credit suisse’s top u.s. investment ideas under $3 billion

Top Picks In Small & SMID

Credit Suisse’s Top U.S. Investment Ideas Under $3

Billion & $3-7 Billion

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®

Client-Driven Solutions, Insights, and Access

25 February, 2013

Americas/United States

Equity Research

Small & SMID Cap

Small & SMID Cap Research

Research Analysts

Credit Suisse US Equity Research 877 291 2683

[email protected]

Credit Suisse Global Product Marketing 212 538 4442

[email protected]

Lori Calvasina 212 538 6396

[email protected]

Sara Mahaffy 212 325 6824

[email protected]

Lauren Thompson 212 325 1417

[email protected]

Arbin Sherchan, CFA 212 325 8967

[email protected]

Jim Kelly 212 538 5414

[email protected]

DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

1

Table of Contents

Section Page

Overview 2

Changes to Small/SMID Top Picks Since Last Publication 3

Top Picks in Small Cap (Under $3 Bn) By Sector 4

Top Picks in SMID Cap ($3-7 Bn) By Sector 6

Basic Materials 10

Consumer Discretionary 12

Consumer Staples 20

Energy & Utilities 22

Financials 29

Health Care 35

Industrials 40

Media / Internet / Telecom 47

Services 48

Technology 50

2

Methodology

“One-stop shop” for the CS research team’s highest conviction ideas.

Each analyst identified and ranked up to 3 top stock picks based on a 6-12 month time horizon.

Analysts who did not list a name under $3 billion in market cap were given the opportunity to add a “bonus small-cap pick”.

In an effort to limit the list to only high-conviction ideas, analysts were allowed to submit fewer than 3 stocks.

For each name, we include a short summary of our analyst’s thesis as a starting point for further analysis.

This report lists top ideas in small cap (under $3 billion) and SMID cap ($3-7 billion), drawing from the top ideas of our dedicated SMID

analyst team plus other industry analysts.

These lists should not be viewed as portfolios; they are simply a current snapshot of the analysts’ top picks in their coverage universes.

Small & SMID Takeaways

Among our analysts’ 146 top ideas, 27 are small cap (Under $3 billion) and 43 are SMID ($3-7 billion). There are 6 new additions (AB,

FHN, HSH, NXST, SPN, WFR) to the small/SMID lists, along with 4 removals (IRG, TAL, TER, TUMI).

Top Picks In Small Cap: Consumer - Lithia Motors, Standard Pacific, Tenneco; Energy/Utilities – Crosstex Energy, Energy XXI,

GulfMark Offshore, Gulfport, KiOR, MEMC Electronic Materials, PDC Energy, SolarCity, Solazyme, Targa Resources; Financials –

AllianceBernstein, First Horizon, PennyMac Mortgage, Susquehanna, Walter Investment Management; Healthcare - Cepheid, Health

Management Associate, Medidata, Team Health; Industrials – Esterline; Media – Nexstar Broadcasting; Technology – Jive Software,

Proofpoint, Ultimate Software Group

Top Picks In SMID Cap: Basic Materials - Ashland, Peabody Energy, Reliance Steel & Aluminum, Rockwood Holdings, US Steel;

Consumer – Cabela’s, Dillard’s, Foot Locker, Panera Bread, Penn National Gaming, Toll Brothers, TRW Automotive, Under Armour,

Family Dollar, Hillshire Brands; Energy/Utilities – Access Midstream, Cheniere, Genesis Energy, Kirby, Rowan, Superior Energy

Services; Financials - East West Bancorp, First Republic, Huntington Bancshares, Lazard, Nationstar Mortgage, Validus; Healthcare -

Illumina, Medivation, Seattle Genetics, Universal Health; Industrials - BE Aerospace, Gardner Denver, Genessee & Wyoming, KBR Inc,

Terex, Triumph, Wesco; Services – DST Systems, IHS, Vantiv; Technology - Concur, Lam Research

Note we publish this report in tandem with the Top Picks report by the CS Product Marketing team, which includes mid and large cap details.

Overview

3

Changes To Small & SMID Top Picks Since Last Publication

ADDITIONS (6) Analyst Coverage Universe Comments

AB AllianceBernstein Craig Siegenthaler Asset Managers AB is new #1 Top Pick

FHN First Horizon National Corp Nicholas Karzon Regional Banks FHN is new #2 Top Pick

HSH Hillshire Brands Robert Moskow Food / Agribusiness HSH is new #1 Top Pick

NXST Nexstar Broadcasting Group Michael Senno Media NXST is new #2 Top Pick

SPN Superior Energy Services, Inc. James Wicklund Oil Services & Equipment SPN is new #1 Top Pick

WFR MEMC Electronic Materials Inc. Satya Kumar Semiconductor Equipment WFR is new #1 Top Pick

Source: Credit Suisse; Data as of 22-Feb-2013

REMOVALS (4) Analyst Coverage Universe Comments

IRG Ignite Restaurant Group Keith Siegner Restaurants

While we still like LT growth story, we are

concerned about a slowdown in casual

dining traffic and the recent acquisition of

Macaroni Grill increases near-term

execution risks.

TAL TAL International Group Gregory Lewis Leasing & Logistics The stock had a good run.

TER Teradyne Inc. Satya Kumar Semiconductor Equipment We see LRCX/KLAC/ASML as better

positioned.

TUMI Tumi Holdings Christian Buss Apparel & Footwear

While we continue to like TUMI’s growth

prospects, we see stronger growth

opportunities from PVH given its recent

acquisition of WRC.

UPGRADES (4) Analyst Coverage Universe Comments

HBAN Huntington Bancshares Incorporated Craig Siegenthaler Regional Banks HBAN moved to #1 (from #2)

HMA Health Management Associate Inc. Ralph Giacobbe Health Care Facilities & Svcs HMA moved to #1 (from #3)

IHS IHS Kelly Flynn Business, Education & Professional Svcs IHS moved to #1 (from #2)

LRCX Lam Research Corp. Satya Kumar Semiconductor Equipment LRCX moved to #1 (from #2)

DOWNGRADES (2) Analyst Coverage Universe Comments

TMH Team Health Holdings Inc. Ralph Giacobbe Health Care Facilities & Svcs TMH moved to #3 (from #2)

UHS Universal Health Services Inc. Ralph Giacobbe Health Care Facilities & Svcs UHS moved to #2 (from #1)

4

Top Picks in Small Cap (Sub $3 Bn) – Consumer, Energy/Utilities

Source: CS Small & Mid Cap US Equity Strategy, RAVE, performance as of 2/22/2013

Ticker Name Rating CP TP Sector Industry Analyst Rank Cap NTM P/E

DY 1M YTD

TEN Tenneco Inc. OP $36.65 $46.00 Consumer

Discretionary Auto & Auto Parts Chris Ceraso 3 $2.2B 9.8x 0.7% 4.4%

SPF Standard Pacific Corp. OP $7.77 $9.00 Consumer

Discretionary

Homebuilding & Building

Products Dan Oppenheim 2 $1.6B 23.7x -5.6% 5.7%

LAD Lithia Motors, Inc. OP $41.53 $50.00 Consumer

Discretionary Retail: Hardlines Gary Balter 3 $1.1B 12.5x -1.3% 11.0%

SZYM Solazyme OP $8.48 $17.00 Energy/Utilities Alternative Energy -- Clean

Tech

Patrick Jobin / Ed

Westlake 1 $0.5B NM 11.0% 7.9%

KIOR KiOR OP $5.62 $25.00 Energy/Utilities Alternative Energy -- Clean

Tech

Patrick Jobin / Ed

Westlake 2 $0.6B NM -7.6% -12.3%

WFR MEMC Electronic Materials Inc. OP $5.03 $8.00 Energy/Utilities Alternative Energy -- Solar Satya Kumar 1 $1.2B 19.0x 23.3% 56.7%

SCTY SolarCity OP $18.90 $22.00 Energy/Utilities Alternative Energy -- Solar Satya Kumar 2 $1.4B NM 19.6% 58.4%

XTXI Crosstex Energy, Inc. OP $17.81 $19.00 Energy/Utilities MLP's John Edwards 1 $0.8B NM 2.8% 10.2% 24.2%

TRGP Targa Resources Corp. OP $61.03 $76.00 Energy/Utilities MLP's John Edwards 3 $2.6B 47.3x 2.8% 2.5% 15.5%

GLF GulfMark Offshore OP $39.33 $45.00 Energy/Utilities Oil & Gas Equipment &

Services Greg Lewis 3 $1.1B 11.6x 2.5% 13.4% 14.2%

PDCE PDC Energy OP $43.36 $57.00 Energy/Utilities SMID Cap Oil & Gas E&P Mark Lear 1 $1.3B 48.1x 14.7% 30.6%

GPOR Gulfport Energy OP $36.91 $57.00 Energy/Utilities SMID Cap Oil & Gas E&P Mark Lear 2 $2.9B 27.0x -10.5% -3.4%

EXXI Energy XXI OP $30.84 $42.00 Energy/Utilities SMID Cap Oil & Gas E&P Mark Lear 3 $2.4B NA -7.9% -4.2%

5

Top Picks in Small Cap (Sub $3 Bn) – Financials, Healthcare,

Industrials, Media, Technology


DY 1M YTD

AB AllianceBernstein OP $22.38 $24.00 Financials Asset Managers Craig Siegenthaler 1 $2.4B 14.7x 5.8% 9.1% 28.4%

PMT PennyMac Mortgage

Investment Trust OP $24.62 $27.00 Financials Mortgage REITs Doug Harter 1 $1.5B 7.2x 9.1% -13.6% -2.6%

WAC Walter Investment

Management OP $46.60 $58.00 Financials Mortgage REITs Doug Harter 3 $1.7B 7.5x 0.8% 8.3%

FHN First Horizon National Corp OP $10.55 $12.00 Financials Regional Banks Craig Siegenthaler 2 $2.6B 12.7x 0.6% 5.3% 6.5%

SUSQ Susquehanna Bancshares OP $11.57 $13.00 Financials SMID Cap Banks Matthew Clark 2 $2.2B 12.2x 2.6% 2.4% 10.4%

MDSO Medidata Solutions Inc OP $50.31 $58.00 Healthcare Health Care Distribution &

IT Glen Santangelo 3 $1.3B 41.4x 9.4% 28.4%

HMA Health Management Associate OP $10.98 $12.00 Healthcare Health Care Facilities &

Svcs Ralph Giacobbe 1 $2.8B 12.0x 10.6% 17.8%

TMH Team Health Holdings Inc. OP $32.88 $39.00 Healthcare Health Care Facilities &

Svcs Ralph Giacobbe 3 $2.2B 17.7x -0.2% 14.3%

CPHD Cepheid OP $36.20 $40.00 Healthcare Life Sciences & Tools Vamil Divan 1 $2.4B NM 2.3% 7.1%

ESL Esterline Technologies OP $69.75 $71.00 Industrials SMID Cap Aerospace &

Defense Julie Yates 2 $2.2B 12.1x 1.5% 9.7%

NXST Nexstar Broadcasting Group OP $14.26 $17.00 Media/Internet/

Telecom Media Michael Senno 2 $0.4B 11.0x 10.9% 34.7%

ULTI The Ultimate Software Group OP $96.82 $117.00 Technology SMID Cap Software Michael Nemeroff 2 $2.6B 67.7x 2.2% 2.6%

JIVE Jive Software, Inc. OP $15.16 $20.00 Technology SMID Cap Software Michael Nemeroff 3 $1.0B NM 2.9% 4.3%

PFPT Proofpoint OP $14.76 $18.00 Technology Software Phil Winslow 4 $0.5B NM 15.8% 19.9%


6

Top Picks in SMID ($3-7 Bn) – Basic Materials, Consumer


DY 1M YTD

ROC Rockwood Holdings Inc. OP $59.54 $70.00 Basic Materials Chemicals John McNulty 1 $4.8B 14.3x 1.9% 9.4% 20.4%

ASH Ashland Inc. OP $77.06 $93.00 Basic Materials Chemicals John McNulty 3 $6.2B 9.8x 0.9% -10.5% -4.2%

RS Reliance Steel & Aluminum OP $68.20 $85.00 Basic Materials Metals & Mining Richard Garchitorena 1 $5.2B 11.2x 1.3% 7.3% 9.8%

X United States Steel Group OP $21.33 $30.00 Basic Materials Metals & Mining Richard Garchitorena 2 $3.1B 18.7x 0.9% -14.6% -10.6%

BTU Peabody Energy Corp OP $22.68 $33.00 Basic Materials Metals & Mining Richard Garchitorena 3 $6.1B 36.0x 1.5% -12.4% -14.8%

UA Under Armour, Inc. OP $47.25 $60.00 Consumer

Discretionary Apparel & Footwear Christian Buss 1 $4.9B 31.4x -0.9% -2.6%

TRW TRW Automotive Holdings OP $58.20 $71.00 Consumer

Discretionary Auto & Auto Parts Chris Ceraso 1 $6.9B 8.9x 3.0% 8.6%

PENN Penn National Gaming OP $50.09 $60.00 Consumer

Discretionary Gaming & Lodging Joel Simkins 1 $3.8B 19.7x 3.0% 2.0%

TOL Toll Brothers OP $34.59 $42.00 Consumer

Discretionary

Homebuilding & Building

Products Dan Oppenheim 1 $5.9B 32.3x -6.7% 7.0%

PNRA Panera Bread OP $157.17 $193.00 Consumer

Discretionary Restaurants Keith Siegner 1 $4.6B 21.8x -2.3% -1.0%

DDS Dillard's Inc. OP $84.92 $95.00 Consumer

Discretionary

Retail: Broadlines &

Department Stores Michael Exstein 2 $4.0B NA 5.5% 4.8% 1.4%

FL Foot Locker, Inc. OP $33.96 $43.00 Consumer

Discretionary

SMID Cap Consumer

Discretionary Seth Sigman 1 $5.1B 11.9x 1.5% 5.7%

CAB Cabela’s OP $50.31 $59.00 Consumer

Discretionary

SMID Cap Consumer

Discretionary Seth Sigman 2 $3.5B 16.0x -2.7% 20.5%

HSH Hillshire Brands OP $32.69 $35.00 Consumer

Staples Food / Agribusiness Rob Moskow 1 $4.0B 18.6x 3.5% 6.8% 16.2%

FDO Family Dollar OP $56.68 $65.00 Consumer

Staples Retail: Food & Drug Ed Kelly 1 $6.6B 13.4x 1.4% -2.5% -10.6%


7

Top Picks in SMID ($3-7 Bn) – Energy/Utilities, Financials,

Healthcare Ticker Name Rating CP TP Sector Industry Analyst Rank Cap

NTM P/E

DY 1M YTD

ACMP Access Midstream Partners, LP OP $36.67 $41.00 Energy/Utilities MLP's Brett Reilly 1 $6.1B 20.5x 4.8% 2.9% 9.3%

LNG Cheniere Energy, Inc. OP $20.99 $25.00 Energy/Utilities MLP's Brett Reilly 2 $4.7B NM 0.6% 11.8%

GEL Genesis Energy, LP OP $44.03 $52.00 Energy/Utilities MLP's John Edwards 2 $3.6B 27.4x 4.3% 14.3% 23.3%

RDC Rowan Companies OP $35.17 $45.00 Energy/Utilities Oil & Gas Equipment &

Services Greg Lewis 1 $4.4B 13.2x 1.9% 12.5%

KEX Kirby Corporation OP $74.68 $73.00 Energy/Utilities Oil & Gas Equipment &

Services Greg Lewis 2 $4.2B 17.5x 14.3% 20.7%

SPN Superior Energy Services, Inc. OP $26.20 $29.00 Energy/Utilities Oil Services & Equipment James Wicklund 1 $4.1B 11.5x 6.9% 26.4%

LAZ Lazard Ltd. OP $36.03 $40.00 Financials Brokers, Exchanges & Trust

Banks Howard Chen 1 $4.5B 17.3x 2.2% 3.8% 20.7%

NSM Nationstar Mortgage Holdings OP $38.07 $48.00 Financials Mortgage REITs Doug Harter 2 $3.4B 9.1x 5.4% 22.9%

VR Validus OP $35.31 $42.00 Financials P&C Insurance Mike Zaremski 2 $3.8B 7.2x 2.9% -1.5% 2.1%

HBAN Huntington Bancshares

Incorporated OP $6.98 $8.00 Financials Regional Banks Craig Siegenthaler 1 $5.9B 10.4x 2.3% -0.7% 9.2%

EWBC East West Bancorp, Inc OP $24.77 $26.00 Financials SMID Cap Banks Matthew Clark 1 $3.5B 12.1x 1.7% 7.0% 15.3%

FRC First Republic Bank OP $36.91 $43.00 Financials SMID Cap Banks Matthew Clark 3 $4.8B 12.3x 1.1% 2.7% 12.6%

MDVN Medivation OP $49.51 $73.00 Healthcare Biotechnology Ravi Mehrotra / Lee

Kalowski 2 $3.7B NM -13.3% -3.2%

UHS Universal Health Services Inc. OP $57.99 $51.00 Healthcare Health Care Facilities & Svcs Ralph Giacobbe 2 $5.6B 12.6x 5.1% 19.9%

ILMN Illumina, Inc. OP $49.03 $59.00 Healthcare Life Sciences & Tools Vamil Divan 2 $6.1B 29.6x -3.1% -11.8%

SGEN Seattle Genetics OP $27.23 $32.00 Healthcare SMID Cap Biotechnology Jason Kantor 2 $3.2B NM -7.8% 17.4%


8

Top Picks in SMID ($3-7 Bn) – Industrials, Services, Technology


DY 1M YTD

BEAV BE Aerospace Inc. OP $52.82 $59.00 Industrials Aerospace & Defense Rob Spingarn 2 $5.5B 14.8x 4.3% 6.9%

GWR Genesee & Wyoming, Inc. OP $87.00 $102.00 Industrials Airfreight & Ground

Transport

C. Ceraso / A.

Landry 3 $4.3B 18.6x 3.2% 14.4%

GDI Gardner Denver, Inc. OP $70.84 $75.00 Industrials Electrical Equip & Multi-

Industry Julian Mitchell 3 $3.5B 13.0x 0.1% 1.6% 3.4%

KBR KBR Inc. OP $30.99 $40.00 Industrials Engineering & Construction Jamie Cook 1 $4.6B 11.6x 2.4% 3.6%

WCC Wesco International OP $73.35 $84.00 Industrials Environmental Services Hamzah Mazari 2 $3.2B 12.4x 0.7% 8.8%

TEX Terex Corporation OP $32.47 $46.00 Industrials Machinery Jamie Cook 2 $3.6B 11.8x 12.9% 15.5%

TGI Triumph Group Inc OP $73.47 $82.00 Industrials SMID Cap Aerospace &

Defense Julie Yates 1 $3.7B 11.0x 0.1% 3.0% 12.5%

IHS IHS OP $103.61 $107.00 Services Business, Education &

Professional Svcs Kelly Flynn 1 $6.8B 22.7x 2.4% 7.9%

VNTV Vantiv, Inc. OP $22.70 $27.00 Services IT Services & Consulting Georgios Mihalos 1 $4.8B 16.0x 9.8% 11.2%

DST DST Systems OP $67.59 $77.00 Services IT Services & Consulting Georgios Mihalos 3 $3.1B 14.6x 1.0% 4.5% 11.5%

LRCX Lam Research Corp. OP $42.03 $48.00 Technology Semiconductor Equip Satya Kumar 1 $6.8B 14.1x 4.8% 16.3%

CNQR Concur Technologies Inc. OP $71.20 $83.00 Technology SMID Cap Software Michael Nemeroff 1 $4.0B 66.9x 0.3% 5.5%


Top Picks by Sector / Industry

Symbols:

New Top Pick since last publication

Company has been upgraded in rank since last publication

Company has been downgraded in rank since last publication

10

John McNulty [email protected]

(212) 325-4385

# Tkr Company Cap NTM

P/E

DY 1M YTD Rationale

1 ROC

Rockwood

(Outperform, CP

$59.54, TP

$70.00)

$4.8B 14.3x 1.9% 9.4% 20.4%

Looking to 2013, despite the macro uncertainty, we expect ROC to outperform the space as:

1) management remains committed to separating ROC from the TiO2 business in 2013

(reaffirmed by their consolidation of 100% stake in the business), thereby helping the

valuation multiple recover, 2) management has provided clarity on the uses of its $1.4B cash

hoard (post the collapse of the Talison acquisition) which include a $400M (~10%) share

repurchase program, and 3) investors focus on the potential for upside to ROC’s numbers

helped by solid lithium demand/pricing, steady growth in ceramics and the potential start to a

recovery in the Performance Additives segment.

3 ASH

Ashland

(Outperform, CP

$77.06, TP

$93.00)

$6.2B 9.8x 0.9% -10.5% -4.2%

ASH was one of the better performing stocks in the group in 2012 and we believe it will be

one of the best performers in the space again in 2013 with multiple expansion and earnings

that come in better than consensus. We believe the fundamentals of their business are likely

to show improvement throughout the year, and management will work to fix Water Tech. As

such, we believe ASH offers a compelling risk/reward profile for investors with the stock

likely reaching the low to mid $90’s over the next 12-months. However, for the stock to reach

its full potential ($115-$120 over next 18 months), management needs to successfully

execute on: 1) drive high-single digit organic growth in Spec Ingredients, 2) fix (or divest)

Water Tech, and 3) manage Street expectations more effectively over the next few quarters

(constant blow outs/ups are hurting the multiple)—all possible but require change/execution.

Basic Materials Chemicals


Note: No change to Top Picks since last publication.

11

Rich Garchitorena [email protected]

(212) 325-5809


P/E

DY 1M YTD Rationale

1 RS

Reliance Steel

(Outperform, CP

$68.20, TP

$85.00)

$5.2B 11.2x 1.3% 7.3% 9.8%

Levered to US recovery without direct global exposure (95%+ revs from US). Industry-

leading size & scale, diversified end market mix/product mix, strong margin sustainability.

Stellar track record of acquisitive growth, $800m in revolver availability.

2 X

United States

Steel

(Outperform, CP

$21.33, TP

$30.00)

$3.1B 18.7x 0.9% -14.6% -10.6%

We see a number of compelling industry and company specific datapoints which suggest

that 4Q will prove the earnings trough, with an expected steel price recovery pushing the

shares higher over the next 3 months given that 1) X is highly levered to steel prices, autos

in particular, which we expect to continue to improve in the coming months, 2) we anticipate

a reversal in rig counts which sets the stage for a potential OCTG demand recovery in

2H’13, and 3) seasonality remains supportive.

3 BTU

Peabody

Energy

(Outperform, CP

$22.68, TP

$33.00)

$6.1B 36.0x 1.5% -12.4% -14.8%

Peabody Energy remains our top pick in the coal sector, given its 1) global diversification

and organic Australian growth (Australian assets provide direct access to Pacific Basin

markets, 20-30% Australia volume growth by 2015 expected, largest producer in the PRB),

2) significant, growing leverage to metallurgical coal markets (potential 40-55% increase in

met coal/PCI sales by 2015) and 3) Compelling Valuation, trading at a 17% discount to

historical multiples.

Basic Materials Metals & Mining



12

Christian Buss [email protected]

(212) 325-9667


P/E

DY 1M YTD Rationale

1 UA

Under Armour

(Outperform, CP

$47.25, TP

$60.00)

$4.9B 31.4x -0.9% -2.6% Focus on domestic apparel growth absolutely appropriate and channel expansion initiatives

are encouraging; continue to see call option on footwear and international businesses.

Consumer Discretionary Apparel & Footwear


Note: Removed TUMI (while we continue to like TUMI’s growth prospects, we see stronger growth opportunities from other names).

13

Chris Ceraso [email protected]

(212) 538-4529


P/E

DY 1M YTD Rationale

1 TRW

TRW

Automotive

(Outperform, CP

$58.20, TP

$71.00)

$6.9B 8.9x 3.0% 8.6%

Under-valued auto supplier with outstanding balance sheet, best-in-class management

team, strong FCF generation, & potential for bigger capital returns. Catalysts in next 6-12

months include (1) resolution of European anti-trust investigation, (2) EBIT margin inflection

point, (3) top-line acceleration (2013-15) and (4) accretion from new $1 billion stock

buyback.

3 TEN

Tenneco

(Outperform, CP

$36.65, TP

$46.00)

$2.2B 9.8x 0.7% 4.4%

Secular growth story in diesel emissions, as commercial vehicles in major markets must

adopt more stringent emissions equipment. Regulation cycle should drive 15-20% top-line

growth over next 5 years. Mediocre execution in other parts of business has depressed the

multiple, but big opportunity remains.

Consumer Discretionary Autos & Auto Parts



14

Joel Simkins [email protected]

(212) 325-5380


P/E

DY 1M YTD Rationale

1 PENN

Penn National

Gaming

(Outperform, CP

$50.09, TP

$60.00)

$3.8B 19.7x 3.0% 2.0%

Recent announcement of REIT spin-off will unlock real estate value and return capital to

shareholders. Growth pipeline (Columbus + OH VLT’s) with options (racetracks), best-in-

class management, leverage to domestic recovery, and proven acquisition platform.

Consumer Discretionary Gaming & Lodging



15

Dan Oppenheim [email protected]

(212) 325-5726


P/E

DY 1M YTD Rationale

1 TOL

Toll Brothers

(Outperform, CP

$34.59, TP

$42.00)

$5.9B 32.3x -6.7% 7.0%

Continuing strong demand in West, Mid-Atlantic and Northeast markets. Deep land inventory

(8.8 years vs. 5.4 average) supports higher margins than having to acquire land in today's

environment. With strong balance sheet, TOL can take advantage of opportunities (entry

into Seattle market; JV with Shea). Recent pullback provides a nice opportunity.

2 SPF

Standard Pacific

(Outperform, CP

$7.77, TP

$9.00)

$1.6B 23.7x -5.6% 5.7%

$1.1 bln of land investment in ‘11 and ‘12 adds high-margin communities and orders for ‘13,

‘14, and beyond. Large and attractive existing land base in California (59% of inventory),

where tight existing inventory will create pricing power and drive further expansion to best-in-

class margins. $420 mln DTA reversal also likely in 4Q12.

Consumer Discretionary Homebuilding & Building Products



16

Keith Siegner [email protected]

(212) 538-3094


P/E

DY 1M YTD Rationale

1 PNRA

Panera Bread

(Outperform, CP

$157.17, TP

$193.00)

$4.6B 21.8x -2.3% -1.0%

High-quality growth story with several years of upside to consensus comps and EPS (driven

by marketing, catering, and drive-thrus) adding to already strong unit & EPS growth story.

Will focus on infilling existing markets supporting new unit AUVs and (already extremely

accretive) ROICs.

Consumer Discretionary Restaurants


Note: Removed IRG (while we still like LT growth story, we are concerned about a slowdown in casual dining traffic and the recent acquisition of Macaroni Grill increases near-term execution risks).

17

Michael Exstein [email protected]

(212) 325-4147


P/E

DY 1M YTD Rationale

2 DDS

Dillard's

(Outperform, CP

$84.92, TP

$95.00)

$4.0B NA 5.5% 4.8% 1.4%

Well positioned for a continued shift in spending to “FAB”, significant improvements are still

to be had as sales productivity remains well below the industry average, and our FY13E

EPS incorporates muted sales growth, flat gross margin, and slight SG&A deleverage,

meaning further upside is possible.

Consumer Discretionary Retail: Broadlines & Department Stores



18

Gary Balter [email protected]

(212) 538-4228


P/E

DY 1M YTD Rationale

3 LAD

Lithia Motors

(Outperform, CP

$41.53, TP

$50.00)

$1.1B 12.5x -1.3% 11.0%

One of best positioned auto dealers with solid top-line growth, protected gross profits and

stellar track record of expense discipline. Among the best operating leverage plays in one of

our favorite segments. Expect above-average EPS growth as new vehicle SAAR normalizes

over next few years.

Consumer Discretionary Retail: Hardlines



19

Seth Sigman [email protected]

(212) 538-8043


P/E

DY 1M YTD Rationale

1 FL

Foot Locker

(Outperform, CP

$33.96, TP

$43.00)

$5.1B 11.9x 1.5% 5.7%

We continue to view FL as one of the better positioned names to deliver EPS upside over

the next couple quarters, driven by strong category trends as well as internal drivers such as

improvements in apparel business, higher return new store prototypes, and a turnaround of

its women’s business.

2 CAB

Cabela’s

(Outperform, CP

$50.31, TP

$59.00)

$3.5B 16.0x -2.7% 20.5%

We view CAB as one of the better retail growth stories, well positioned to deliver upside to

near and long term EPS expectations through growth of its higher return new store formats.

Our analysis points to high teens EPS growth potential vs. current expectations in the low to

mid-teens.

Consumer Discretionary SMID Cap Consumer Discretionary



20

Rob Moskow [email protected]

(212) 538-3095


P/E

DY 1M YTD Rationale

1 HSH

Hillshire Brands

(Outperform, CP

$32.69, TP

$35.00)

$4.0B 18.6x 3.5% 6.8% 16.2%

Cultural change at the organization is refilling the innovation pipeline with resonant new

product ideas and advertising investment. We believe these changes will spur volume

growth of 3-4% by FY 15, which in turn will generate outsized profit growth at Hillshire due to

the slack capacity in the manufacturing footprint currently. Additionally, we see rising

probability of a take-out due to what we believe will be an active year for private equity in the

consumer staples space.

Consumer Staples Food / Agribusiness


Note: HSH is new #1 Top Pick.

21

Ed Kelly [email protected]

(212) 325-3241


P/E

DY 1M YTD Rationale

1 FDO

Family Dollar

(Outperform, CP

$56.68, TP

$65.00)

$6.6B 13.4x 1.4% -2.5% -10.6%

We expect operational improvement initiatives and new management to cause comps to

accelerate beyond peers’. Closing just a portion of the productivity gap to DG could

translate to meaningful EPS upside.

Consumer Staples Retail: Food & Drug



22

Patrick Jobin / Ed Westlake [email protected]/

[email protected]/

(212) 325-0843 / (212) 325-6751


P/E

DY 1M YTD Rationale

1 SZYM

Solazyme

(Outperform, CP

$8.48, TP

$17.00)

$0.5B NM 11.0% 7.9%

SZYM’s technology converts sugars into high-value tailored oils, biofuels, and low-

cholesterol and healthy nutritional ingredients using non-photosynthetic algae that naturally

produce oils from sugar. The company is partnered and has agreements with Bunge, DOW,

Unilever, Roquette, ADM, Sephora, and the US Navy. The first large plant comes online

4Q13 in Brazil but with offtake & financing news expected throughout 2013.

2 KIOR

KiOR

(Outperform, CP

$5.62, TP

$25.00)

$0.6B NM -7.6% -12.3%

KIOR has a thermochemical process to turn low-value non-food wood and waste agricultural

residues into valuable non-ethanol biofuels. We project KiOR is economic with $70bbl oil at

target yields without subsidies. The first large commercial plant has started producing

renewable oil and is currently being optimized to reach targeted yields and utilization rates.

As the commercial economics are proven at scale over the coming months we expect

multiple expansion.

Energy & Utilities Alternative Energy - Clean Tech



23

Satya Kumar [email protected]

(415) 249-7928


P/E

DY 1M YTD Rationale

1 WFR

MEMC

Electronic

Materials

(Outperform, CP

$5.03, TP

$8.00)

$1.2B 19.0x 23.3% 56.7%

WFR’s solar project business is benefiting from a significant decline in solar costs as well as

growing demand in distributed generation and from emerging solar markets. Also, the

semiconductor wafer business may benefit from increase in utilizations and possibly pricing

in 2013.

2 SCTY

SolarCity

(Outperform, CP

$18.90, TP

$22.00)

$1.4B NM 19.6% 58.4%

SolarCity is a rapidly growing energy service provider in the distributed solar generation

market. Lower panel prices, rising retail electricity prices, low interest rates, and stable

federal incentives have enabled a relatively new class of downstream companies such as

SCTY to become viable. Even excluding ~$0.60/Watt in post-contract value, we estimate

SCTY to create an attractive ~$1.09/Watt of NPV on new bookings in 2013-15. We expect

the NPV/Watt to decline to ~34c/Watt in 2020 due to potential net metering fees after the 5%

cap is reached in California and the ITC decline from 30% to 10% after 2016. We think DCF

best captures the variations in NPV/Watt. Our TP of $22 reflects a 20% WACC, no residual

value, and a terminal multiple of 3.0.

Energy & Utilities Alternative Energy - Solar


Note: WFR is new #1 Top Pick.

24

John Edwards [email protected]

(713) 890-1594


P/E

DY 1M YTD Rationale

1 XTXI

Crosstex

Energy

(Outperform, CP

$17.81, TP

$19.00)

$0.8B NM 2.8% 10.2% 24.2% Pure-play GP pass through should benefit from 8%-10% distribution growth at underlying

LP. XTXI guiding to 40% y/y exit-rate dividend growth in 2013.

2 GEL

Genesis Energy

(Outperform, CP

$44.03, TP

$52.00)

$3.6B 27.4x 4.3% 14.3% 23.3%

Well-positioned to benefit from crude oil production growth in Eagle Ford, Permian and

GOM. We expect yield compression to occur as GEL has no IDR burden and is guiding to

double-digit distribution growth for 2013.

3 TRGP

Targa

Resources

(Outperform, CP

$61.03, TP

$76.00)

$2.6B 47.3x 2.8% 2.5% 15.5% Like XTXI, TRGP is a pure-play GP pass through that also is also poised for significant

dividend growth (~30%) in 2013.

Energy & Utilities MLP's



25

Brett Reilly [email protected]

(212) 538-3749


P/E

DY 1M YTD Rationale

1 ACMP

Access

Midstream

Partners

(Outperform, CP

$36.67, TP

$41.00)

$6.1B 20.5x 4.8% 2.9% 9.3%

ACMP provides gathering, processing, treating and compression services to producers

under long-term, fixed-fee contracts. ACMP’s $2.16b acquisition of CMD supports visible

+15% distribution growth over the next several years. Furthermore, WMB’s investment in

ACMP is an upgrade in sponsor quality and opens the door for additional growth

opportunities longer term.

2 LNG

Cheniere

Energy

(Outperform, CP

$20.99, TP

$25.00)

$4.7B NM 0.6% 11.8% No news is good news. With major hurdles and several rounds of dilution behind the stock,

it's time for focus to return to fundamentals which are as robust as ever.

Energy & Utilities MLP's



26

Greg Lewis [email protected]

(212) 325-6418


P/E

DY 1M YTD Rationale

1 RDC

Rowan

Companies

(Outperform, CP

$35.17, TP

$45.00)

$4.4B 13.2x 1.9% 12.5%

RDC has a best in class high spec/premium jackup fleet and should benefit from continued

increases in dayrates and contract durations throughout 2013. Additionally, we believe

RDC’s discount has been a result of its absence from the deepwater. With four newbuild

drillships scheduled for delivery over the next two years we expect the valuation gap to

close.

2 KEX

Kirby

Corporation

(Outperform, CP

$74.68, TP

$73.00)

$4.2B 17.5x 14.3% 20.7%

Kirby is the largest owner/operator of inland barges for the US domestic petrochemical trade

and recent acquisitions will solidify KEX as the top coastwise barge operator and drive

further growth in 2013. We note Kirby continues to benefit from low natural gas prices which

drive increased barge traffic on US inland waterways.

3 GLF

GulfMark

Offshore

(Outperform, CP

$39.33, TP

$45.00)

$1.1B 11.6x 2.5% 13.4% 14.2%

Increased demand for boats continues to be driven by increased CAPEX spend in the

offshore E&P sector. We expect utilization and rates to strengthen in 2013 with the delivery

of 54 jackups and 22 floating rigs. We view GLF as well positioned given fixed rate coverage

in the North Sea and leveraged to an improving US Gulf market. At 7x our 2014 EBITDA

estimate we believe the risk is skewed to the upside.

Energy & Utilities Oil & Gas Equipment & Services



27

James Wicklund [email protected]

(214) 979-4111


P/E

DY 1M YTD Rationale

1 SPN

Superior Energy

Services

(Outperform, CP

$26.20, TP

$29.00)

$4.1B 11.5x 6.9% 26.4%

SPN offers the second most leverage to an improving North American drilling market in 2013

behind Halliburton (HAL). With pressure pumping prices likely to stop going down by the

end of Q1 2013 as the seasonal recovery in U.S. rig count begins, margins will begin to

improve. With continued demand for NGLs and steady offshore rig count growth in the Gulf

of Mexico, SPN will be one of the biggest beneficiary as the seasonal beta trade continues.

Energy & Utilities Oil Services & Equipment


Note: SPN is new #1 Top Pick.

28

Mark Lear [email protected]

(212) 538-0239


P/E

DY 1M YTD Rationale

1 PDCE

PDC Energy

(Outperform, CP

$43.36, TP

$57.00)

$1.3B 48.1x 14.7% 30.6%

Best way to play Niobrara & Utica. In Niobrara, 12+ years of inventory with improving

recoveries and additional upside in Codell and Niobrara C. In Utica, recently announced

positive well result, which along with other operators’ well results indicate that it is significant

resource play.

2 GPOR

Gulfport Energy

(Outperform, CP

$36.91, TP

$57.00)

$2.9B 27.0x -10.5% -3.4%

With 9 operated horizontal Utica wells reported to the market to date, GPOR is very early in

the delineation and development phase of what could potentially be one of the best projects

among US onshore E&P. We project peer leading production growth with GPOR delivering

total production and liquids production growth at 67% and 49% CAGRs over 2012-2014

compared to our peer group medians of 13% and 29%, respectively. While securing

processing and takeaway capacity remains a primary concern for operators in the Utica,

GPOR is already way ahead of the game, having partnered with MWE to construct gathering

and processing in the region. While the focus remains on the Utica, GPOR also holds a 25%

equity stake in Grizzly Oil Sands ULC, which has 800k net acres in the Athabasca and

Peace River oil sands regions in Alberta, Canada, and a 21% equity stake in Diamondback

Energy, which has over 50k net acres in the Midland Basin in West Texas.

3 EXXI

Energy XXI

(Outperform, CP

$30.84, TP

$42.00)

$2.4B NA -7.9% -4.2%

Deep inventory of low-risk projects to drive growth. Strong FCF generation ($1.2B next three

years) could fund acquisitions, accelerate development, or be returned to shareholders.

Cheap imbedded option in Ultra Deep shelf play that could make EXXI the low-cost gas

provider in domestic E&P.

Energy & Utilities SMID Cap Oil & Gas Exploration & Production



29

Craig Siegenthaler [email protected]

(212) 325-3104


P/E

DY 1M YTD Rationale

1 AB

Alliance

Bernstein

(Outperform, CP

$22.38, TP

$24.00)

$2.4B 14.7x 5.8% 9.1% 28.4%

AB has successfully stemmed outflows and 4Q12’s net flow of +$5B was the company's first

quarterly net inflow since 4Q07. Flow growth continues to be driven by the high fee foreign

retail channel, and AB’s institutional pipeline remains robust at $8B. Key expense initiatives

such as right-sizing headcount and reducing the real estate footprint have helped expand

operating margin.

Financials Asset Managers


Note: AB is new #1 Top Pick.

30

Howard Chen [email protected]

(212) 538-4552


P/E

DY 1M YTD Rationale

1 LAZ

Lazard

(Outperform, CP

$36.03, TP

$40.00)

$4.5B 17.3x 2.2% 3.8% 20.7%

Market is overlooking Lazard’s top-tier asset management franchise, more insulated nature

of the advisory business (top three restructuring franchise and consistent ability to win small

deals should buffer revenues in choppy market) and management’s recent commitment to

deliver a 25% operating margin by the end of 2014.

Financials Brokers, Exchanges & Trust Banks


Note: No changes affecting Small/SMID since previous publication.

31

Doug Harter [email protected]

(212) 538-5983


P/E

DY 1M YTD Rationale

1 PMT

PennyMac

Mortgage

Investment

Trust

(Outperform, CP

$24.62, TP

$27.00)

$1.5B 7.2x 9.1% -13.6% -2.6%

PennyMac offers a combination of high dividend yield from the distressed portfolio plus

growth potential from correspondent lending. The combination of these businesses gives us

confidence in the sustainability, or even growth in returns, in the coming quarters, which is

relatively unique in the mortgage REIT landscape today. We currently see 22% total return

for the shares over the next 12 months, but see upside if PMT successfully migrates the

FHA business inside the REIT.

2 NSM

Nationstar

Mortgage

Holdings

(Outperform, CP

$38.07, TP

$48.00)

$3.4B 9.1x 5.4% 22.9%

We have increased visibility into near-term earnings growth following the conversion of a

sizable portion of Nationstar's pipeline into an announced deal. This increased visibility

coupled with continued favorable industry dynamics gives us confidence that Nationstar can

continue to outperform. We see additional upside from originations opportunities and gain on

sale margins from the HARP-rich portfolio.

3 WAC

Walter

Investment

Management

(Outperform, CP

$46.60, TP

$58.00)

$1.7B 7.5x 0.8% 8.3%

We have confidence in earnings growth for WAC heading into 2013 given the $110 billion of

servicing additions already under exclusive negotiations coupled with the continued

favorable industry dynamics for the specialty servicers. We see additional upside as Walter

ramps up the originations platforms and captures the elevated gain on sale profitability from

its HARP-rich portfolio.

Financials Mortgage REITs



32

Mike Zaremski [email protected]

(212) 538-7933


P/E

DY 1M YTD Rationale

2 VR

Validus

(Outperform, CP

$35.31, TP

$42.00)

$3.8B 7.2x 2.9% -1.5% 2.1%

The Street underappreciates the growth of the joint venture/sidecar platform, which we

believe could double in size and achieve a 15% ROE in a normal catastrophe year. Our

capital analysis points to VR having an excess capital position equal to at least 6% of

shareholders’ equity. We believe VR has ample room to grow its dividend payout ratio given

its peer leading ROE profile. Lastly , we believe VR is better positioned than its peers in the

challenging low interest rate environment.

Financials P&C Insurance



33

Craig Siegenthaler [email protected]

(212) 325-3104


P/E

DY 1M YTD Rationale

1 HBAN

Huntington

Bancshares

(Outperform, CP

$6.98, TP

$8.00)

$5.9B 10.4x 2.3% -0.7% 9.2%

Differentiated “Fair Play” consumer friendly strategy and in-store branch expansion to drive

above peer fee income growth with expense management generating operating leverage in

2013. Also, expect two auto securitizations annually driving ~$30M in fee income from

securitization & servicing revenue.

2 FHN

First Horizon

National

(Outperform, CP

$10.55, TP

$12.00)

$2.6B 12.7x 0.6% 5.3% 6.5%

Forecast greater than expected operating leverage driven by expense reductions in

2013/2014, while high asset sensitivity (significant upside to EPS from higher rates) should

warrant an in-line multiple vs. similarly asset sensitive peers.

Financials Regional Banks


Note: FHN is new #2 Top Pick. HBAN moved to #1 (from #2).

34

Matthew Clark [email protected]

(212) 325-2497


P/E

DY 1M YTD Rationale

1 EWBC

East West

Bancorp

(Outperform, CP

$24.77, TP

$26.00)

$3.5B 12.1x 1.7% 7.0% 15.3%

Paying out 100% of earnings with levers to mitigate margin pressure and generate 8-10%

EPS growth. Shares still trade at a discount despite posting top-tier industry returns

including ROTCEs in excess of 15% and ROAs above 1.30%.

2 SUSQ

Susquehanna

Bancshares

(Outperform, CP

$11.57, TP

$13.00)

$2.2B 12.2x 2.6% 2.4% 10.4%

Discounted valuation and more positive outlook based on our (1) increased comfort that

consensus estimates are too low, (2) view that bank deals are less likely and, (3)

expectation for longer-term goals to be raised after reaching 1.00% ROA and 60% efficiency

ratio targets in 2013.

3 FRC

First Republic

Bank

(Outperform, CP

$36.91, TP

$43.00)

$4.8B 12.3x 1.1% 2.7% 12.6% Attractive valuation, outsized growth prospects and optionality as a seller with a

management team that has sold in the past. Private equity overhang has lessened too.

Financials SMID Cap Banks



35

Ravi Mehrotra / Lee Kalowski [email protected]

[email protected]

(212) 325-3487 / (212) 325-9683


P/E

DY 1M YTD Rationale

2 MDVN

Medivation

(Outperform, CP

$49.51, TP

$73.00)

$3.7B NM -13.3% -3.2%

The prostate cancer market is a substantial opportunity. The pre-chemo (14m treatment

duration vs 8m pre-chemo) and ex-US market opportunities still seem underappreciated by

investors. We see enzalutamide having a favorable profile compared to key competitor

Zytiga.

Health Care Biotechnology



36

Glen Santangelo [email protected]

(212) 538-5678


P/E

DY 1M YTD Rationale

3 MDSO

Medidata

Solutions

(Outperform, CP

$50.31, TP

$58.00)

$1.3B 41.4x 9.4% 28.4%

We believe MDSO’s broader product suite continues to be under-appreciated and can

support strong long-term growth as the company gains greater wallet share within in its

current book of clients.

Health Care Health Care Distribution & IT



37

Ralph Giacobbe [email protected]

(212) 538-5691


P/E

DY 1M YTD Rationale

1 HMA

Health

Management

Associate

(Outperform, CP

$10.98, TP

$12.00)

$2.8B 12.0x 10.6% 17.8%

HMA is 1) the fastest growing hospital vs peers, 2) should see accelerated growth from

deals made over the last couple years, 3) is trading at depressed valuation from overblown

news events that we view as manageable and 4) free optionality if HC Reform stands.

2 UHS

Universal Health

Services

(Outperform, CP

$57.99, TP

$51.00)

$5.6B 12.6x 5.1% 19.9% We favor UHS’ diversified model, which the company is not getting credit for. Ascend deal

closing in 4Q12 should aid acceleration in EPS growth for 2013.

3 TMH

Team Health

Holdings

(Outperform, CP

$32.88, TP

$39.00)

$2.2B 17.7x -0.2% 14.3%

We see strong growth potential from organic, new contract, and acquisition driven means.

We also see more limited reimbursement risk as physicians are unlikely to see significant

reimbursement cuts.

Health Care Health Care Facilities & Services


Note: HMA moved to #1 (from #3). UHS moved to #2 (from #1). TMH moved to #3 (from #2).

38

Vamil Divan [email protected]

(212) 538-5394


P/E

DY 1M YTD Rationale

1 CPHD

Cepheid

(Outperform, CP

$36.20, TP

$40.00)

$2.4B NM 2.3% 7.1% Best-in-class molecular diagnostics platform poised for continued strong growth as they roll

out additional tests and expand into more hospitals in the US and internationally.

2 ILMN

Illumina

(Outperform, CP

$49.03, TP

$59.00)

$6.1B 29.6x -3.1% -11.8%

Return to sequential revenue growth, driven by the MiSeq launch and improving

consumable sales, provides near-term comfort. Longer-term, we are bullish on the company

being able to successfully drive their technologies into the lucrative clinical diagnostics

arena.

Health Care Life Sciences & Tools



39

Jason Kantor [email protected]

(415) 249-7942


P/E

DY 1M YTD Rationale

2 SGEN

Seattle Genetics

(Outperform, CP

$27.23, TP

$32.00)

$3.2B NM -7.8% 17.4%

Among small cap biotechnology companies, SGEN remains our top investment idea based

on its lower risk profile (low clinical risk), proprietary sales of Adcetris, robust expansion

opportunities for Adcetris, and deep pipeline with industry leading technology. SGEN is one

of the few pure play antibody companies.

Health Care SMID Cap Biotechnology



40

Rob Spingarn [email protected]

(212) 538-1895


P/E

DY 1M YTD Rationale

2 BEAV

BE Aerospace

(Outperform, CP

$52.82, TP

$59.00)

$5.5B 14.8x 4.3% 6.9%

Organic product development very under-appreciated story. Industry-high R&D enabled key

market share gains, and management expects further R&D to bring more gains & increased

backlog quality (read: higher margin products). Sees plenty of runway for additional

opportunity in the aircraft cabin.

Industrials Aerospace & Defense



41

Chris Ceraso / Allison Landry [email protected]

[email protected]

(212) 538-4529 / (212) 325 3716


P/E

DY 1M YTD Rationale

3 GWR

Genesee &

Wyoming

(Outperform, CP

$87.00, TP

$102.00)

$4.3B 18.6x 3.2% 14.4%

High-quality company with tremendous earnings growth potential over next several years.

Significant ‘option value’ from opportunities in Australia; could see incremental $1 in EPS by

2014 via mining project wins. The roll-up of the RailAmerica franchise will be a significant

driver of both organic and future acquisition growth in North America.

Industrials Airfreight & Ground Transport



42

Julian Mitchell [email protected]

(212) 325-6668


P/E

DY 1M YTD Rationale

3 GDI

Gardner Denver

(Outperform, CP

$70.84, TP

$75.00)

$3.5B 13.0x 0.1% 1.6% 3.4%

We believe the buyside consensus is too negative on GDI, and think the stock could

outperform given: (1) Execution on European cost cutting helping to boost margins; (2)

capital allocation improving (buyback likely to be extended); (3) possible corporate action

(ValueAct are pushing for a sale; peers like RBN are being acquired).

Industrials Electrical Equipment & Multi-Industry



43

Jamie Cook [email protected]

(212) 538-6098


P/E

DY 1M YTD Rationale

1 KBR

KBR

(Outperform, CP

$30.99, TP

$40.00)

$4.6B 11.6x 2.4% 3.6%

We think the resurgence of energy infrastructure spend in NA becomes an investable theme

in 2013, reflecting potential for a massive amount of spend across petrochem, GTL, LNG,

and gas pipelines. We think industry margins continue to improve this year, reflecting better

utilization and perhaps tighter capacity with NA now in the mix. KBR’s stock has pulled back

on credibility issues after recent charges taken on problem projects. We get the credibility

issue, but it’s unavoidable in the E&C group. KBR remains very well positioned to win GTL,

LNG, ammonia and petrochemical work in NA and we don’t think expectations on the stock

can get much worse.

Industrials Engineering & Construction



44

Hamzah Mazari [email protected]

(212) 538-7983


P/E

DY 1M YTD Rationale

2 WCC

Wesco

International

(Outperform, CP

$73.35, TP

$84.00)

$3.2B 12.4x 0.7% 8.8%

WESCO shares have historically moved ahead of a rebound in non-residential construction

spend (~33% sales) and the upside from a recovery is underappreciated (we estimate

company has earnings power of $8 in 2014 assuming a non-resi recovery). In addition,

accretion and operating synergies from the recently completed $1.1bn EECOL acquisition is

not fully baked into consensus estimates. We also believe WESCO will delever the balance

sheet from 4.1x to below 3x leverage by end of 2013.

Industrials Environmental Services



45

Jamie Cook [email protected]

(212) 538-6098


P/E

DY 1M YTD Rationale

2 TEX

Terex

(Outperform, CP

$32.47, TP

$46.00)

$3.6B 11.8x 12.9% 15.5%

With margins still well below peak, we like TEX as a play on US construction and a

resurgence in energy (helping cranes). In addition, TEX is a deleveraging story with further

synergy potential to come from Demag acquisition which should further accelerate EPS

growth.

Industrials Machinery



46

Julie Yates [email protected]

(212) 325-3706


P/E

DY 1M YTD Rationale

1 TGI

Triumph Group

(Outperform, CP

$73.47, TP

$82.00)

$3.7B 11.0x 0.1% 3.0% 12.5%

We view TGI as an attractive play on the robust commercial aerospace OE cycle. Execution

trends at TGI are very strong and we expect that to continue. Guidance remains

conservative and see we see significant upside from further margin expansion. TGI

continues to exceed our margin forecasts and our confidence in out-year profitability is

rising.

2 ESL

Esterline

Technologies

(Outperform, CP

$69.75, TP

$71.00)

$2.2B 12.1x 1.5% 9.7%

Attractive risk/reward. Several key concerns for the stock were alleviated on last quarter’s

call specifically around defense exposure. ESL reported a strong finish to a challenging year

on Dec 6, and provided a reasonable outlook for FY’13 that has upside if a 2nd tranche of

international C-130 retrofit orders is secured. We see upcoming catalysts for the stock and

believe the margin trajectory is improving.

Industrials SMID Cap Aerospace & Defense



47

Michael Senno [email protected]

(212) 325-1353


P/E

DY 1M YTD Rationale

2 NXST

Nexstar

Broadcasting

Group

(Outperform, CP

$14.26, TP

$17.00)

$0.4B 11.0x 10.9% 34.7%

We are positive on NXST’s acquisition strategy and evolving business model. Solid revenue

growth (mainly from retrans), lower interest costs, accretive acquisitions and a NOL tax

shield should accelerate FCF growth and yield material increases in capital returns.

Media / Internet / Telecom Media


Note: NXST is new #2 Top Pick.

48

Kelly Flynn [email protected]

(617) 556-5752


P/E

DY 1M YTD Rationale

1 IHS

IHS

(Outperform, CP

$103.61, TP

$107.00)

$6.8B 22.7x 2.4% 7.9%

Defensive business model centered on offering mission-critical information to Energy,

Product Lifecycle, Security, and Environment domains. Late F13/FY14 revenue growth

acceleration may lead to multiple expansion & stock price strength near-term; long-term

story is differentiated by large addressable market & significant margin run way.

Services Business, Education & Professional Services


Note: IHS moved to #1 (from #2).

49

Georgios Mihalos [email protected]

(212) 325-1749


P/E

DY 1M YTD Rationale

1 VNTV

Vantiv

(Outperform, CP

$22.70, TP

$27.00)

$4.8B 16.0x 9.8% 11.2%

VNTV is a top 5 merchant acquirer/processor and a leading provider of debit processing

services to financial institutions in the U.S. VNTV operates a single processing platform

providing it with inherent scale benefits (50%+ adj. EBITDA margins) and allowing it to price

aggressively in a highly competitive market. The company is levered to growth in debit and

non-discretionary spending. We currently are forecasting organic revenue growth of 10%+

through 2014 and mid-teens adj. EPS growth.

3 DST

DST Systems

(Outperform, CP

$67.59, TP

$77.00)

$3.1B 14.6x 1.0% 4.5% 11.5%

Eclectic deep value play, with an estimated sum of the parts valuation of $75+. Trading at ~

5x 2012E EV/EBITDA, DST is the cheapest stock in our coverage universe. With a more

independent Board of Directors, the company is in the process of evaluating non-core

businesses and investments.

Services IT Services & Consulting



50

Satya Kumar [email protected]

(415) 249-7928


P/E

DY 1M YTD Rationale

1 LRCX

Lam Research

(Outperform, CP

$42.03, TP

$48.00)

$6.8B 14.1x 4.8% 16.3%

We think that it will become more difficult for the memory companies to add bit supply as

device shrinks. We expect that margins will structurally improve for memory companies as

there is an increase in cost of adding marginal supply. We expect that eventually this will

lead to increase in memory capex as new capacity additions are needed for supply increase.

We expect that memory WFE will double from $7B in 2013 to $14B in 2015. LRCX has the

highest exposure to memory capex among the semicap companies and would benefit the

most. We see >50% upside to current stock price if memory capex recovers to $14B range.

Technology Semiconductor Equipment


Note: LRCX moved to #1 (from #2). Removed TER (we see other names as better positioned).

51

Phil Winslow [email protected]

(212) 325-6157


P/E

DY 1M YTD Rationale

4 PFPT

Proofpoint

(Outperform, CP

$14.76, TP

$18.00)

$0.5B NM 15.8% 19.9%

Bonus Small Cap Pick

With its on-demand, virtual private cloud, appliance, and hybrid deployment models, PFPT is

well positioned to defend and expand its leadership in the growing security-as-a-service

market.

Technology Software



52

Michael Nemeroff [email protected]

(212) 325-2052


P/E

DY 1M YTD Rationale

1 CNQR

Concur

Technologies

(Outperform, CP

$71.20, TP

$83.00)

$4.0B 66.9x 0.3% 5.5%

Leading provider of T&E spend management software as well as a large amount of past

investment spending now positively affecting Concur’s organic growth rate. Incremental

growth opportunities in underpenetrated geographies and solid, consistent bookings give us

confidence that the company and shares meet / beat investor expectations through 2013.

2 ULTI

The Ultimate

Software Group

(Outperform, CP

$96.82, TP

$117.00)

$2.6B 67.7x 2.2% 2.6%

We believe that ULTI will continue to organically grow subscriptions >25% and gain market

share in the U.S. payroll and HCM markets due to its clearly defined focus on the high end

of the small and medium sized business niche.

3 JIVE

Jive Software

(Outperform, CP

$15.16, TP

$20.00)

$1.0B NM 2.9% 4.3%

Only pure-play Enterprise Social Software vendor of scale and will thrive as a standalone

company or fit nicely into the stack of larger application vendors. We continue to believe

shares are undervalued relative to its growth profile and potential market size over the next

few years.

Technology SMID Cap Software



53

Disclosure Appendix

54

Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

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Disclosure Appendix

Important Global Disclosures

I, Lori Calvasina, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms represe nting the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

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Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

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*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 43% (54% banking clients)

Neutral/Hold* 38% (47% banking clients)

Underperform/Sell* 16% (40% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individua l factors.

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Please see slides 4-8 for a complete list of companies mentioned.

55

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