue is increasingly emphasized, and 4) details on wage increases and involuntary turnover (wage increase schedule this year was pushed back to Q3 vs. typical Q2 timing). Also of note is CTSH's views on the key financial services and healthcare verticals (about two-thirds of revenue), where read-throughs from peers have been inconsistent. BOTTOM-LINE. We raise our price target to $86 (17x our new CY19E non-GAAP EPS estimate of $5.07). While we expect limited new information on the key driver of the shares (progress to margin expansion goals), we continue to view the shares as attractively priced given the 15%+ EPS growth we expect for both 2018E and 2019E.

Estimates Raised. Our model now includes the TMG Health acquisition, which closed in late August. We assume it adds about $250 million in annual revenue. This acquisition was not included in CTSH's prior guidance. We assume an about $80 million revenue contribution for 2017. Our 2017 EPS estimate remains $3.69. Our 2018 EPS estimate goes to $4.35 from $4.33. We also initiate a $5.07 2019 non-GAAP estimate, which assumes revenue growth of 9% and non-GAAP operating margin of 22.0%.

Financial Services and Healthcare Verticals. Commentary from peers on demand in the key Financial Services vertical (39% of total) have been mixed, with most indicating budget growth has been muted as clients reduce run the business costs to reinvest in digital and client-facing areas. This suggests limited opportunity for upside here for CTSH given this is the most mature and penetrated vertical. That stated, management has stated that its guidance does not require acceleration to be achieved. Peer messages in the Healthcare vertical have been similarly mixed, although we believe most are not good read-throughs for CTSH. We expect healthcare momentum from Q2 continue (as large payers resume M&A-delayed spending) and also note that the inclusion of TMG Health (closed in August, we believe not in Street models) could provide further upside potential.

Price Target Basis & Risks We believe CTSH shares will trade in the $86 range. This is 17x our 2019E pro forma EPS. Risks to our price target include a large exposure to the now hopefully improving banking sector, potential delays related to political uncertainty with the Affordable Care Act, and the potential for unfavorable visa reform in the U.S. and elsewhere.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/CTSH102017-150431.pdf

Industry Technology & Services Analyst Transaction and Business Services Willi Quick Thoughts From Money 2020 Summary Viewpoint; While not attending any of the formal presentations at Money 2020 we did have a variety of meetings with

industry participants on a variety of topics. Thoughts are as follows; 1) The integrated payments channel may be seeing its best days for margins as software companies are going to get more aggressive with revenue share agreements and exclusivity may slowly become a thing of the past. 2) Overall, several conversations lead us to believe that merchant acquirers focused on small/mid-size businesses (SMB) may be at a point of sustainable price increases. 3) We believe that GPN is beginning to make some moves on pricing with the HPY franchise. 4) Consistent with other events we attended, the reviews of FDC and Clover continue to trend decidedly positive.

Revenue share agreements in the integrated payment channel may begin to feel some pressure in the next 24 months. We don't think that investors should panic but it appears that over the next couple of years that revenue sharing and exclusivity agreements could pressure the economics of the integrated channel. There is still a healthy amount of runway for the channel (driving volume) but economics for acquirers may begin to feel some pressure. That being said, we look for some payments companies to step up their efforts to acquire vertical-leading software companies and wouldn't be surprised to see software companies acquire payment platforms or build them out on their own. We believe the move by Chase to acquire WePay may put them in a position to work more closely with software companies than they currently do.

Several people that we met with indicated that that they believe that traditional acquiring industry could be set to enjoy rising revenue yields versus concerns about persistent price pressure. This is the most the most optimistic that we have seen industry participants and is driven by; 1) Consolidation in the market and fewer competitors. 2) An emerging class of premium payment providers while second tier providers struggle to be competitive the premier players gain share with stickier solutions. 3) The increased complexity of payments is resulting in cross-sells (security, data) as well as the ability to just raise prices. However, there were those that also expressed some concern that acquirers may be pushing the envelope a bit with some the security and compliance fees that have been created in the last couple of years.

Company specific takeaways were somewhat limited but we do have some thoughts; 1) First Data; Continues to see positive commentary on partner relationships and Clover. Clover continues to get good reviews, entities that don't sell Clover, want to sell Clover. 2) Global Payments; We heard in a couple conversations that they may have made some moves recently with pricing, particularly the HPY merchants. We don't expect it to impact 3Q results but could show up in later quarters. 3) Vantiv; Like GPN we picked up chatter on price moves though it seems it is more incremental than anything else.


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Industry Technology & Services M. Cap Analyst Price FY FY17E FY18E Rating (MM$) trivago N.V.(TRVG) Stabler $8.34 DEC. (€0.05) (€0.09) 2/V $2,239.3 Last Reporting Date: 10/25/17 Before Open TRVG: Key Customer Weakness Clouds Outlook, Weak View Of 1H'18 Offered Quarter ahead of lowered guide, but 4Q outlook lowered. Trivago's 3Q results, which came in modestly better than we expected,

clearly did not come as a comfort to investors-in our view-as management again lowered the full-year outlook and offered a preliminary view of 1H'18 that is sharply lower than current Street estimates. Though changes to Trivago's quality assessment scores have been previously cited as a primary driver of customer spending disruptions, it now appears that one of TRVG's largest customers (we believe PCLN) appears to be pulling back on spending increases faster than a slowly broadening customer base can compensate. Full-year revenue guidance has been accordingly impacted, with management now expecting full-year growth of 36%-39% from ~40%, previously, implying revenue growth deceleration from 67% in 1H'17 to 13% in 2H'17 at guidance midpoint. Flowing through results and revised 4Q estimates, we lower our 4Q'17 revenue estimate by 12.6% to $182.5MM and our FY'17 revenue forecast by 1.6% to $1,036.4MM, representing 37.4% y/y growth. With lower per user monetization expected, we significantly lower our 4Q and FY'17 EBITDA estimate from $13.5MM/$20.2MM to -$13.2MM/$2.1MM, respectively. As our FY'18 revenue and adj EBITDA are lowered 19% and 114%, respectively, we lower our price target to $9 from $13, and maintain our Market Perform rating.

Mix of traffic and monetization challenges. Underlying regional metrics point to broad challenges, as each region posted a significant deceleration in growth of qualified referrals. Of note, qualified referral growth in Developed Europe all but ceased, dropping to 1% y/y growth from 35% seen in 2Q. Americas decelerated to 18% from 58%, while ROW (rest of world) fell to 55% from 115% posted in 2Q. We believe ramping competition across performance marketing channels could be impacting Trivago's ability to efficiently drive high-value traffic, leading to a softening in return on ad spending metrics.

Customer concentration risk dents preliminary FY'18 outlook. On a positive note, management noted that conversion rates are generally improving-which could be a precursor for improving monetization if trends continue. But it appears less than certain that TRVG's two largest customers (PCLN and EXPE) will consequently increase their respective bids based on improved ROI linked to TRVG referrals. And though management has cited the expansion of its bidding customer base as a strategic goal, we're not confident that the introduction of new bidders (e.g. hotels directly) can sufficiently compensate for spending shifts by PCLN and EXPE, which we believe together represent easily over 60% of company revenues. In the near term, we believe this uncertainty introduces an increased level of variability into TRVG's own marketing spend, where performance marketing designed to drive high intent traffic could be compromised by sustained levels of lower per user monetization.

Price Target Basis & Risks Our $9 price target is based on 2.4x 2018E EV/Sales, and is supported by our discounted cash flow valuation analysis. Risks to our price target include TRVG's premium valuation, competition from a variety of travel ecosystem participants including TRVG's own customers, customer concentration risk, execution risk, foreign currency exchange risk and political risk, among other factors.

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/TRVG102517-192912.pdf

https://www.wellsfargoresearch.com/Research%20Publications/2017/October/TRVG102517-192912.pdf



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