Barclays Jan 2015

Equity Research
23 February 2015
Americas Morning Research Summary

Summary of Changes
Rating Price Target EPS FY1 (E) EPS FY2 (E)

Rating Changes Old New Old New Old New Old New
IMS Health IMS EW OW 27.00 30.00 1.34 1.41 N/A 1.65
Teleflex TFX EW OW 121.00 145.00 6.25 6.28 N/A 7.23
Target Price Changes
Broadcom Corp. BRCM EW EW 40.00 43.00 3.31 2.76 3.46 2.94

CommScope Holding Co., Inc. COMM OW OW 34.00 35.00 1.95 2.00 N/A 2.12
Deere & Co. DE OW OW 93.00 97.00 5.60 5.35 5.45 5.40
Enerplus Corporation ERF.TO EW EW 11.00 14.00 0.10 0.18 N/A 0.16
EOG Resources EOG OW OW 92.00 85.00 -0.30 -0.40 N/A 1.40
Hudbay Minerals Inc. HBM.TO OW OW 10.00 13.00 0.50 0.42 N/A 0.88
Continued on next page
This summary is compiled from research reports previously published by Barclays Equity Research. A full list of all publications is available on Barclays
Live.
Barclays Capital Inc. and/or one of its affiliates 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.
One or more of the research reports referenced herein has been prepared in whole or in part by equity research analysts based outside the US who
are not registered/qualified as research analysts with FINRA. For disclosures associated with each report, please refer to the full report on Barclays
Live.
FOR ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES, PLEASE CLICK HERE

Summary of Changes
Rating Price Target EPS FY1 (E) EPS FY2 (E)

Mohawk Industries Inc. MHK OW OW 179.00 210.00 9.72 9.50 N/A 11.25
Newmont Mining NEM EW EW 22.00 26.00 0.46 1.02 N/A 1.05
Public Service Enterprise Gp PEG EW EW 42.00 44.00 2.65 2.85 N/A 2.79
Sunoco Logistics Partners L.P. SXL OW OW 57.00 58.00 1.92 1.93 N/A 2.18
Tesoro Corporation TSO OW OW 114.00 123.00 7.40 7.40 9.60 9.60
Estimate Changes
Community Health Systems CYH EW EW 58.00 58.00 3.90 3.90 N/A 4.40
Dynagas LNG Partners LP. DLNG OW OW 24.00 24.00 1.77 1.63 N/A 1.59
Health Care REIT HCN OW OW 84.00 84.00 4.30 4.30 N/A 4.50
KNOT Offshore Partners, LP. KNOP OW OW 27.00 27.00 1.52 2.23 N/A 1.34
Lightstream Resources Ltd. LTS.TO UW UW 0.75 0.75 0.41 0.41 -0.63 -0.62
Ultra Petroleum Corp. UPL UW UW 9.00 9.00 0.90 0.00 N/A 0.65
Source & Legend
Company Research
Broadcom Corp. (BRCM) CommScope Holding Co., Inc. (COMM) Community Health Systems (CYH)
Deere & Co. (DE) Dynagas LNG Partners LP. (DLNG) Enerplus Corporation (ERF.TO)
EOG Resources (EOG) Health Care REIT (HCN) Hudbay Minerals Inc. (HBM.TO)
Illumina Inc. (ILMN) IMS Health (IMS) KNOT Offshore Partners, LP. (KNOP)
Lightstream Resources Ltd. (LTS.TO) M&T Bank (MTB) MGIC Investment (MTG)
Mohawk Industries Inc. (MHK) Newmont Mining (NEM) Palo Alto Networks (PANW)
Public Service Enterprise Gp (PEG) State Street (STT) Sunoco Logistics Partners L.P. (SXL)
Teleflex (TFX) Tesoro Corporation (TSO) Ultra Petroleum Corp. (UPL)
Valero Energy (VLO)
Industry Research
Canadian Financial Services Canadian Telecommunications, Media, and North America Airfreight & Ground
Technology Transportation
U.S. Aerospace & Defense U.S. Autos & Auto Parts U.S. Diversified Natural Gas
U.S. Engineering & Construction U.S. Health Care-Managed Care U.S. Independent Refiners
U.S. IT Consulting & Computer Services U.S. Machinery U.S. MLPs
U.S. Multi-Industry U.S. Paper & Packaging U.S. Refining MLPs
U.S. REITs U.S. Telecom Services
Equity Strategy
Daily Market Wrap In Case You Missed It Market CataList

Cross Asset Research
Global Portfolio Manager's Digest
Publications Summary
Basic Industries
Hudbay Minerals Inc.: Constancia ramp-up to drive potential dividend
increase later in the year
Stock Rating Overweight HBM reported a Q4/14 adjusted earnings loss of $0.03/sh (Barclays estimate)
Industry View Neutral versus our estimate of $0.00/sh and consensus of $0.02/sh. The miss was primarily
due to timing of sales at the end of the quarter as operating results were previously
Price Target CAD 13.00
provided by the company on January 16, 2015 (A little light on 2014 results but 2015
Price (20 Feb 2015) CAD 10.43
growth story remains intact). Looking forward, we continue to remain bullish on
EPS FY1 (E) 0.42 Hudbay given its substantial copper growth (over 300% y-o-y) driven by the
EPS FY2 (E) 0.88 Constancia ramp up, its improving balance sheet and our expectation that the
Market Cap (CAD bn) 2.3952 company will start generating positive FCF in H2/15 potentially driving a dividend
Ticker HBM.TO
increase towards the end of the year.
2015 guidance maintained: HBM maintained its previously provided guidance

Canadian Metals & Mining including copper production of 140-175 kt, refined zinc production of 95-120 kt (zinc
Farooq Hamed
concentrate treated of 190-235 kt), and precious metals production of 135 - 170
+1 416 863 8963
farooq.hamed@barclays.com kGEO.
BCCI, Toronto
Constancia ramp-up on track: Hudbay indicated that its Constancia asset continues
20 February 2015
to progress in the commissioning phase, with product already trucked to the port and
the first shipment expected later in Q1/15. Commercial production is on track for
Q2/15 with full capacity expected in late H2/15.
Our price target is increased to $13/sh (from $10/sh): We have updated our model
with Q4/14 results and have rolled forward the cash flow component of our valuation
to 2016. Our valuation is based on an even-weighting of P/NAV and P/CF multiples.
We use a P/NAV multiple of 0.9x our current NAVPS estimate of $9.67 (was $10.17)
and a P/CF multiple of 8.0x (was 9.0x) our 2016E CFPS estimate of $2.26 (2015E
CFPS was $1.16).
View full report on Barclays Live Back to Top

Basic Industries
Newmont Mining: Continued solid operations, focus turns to
development
Stock Rating Equal Weight NEM posted strong Q4 operations to cap off the year and met 2014 production
Industry View Neutral guidance, with costs coming in below our and company expectations. With the
company continuing to meet or exceed operational expectations over the past few
Price Target USD 26.00
quarters, our attention turns toward development progress at the Turf vent shaft (late
Price (20 Feb 2015) USD 25.58
2015) and the Merian project (late 2016) as both are needed to keep production
EPS FY1 (E) 1.02 relatively stable through 2017. In addition, we expect NEM will likely need to approve
EPS FY2 (E) 1.05 development on either Long Canyon Phase 1, the Tanami expansion project or the
Market Cap (USD bn) 12.7592 Ahafo mill expansion this year given the declining production profile in the longer
Ticker NEM
term. We have updated our model with Q4/14 results and new guidance and have
increased our price target to $26/sh from $22/sh.
Canadian Metals & Mining Q4/14 adjusted EPS of $0.17/sh beats estimates: NEM reported Q4/14 EPS higher
Farooq Hamed
than our estimate of $0.11/sh and consensus of $0.12/sh on better-than-expected
+1 416 863 8963
farooq.hamed@barclays.com operations. NEM's Q4 attributable production of 1.26 Moz at cash costs of $631/oz
BCCI, Toronto ($927/oz AISC) was better than our estimate of 1.19 Moz at CAS of $685/oz
($955/oz AISC.
20 February 2015
2015 guidance - keeping steady: 2015 guidance included attributable production of
4.55 - 4.94 Moz at CAS of $660-$710/oz ($960 - $1,020/oz AISC); we are currently
modeling 4.8 Moz at CAS of $699/oz and AISC of $973/oz. Copper production is
expected at 130 - 160 kt at CAS of $1.20-$1.40/lb vs. our current forecast of 149 kt
at CAS of $1.42/lb.
2P reserves decline 7% y/y: 2P gold reserves for 2014 were 82.2 Moz (2.7 Bt at 0.93
g/t Au), down 7% from 88.4 Moz (3.0 Bt at 0.93 g/t Au) at the end of 2013, with the
decline largely due to asset divestitures and depletion. 2014 reserves were
calculated using a gold price of $1,300/oz, unchanged from 2013.

Basic Industries
U.S. Paper & Packaging: 2015 ISC Packaging Wrap
Following our 2015 Industrial Select Conference in Miami last week, we came away
U.S. Paper & Packaging with greater conviction around our recent upgrade of the Packaging sector to
Scott L. Gaffner, CFA
Positive from Neutral. Though sentiment in the broader Industrials sector remains
+1 212 526 9132
scott.gaffner@barclays.com relatively downbeat, improving demand (primarily for containerboard), falling input
BCI, New York costs (notably for plastic manufacturers due to lower oil) and strong FCF generation
with an increased appetite for M&A reaffirms our positive view on Packaging and
23 February 2015 could lead to better than expected earnings in 2015 and another year of stock
outperformance for the group. Overall, management tones were positive and despite
known issues, including fx and a still slow growth global economy, FY outlooks
remain encouraging.
Raw material tailwinds could become a reality: While management teams were
cautious to disclose potential earnings tailwinds from lower resin prices on 4Q
earnings calls, we found companies at the Conference to be more open to
discussing the potential benefit in 2015. We continue to expect Sealed Air, Berry
Plastics, Bemis Company, and Avery Dennison will all benefit from lower resin, with
a modest tailwind to earnings and a significant benefit to working capital in 2015.
Capital allocation remains in focus, with an increased appetite for M&A as well as
dividend payouts: As part of our Audience Response System questions, we asked
investors how they preferred to see companies use excess cash in 2015.
Unsurprisingly, most investors still prefer to see cash returned to shareholders, but
some have shifted their preference toward dividends (vs buybacks prior), we believe
due to company stock prices which have reached 52-week highs broadly across the
group. Additionally, we saw an uptick in the percentage of investors who prefer to
see companies do M&A, which comes as no surprise given the recent pickup in M&A
we have seen in the space. Sealed Air noted the company will likely announce some
small divestitures in the next few months, and all companies we met with said they
are willing and able to do M&A this year.
Containerboard remains our preferred subsector with industry fundamentals

supportive of pricing initiative: Containerboard remains our preferred subsector in
2015 representing the best risk/reward profile, in our view. Valuations are still
reasonable with high FCF yields providing downside support. Potential upside exists
from a containerboard price increase, which has become increasingly talked about
as a possibility, as industry fundamentals remain solid with strong demand (now six
straight months of positive volumes), high utilization rates, and reasonable
inventories (though we would note our current assumptions do not incorporate a
price increase).

Energy
Dynagas LNG Partners LP.: LNG Fundamentals Support Growth
Stock Rating Overweight Drop down story on track, long-term LNG outlook to drive shipping demand. DLNG
Industry View Neutral expects a 65% increase in LNG production capacity by 2020, driving incremental
need for LNG carriers. Based on the current orderbook, the partnership believes
there is a shortfall of 112 LNG vessels to meet this demand. In our view, DLNG
Price (20 Feb 2015) USD 19.95
continues to exhibit cash flow stability and solid growth potential. Stability is
EPS FY1 (E) 1.63 supported by long-term time charters and a fully contracted fleet until 2Q17. The
EPS FY2 (E) 1.59 remaining average charter duration is 5 years. Growth potential is supported by drop
Market Cap (USD bn) 0.7087 downs from parent Dynagas Holdings, as well as exposure to growing LNG
Ticker DLNG
production. We maintain our $24 PT, based on a 12-month forward distribution
run-rate of $1.79/unit and 7.6% target yield.
U.S. MLPs Mixed 4Q earnings. DLNG reported 4Q adjusted EBITDA of $28.7mm vs. our
Richard Gross
estimate of $27.3mm. DCF was $18.6mm vs. our $19.4mm. Variance to EBITDA
+1 212 526 3143
richard.gross@barclays.com was due to higher-than-expected utilization and daily charter rates. DCF, however,
BCI, New York was negatively impacted by higher-than-expected interest and dry-docking
expenses. EBITDA and DCF increased 64% and 43% y/y, respectively, due to
23 February 2015 contribution from the drop downs of the Arctic Aurora on 6/23/14 and the Yenisei
River on 9/25/14. The drop downs increased DLNG's total fleet size by 69% and
annualized EBITDA by $45mm. For the fifth consecutive quarter, DLNG had 100%
fleet utilization. The partnership bumped its distribution by 8.3% q/q to $0.4225 per
unit ($1.69 annualized) from the MQD of $0.365 per unit. The distribution increase
reflects +15.8% y/y growth and was in line with our estimate. Coverage was 1.24x in
4Q and 1.13x for the year.
Reiterated its positive long-term outlook. DLNG expects that the forecasted growth in
LNG production from now until the end of the decade will drive further demand for
LNG carriers. The partnership believes that there is currently a 112 vessel shortfall
based on its expectations of 156 mmtpa of incremental liquefaction capacity coming
online by 2020 and the 150 vessels currently in the orderbook. Given this positive
long-term backdrop, DLNG reiterated its expectations of 10%-15% annual
distribution growth with target coverage of 1.1x-1.2x.

Energy
Enerplus Corporation: Strong 2014 results; moderating 2015 dividends
and spending
Stock Rating Equal Weight Solid Q4 results: Enerplus announced Q4 results, reporting cash flow of $0.97/sh
Industry View Neutral (excluding a $0.06/sh compensation recovery) on volumes of 105,591 boe/d.
Production was within 1% of expectations (105,200 boe/d), bolstered by continued
strong performance of the company's US operations. Financially, Q4 cash flow was
Price (20 Feb 2015) CAD 13.53
ahead of our $0.93/sh estimate (and consensus of $0.95/sh), largely owing to
EPS FY1 (E) 0.18 interest and taxes coming in below expectations, offset by higher royalties and
EPS FY2 (E) 0.16 operating costs.
Market Cap (CAD bn) 2.7824
Realigning budget/guidance and dividends: Reflecting the continued erosion of
Ticker ERF.TO commodity prices, Enerplus has reduced both its capital spending and dividends for
2015. On the dividend front, Enerplus has reduced its monthly payment by 44% to
Canadian Oil & Gas: E&P (Mid-Cap) $0.05/sh (effective April). The company also reduced its 2015 spending plans by
Grant Hofer, CFA
24% (now $480mn), resulting in revised production guidance of 93-100,000 boe/d in
+1 403 592 7460
grant.hofer@barclays.com 2015, down 6% at the midpoint. This guidance includes 6-7,000 boe/d of curtailed
BCCI, Toronto production in the Marcellus, due to low regional pricing.
23 February 2015
Impressive finding costs in 2014: Enerplus reported a strong reserve report for 2014,
growing P+P reserves by 7% with associated F&D costs of $9.80/boe (P+P,
including FDC) - likely a top decile result this year. Organic reserve additions were
70% weighted to gas, mainly driven by the Marcellus, although both US plays were
strong performers with positive technical revisions reflecting continued well
outperformance.
Boosting PT to $14; maintain EW rating: We remain constructive on the company's

long-term prospects, and its disciplined management should be rewarded with an
improving valuation over time. Reflecting the enhanced flexibility today, we are
boosting our price target to $14 based on higher valuation multiples, however we
remain Equal Weight due to the declining near-term production outlook.

Energy
EOG Resources: Still in the Driver's Seat
Stock Rating Overweight The deferral of completions will likely lead to falling Q1-Q2 US oil volumes. Investors
Industry View Negative are struggling to understand the impact of the completions deferrals. Q1 oil guidance
is ~25,000 bpd below what might have been expected had EOG continued with a
business as usual strategy. While the drilled but uncompleted (DUC) inventory will
Price (20 Feb 2015) USD 91.08
build early in the year, a resumption of completions when prices recover should
EPS FY1 (E) -0.40 position EOG to recover the deferred volumes at higher prices and deliver strong
EPS FY2 (E) 1.40 growth in late 2015 and into 2016. We forecast solid double-digit oil growth in 2016.
Market Cap (USD bn) 49.9524
EOG's strategy of deferring new well completions until next year is markedly
Ticker EOG different than peers. Nearly all of the operators who have decided to defer well
completions have described a plan to slowly whittle down the DUC well inventory
North America Oil & Gas: E&P (Large Cap) over the course of the year. This will help lessen the blow of lower capital budgets on
Thomas R. Driscoll, CFA
'15 volumes, resulting in a flattish 2015 production trajectory for many of the
+1 212 526 3557
thomas.driscoll@barclays.com companies we cover. EOG's production trajectory will be more U-shaped. Positive
BCI, New York momentum late this year, plus a large inventory of DUCs available for completion
next year should lead to rapid growth in 2016. EOG could complete 35-60% more
23 February 2015 wells in 2016 vs. 2015 off a capital plan that is only 25% higher.
The sector appears to continue to discount an oil price of $80-$85/bbl. We maintain

our OW rating on EOG and our negative view of the group. The shares are currently
trading at 8.9x our new 2015EV/2016 PICF estimate - well above EOG's historical
multiple but less than 10% higher than the group average of 8.2x. We think the
premium is modest considering EOG's return profile, which remains best in class,
the strong balance sheet, and the unique flexibility EOG has afforded itself by
deciding to grow the DUC inventory. Our new price target is $85 from $92.
Weak NGL prices weighed on 4Q. EOG posted CFPS of $3.45, short of our estimate
of $3.65. The miss was driven predominantly by lower-than-expected NGL prices.

Energy
KNOT Offshore Partners, LP.: Visible Near-Term Demand
Stock Rating Overweight Drop down story intact despite lower crude oil price backdrop. KNOP posted solid
Industry View Neutral 4Q results due to contribution from drop downs. Its cash flows have no direct
exposure to commodity prices and stability is further supported by long-term time
charters with leading energy companies, with average remaining fixed contract
Price (20 Feb 2015) USD 23.23
duration of 5.3 years. Even amid an uncertain environment for crude oil prices, in
EPS FY1 (E) 2.23 January parent KNOT entered into a new time charter for services beginning 1Q17,
EPS FY2 (E) 1.34 increasing KNOP's drop down inventory to six vessels. Looking forward, KNOP
Market Cap (USD bn) 0.5188 expects demand for shuttle tankers to remain firm within the next 2-3 years given
Ticker KNOP
existing offshore projects already under construction. Incremental projects beyond
2018 however, will depend on the pace and magnitude of the crude oil price
U.S. MLPs recovery.
Richard Gross
4Q results mixed. Adj. EBITDA was $26.5mm, above our $24.6mm estimate and
+1 212 526 3143
richard.gross@barclays.com was up 58% YoY from $16.8mm in 4Q13. DCF was $15.1mm, slightly below our
BCI, New York estimate of $15.9mm, and reflected a 55% YoY increase from $9.8mm in 4Q13.
Variance to our EBITDA estimate owed to slightly lower-than-expected opex and
23 February 2015 variance to our DCF estimate was due to higher-than-expected interest and
replacement capex expenses. The YoY increases in EBITDA and DCF were
primarily driven by contribution from the drop downs of Hilda Knutsen, Torill Knusten
and Dan Cisne. During 4Q, KNOP had 99.6% utilization for its time charter vessels
assets with 1.9 days off-hire. The 4Q cash distribution was flat QoQ at $0.49 per unit
($1.96 annualized), +13% YoY and was in line with our expectations. Coverage was
1.32x in 4Q14.
Dan Cisne drop down and inventory update. On 12/15/14, KNOP completed the
drop down of Dan Cisne from KNOT for $103mm at ~10x EBITDA. On 1/15/15,
KNOT announced that it will enter into a new long-term charter with an international
oil company to provide shuttle tanker services in Brazil beginning in 1Q17. This
increases KNOP's drop down inventory to six vessels with an average fixed contract
period of 7 years. In addition to the current drop down inventory, BG has an option to
contract two more shuttle tankers under long-term charters with parent KNOT by
September 2015.

Energy
Lightstream Resources Ltd.: Reserves impacted by Cardium revision;
Spending curtailed
Stock Rating Underweight 2014 reserve report impacted by 10% revision: Lightstream announced its 2014
Industry View Neutral year-end reserves, which fell to 161 mmboe (P+P), or 10% below our forecast. The
major culprit was an 18.5 mmboe negative revision (both technical and economic,
primarily in the Cardium), which overwhelmed reserve additions. This pushed F&D
Price (20 Feb 2015) CAD 1.36
costs to $51/boe (proved) and "N/A" on a P+P basis as reserves actually declined.
EPS FY1 (E) 0.41 Excluding the revisions, F&D's were more reasonable, in the $25/boe range.
EPS FY2 (E) -0.62
A&D program factors in: The company also had an active year on the divestiture
Market Cap (CAD bn) 0.2683
front in 2014, selling 21 mmboe for total proceeds of $712mn. This contributed to
Ticker LTS.TO all-in FD&A costs of $64/boe (proved) and $21/boe (P+P) in 2014. Overall, the
company's total reserves declined by 19% during 2014, reflecting the dispositions
Canadian Oil & Gas: E&P (Mid-Cap) and revisions.
Grant Hofer, CFA
+1 403 592 7460 Reducing H1 spending: The company also provided a brief operations/spending
grant.hofer@barclays.com update. Lightstream indicated January production volumes of 36,400 boe/d, which is
BCCI, Toronto
down from the 37,500 boe/d exit rate last year, but still ahead of our 35,500 boe/d
23 February 2015
forecast for the quarter. That said, the company also indicated that first half capital
spending would be just $75mn (down from $95mn previously), which reduces our
production outlook by 2%. Based on this level of investment, Lightstream aims to
repay a modest amount (~$20mn) of debt this year.
Prepared to cut further: Lightstream indicated a willingness to further reduce

spending if necessary, as dictated by its stretched balance sheet. Regardless,
management is clearly focused on remaining a going-concern through this period of
commodity weakness, however, with a declining production profile, leverage ratios
will continue to deteriorate and place further stress on the business unless
commodity prices improve. On that basis, we remain comfortable with our
Underweight rating on the shares.

Energy
Sunoco Logistics Partners L.P.: Strong Growth Visibility
Stock Rating Overweight $5B expansion capex supports 20% distribution growth rate, maintain OW. Key
Industry View Neutral earnings takeaways were in-line 2015 guidance of 20% distribution growth,
maintained 2015 organic capex guidance of $2B and expanded Permian Basin
footprint with $456 mm acquisition of remaining stake in West Texas Gulf crude pipe
Price (20 Feb 2015) USD 45.96
more than offsetting light 4Q earnings. Supported by $5B of fee-based expansion
EPS FY1 (E) 1.93 capex and acquisitions 2014-2015 and potential addition of JV stake in the parent's
EPS FY2 (E) 2.18 $5B Bakken-GC crude pipe, SXL is well positioned to meet our 17.3% distribution
Market Cap (USD bn) 10.142 CAGR estimate (2015-2018). The Partnership has an attractive combination of
Ticker SXL
above-average distribution growth, above-average coverage and low cost of capital
at a reasonable valuation. Slightly increase our PT to $58 from $57 to reflect rolling
U.S. MLPs forward estimates. Our $58 PT is based on a 12-month distribution run rate of $1.92
Brian J. Zarahn, CFA per unit (previously $1.85) and 3.3% target yield.
+1 415 263 4762
brian.zarahn@barclays.com Light 4Q driven by higher costs and crude pipe downtime. SXL EBITDA $237 mm
BCI, New York vs. our $269 mm estimate and $265 mm consensus. DCF $177 mm vs. our $210
mm estimate. Variance driven by higher-than-expected operating expenses and $10
Richard Gross mm Mid-Valley pipe headwind. EBITDA and DCF both increased 13% YoY with
+1 212 526 3143
contributions from organic projects and terminals marketing. DCF per unit declined
richard.gross@barclays.com
BCI, New York 5% YoY due to higher GP cut and units outstanding. The $27 mm EBITDA increase
attributable to +$40 mm terminals, +$5 mm products pipes, $(1) mm crude
23 February 2015 marketing, $(17) mm crude pipes. Terminals benefited from marine terminal
contributions and improved marketing results, while products pipes growth from
Mariner West ethane pipe. Crude marketing down slightly as lower margins offset by
higher volumes. Crude pipes decline from higher expenses and Mid-Valley
downtime. Quarterly distribution increased 21% YoY and 5% QoQ to $0.40 per unit.
Distribution coverage 1.5x in 2014.
SXL investing $5B from 2014 to 2015. The $5B of expansion capex is comprised of
$3B in 2014 and $2B in 2015, marking a significant ramp from $1B in 2013 and
$0.3B in 2012. SXL announced it acquired the remaining 40% it did not own in West
Texas Gulf Pipeline Company for $456 mm in separate transactions Dec 2014 and
Jan 2015.

Energy
Tesoro Corporation: Management Meeting Takeaways
Stock Rating Overweight Last week (2/16-2/19), we hosted a 4-day non-deal roadshow with TSO
Industry View Positive management in Europe. In attendance were Mr. Greg Goff (CEO and Chairman) and
Mr. Brian Randecker (Senior Director, Investor Relations).
Price (20 Feb 2015) USD 90.58 Under Mr. Goff's leadership during the past five years, we think TSO has
EPS FY1 (E) 7.40

transformed into one of the most proactive companies and holds one of the best
execution records in the industry. We also think that California is on the verge of a
EPS FY2 (E) 9.60
major cyclical upturn over the next several years as the unemployment rate
continues to improve. In addition, we believe the U.S. refining industry is now
Ticker TSO entering the final stage of the four-phase transformation. As North American light
and heavy oil finds its way into the West Coast, we think the West Coast crude
U.S. Independent Refiners market will transform into a discounted market over the next 2-4 years, similar to the
Paul Y. Cheng, CFA
Gulf Coast transformation we have witnessed during the last several years.
+1 212 526 1884
paul.cheng@barclays.com Refinery Strike: According to management, the Carson and Anacortes refineries (2
BCI, New York
of the 3 facilities undergoing strike), have been running normally since the start of
23 February 2015
the labor strike. TSO foresees no difficulties in maintaining operations for an
extended period of time, even if the strike continues. While Martinez has been shut
down following the strike, management continues to believe it could restart
operations safely within the next several months even if the union workers do not
return to their posts.
Port of Vancouver: Management remains optimistic that the EFSEC will release the
Draft Environmental Impact Statement in May 2015 and that the JV will receive
approval from the Governor's office in 2H15. While construction is expected to take a
year from the date of approval, TSO expects it can begin shipping 20-25 mb/d soon
after approval, before full construction is completed. Management believes that if the
project is approved, it could add $2 billion of economic benefits to the region over a
14-year timeframe.
PT Changes: We reiterate our OW rating and raise our PT to $123 from $114 based
on our updated SOTP analysis, in which we have given the company more credit for
its major projects and updated our estimate of remaining drop-down EBITDA after
2016.

Energy
Ultra Petroleum Corp.: UPL: Reiterating Underweight
Stock Rating Underweight We reiterate our Underweight rating on UPL following 4Q results and 2015 capital
Industry View Negative and production guidance. We expect production to fall ~7% from 4Q14-4Q15 using a
20:1 conversion while it spends 115-120% of cash flow. We believe 2015 will be the
3rd year in 4 that production growth will fall short of the expansion in market capital
Price (20 Feb 2015) USD 16.21
deployed.
EPS FY1 (E) 0.00
2015 capital budget is reduced 23% from 2014 levels to $460mm. Of the $410mm
EPS FY2 (E) 0.65
for development drilling, $395mm is allocated to Pinedale, $15mm to the Uinta and
$0 to the Marcellus. We expect 2015 cash flow to fall 15% short of capex. Net debt
Ticker UPL to forward EBITDA of 5x is well above the group average of 2x.
North America Oil & Gas: E&P (Large Cap) 2015 production guidance is 275-285 bcfe, ~ 3.5% lower than previous guidance.
Thomas R. Driscoll, CFA The 12% estimated YoY growth reflects both a late 2014 acquisition and a 7%
+1 212 526 3557 decline in production (At a 20:1 conversion ratio) over the course of 2015. UPL
thomas.driscoll@barclays.com expects gas volumes to rise modestly from 4Q rates while oil is expected to fall
BCI, New York
~50% due to the suspension of well completions in the Uinta. Overall, 91% of 2015
23 February 2015
production is expected to come from the Pinedale, 5% from the Marcellus and 4%
from the Uinta.
Strong 4Q. The company posted "clean" EPS of $0.62 and CPFS of $1.19 versus
our estimates of $0.45 and $1.00, respectively. The beat was largely attributable to
higher-than-modelled natural gas realizations and lower-than-expected operating
expenses. Both liquids and gas production were in line with our forecast. Proved
reserves for 2014 increased 49% to 5.4 tcfe, and the company's PV-10 value
increased 72% to $7.1 billion. Both increases are largely attributable to the Pinedale
transaction.
Valuation appears stretched. The shares trade at a debt-adjusted multiple of 9.2x

2016E pre-interest cash flow (PICF), a 12% premium to peers. We remain
Underweight the shares and maintain our price target at $9.

Energy
Valero Energy: Refining Technical Teach-In Call Transcript
Stock Rating Overweight On February 6, 2015, we hosted our 12th Annual Refining 101 Technical Teach-In
Industry View Positive conference call with Valero Energy. Mr. Lane Riggs, EVP of Refining Operations &
Engineering, Mr. Gary Simmons, SVP of Supply, International Operations & Systems
Optimization, Mr. Ashley Smith, SVP of Investor Relations, Market Analysis &
Price (20 Feb 2015) USD 60.72
Strategic Planning, and Mr. John Locke, Executive Director of Investor Relations,
EPS FY1 (E) 7.10 provided a refining operations overview, and discussed refining optimization using
EPS FY2 (E) 11.00 linear programming models, as well as the implications of growing light sweet
Market Cap (USD bn) 31.65 domestic crude production on U.S. refiners.
Ticker VLO We have included the transcript in this note, and a copy of the presentation can be
found on Valero Energy's company website or Barclays Live.
U.S. Independent Refiners
Paul Y. Cheng, CFA View full report on Barclays Live Back to Top
+1 212 526 1884
paul.cheng@barclays.com
BCI, New York
23 February 2015
Energy
Energy: Energy Infrastructure Weekly
U.S. Diversified Natural Gas Performance: MLPs ended the week with the Alerian MLP Index closing up 0.71% to
Industry View Neutral 454.60, in addition to the S&P 500, which closed up 0.63% ending the week at
2,110.30. The unweighted average of all MLPs increased by 1.19% for the week,
U.S. MLPs
while Energy, as represented by the EPX, decreased by 0.62% over the same time
Industry View Neutral
period. Crude oil increased to $52.66/bbl (a 0.65% w/w increase), along with natural
gas, which increased to $2.99/mmbtu (a 9.52% w/w increase).
Richard Gross
+1 212 526 3143 EEP 2015 Guidance in Line, MEP Maintains Outlook
richard.gross@barclays.com
BCI, New York SXL 20% Distribution Growth Guidance
Heejung (Helen) Ryoo, CFA

WES/WGP: Thoughts after Q4 Release
+1 212 526 0795
PSXP Announces Its Largest Drop Down
heejung.ryoo@barclays.com
BCI, New York Questar Corp.: Reports 4Q; Provides FY15 Guidance
Brian J. Zarahn, CFA Sunoco LP.: Strong Earnings Beat

+1 415 263 4762
brian.zarahn@barclays.com
USA Compression Partners LP: 4Q In-line; 2H15 Remains Unclear
BCI, New York
DLNG 4Q14 Earnings Review
Christine Cho, CFA KNOP 4Q14 Earnings Review

+1 212 526 8419
christine.cho@barclays.com Q4 Distribution Scorecard
BCI, New York
Q4 Earnings Calendar
23 February 2015
Energy
U.S. Independent Refiners & Refining MLPs: PC Weekly DOE Inventory
Analysis
U.S. Independent Refiners Yesterday's (2/19/15) DOE report was neutral for light products due to
Industry View Positive higher-than-expected builds in gasoline inventories and higher-than-expected draws
in distillate inventories compared to consensus expectations.
U.S. Refining MLPs
Industry View Neutral During the past several weeks, several differentials, notably the Brent-LLS and
Brent-WTI Cushing spreads have tightened significantly. We think this is due to
Paul Y. Cheng, CFA several factors. First, we believe the current contango structure is steep enough that
+1 212 526 1884 investors can make money by placing barrels in storage. Second, we believe there is
paul.cheng@barclays.com
excess storage capacity at Cushing, Oklahoma and in the Gulf Coast. We estimate
BCI, New York
capacity at Cushing, OK and the Gulf Coast at ~75 million barrels and ~240 million
20 February 2015 barrels, respectively, compared to the DOE's most recent crude inventory estimate
of 46 million and 210 million barrels, respectively. Third, we believe there is currently
a lack of onshore storage capacity for Brent, and that Brent barrels likely require
floating storage which is expensive compared to onshore storage. Thus, we believe
there is currently a financial incentive to move barrels from Europe to the U.S.
However, we think that these differentials are unsustainable. Even if the contango
structure persists, the storage capacity at Cushing and the Gulf Coast will inhibit the
ability to store excess barrels indefinitely. In addition, the upcoming turnaround
season will likely expedite the speed at which Cushing and Gulf Coast inventory
eventually meets maximum storage capacity. If this threshold is reached, we think
eventually differentials will be forced to re-widen and begin to reflect transportation
costs. While we predict that global light product cracks may show some
year-over-year weakness, we continue to believe that U.S. independent refiners will
benefit from the re-widening of North American differentials in the coming months.
According to the DOE, current US commercial oil inventory increased 7.7 mmbls,
total mogas inventory increased 0.5 mmbls, and distillate inventory decreased 3.8
mmbls. This compares to consensus estimates showing a 3.0 mmbls build in crude,
0.7 mmbls draw in gasoline, and 2.0 mmbls draw in distillate inventories.
Cushing inventories increased 3.7 mmbls to 46.3 mmbls. Cushing inventories are
23.9% above the seasonally adjusted 5-year average of 37.3 mmbls.
Total US inventories, excluding SPR, decreased 0.4 mmbls from last week.
Inventories are now 11.8% above the 5-year average and 12.7% above last year's
level.

Financial Services
M&T Bank: 2014 10-K Review: Merger Termination Date Approaching
Stock Rating Overweight Legal: Its range of reasonably possible losses for litigation matters beyond its
Industry View Neutral reserve was $0 and $40mn at 4Q14 (unchanged).
Price Target USD 144.00 HCBK: MTB and HCBK merger termination date remains April 30. MTB has
Price (20 Feb 2015) USD 121.34 commenced a major initiative, including the hiring of outside consulting firms,
EPS FY1 (E) 8.50

intended to fully address the Fed's AML/BSA concerns. At 4Q14, the consideration
to be paid was valued at $5.4bn. HCBK had $36.6bn of assets, including $22bn of
EPS FY2 (E) 10.00
loans and $8bn of securities, and $32bn of liabilities ($19bn of deposits).
Capital: In Feb 2015, MTB issued an additional $1.5bn of fixed rate senior notes, of
Ticker MTB
which $750mn matures in 2020 and $750mn matures in 2025. Its tier 1 capital ratio
U.S. Mid-Cap Banks was 12.47% at 4Q14 (12.45% at 3Q14). MTB did not repurchase any shares of its
Jason M. Goldberg, CFA common stock in 2014, 2013 or 2012.
+1 212 526 8580
jason.goldberg@barclays.com Rates/securities: Rates +200bps from the forward curve, NII +$246mn (+$257mn at
BCI, New York 3Q14). Swap agreements entered into for risk management purposes was $1.4bn at
4Q14 ($1.4bn). Its net unrealized gains on AFS totaled $268.0mn (+$208.7mn at
Brian Morton, CFA 3Q14). MTB also had unrealized losses of $19mn ($16mn at 3Q14) on $106mn
+1 212 526 2163
($100mn) of trust preferred securities issued by financial institutions.
brian.morton@barclays.com
BCI, New York Loans: MTB had $30.8bn ($30.4bn at 3Q14) of funding commitments outstanding at
4Q14, including $23.3bn ($23.2bn) of credit extending, $3.7bn of
23 February 2015
standby/commercial credit, $2.5bn of financial guarantees and $1.2mn of
commitments to sell R/E loans.
Mortgage: New commitments to originate residential real estate loans to be sold

totaled $3.2bn in 2014, compared with $5.6bn in 2013 and $5.1bn in 2012. The
HARP 2.0 program was set to expire December 31, 2013, but was extended and will
now be available to borrowers through December 31, 2015. Nevertheless, volumes
associated with that program have declined since mid-2013.

Financial Services
MGIC Investment: Hot Topics Discussed During a Cold Client Visit to
MTG
Stock Rating Overweight Significant upside potential with minimal downside risk: We hosted a client visit to
Industry View Positive MTG headquarters in Milwaukee that reinforced our bullish thesis on the stock. We
see a supercycle in mortgage credit losses that could translate into incurred losses
of ~10% of premiums for an extended period of time, potentially driving MTG shares
Price (20 Feb 2015) USD 9.11
to $14, ~54% upside from current levels. Furthermore, with MTG shares currently
EPS FY1 (E) 0.98 trading at a sub-normalized multiple on normalized earnings (~9x our 2015 EPS
EPS FY2 (E) 1.18 estimate vs. a 10x-11x historical P/E multiple), we see limited downside risk to the
Market Cap (USD bn) 3.0843 stock.
Ticker MTG Credit losses on recent vintages on pace to be historically low: Management noted
that the default rate on recent vintage curves are peaking at ~0.5% (vs. a 4%-6%
U.S. Consumer Finance normalized rate) and is hard pressed to find any macro trends that could alter recent
Mark C. DeVries
trends. Since less than 2% of current reserves are from 2009 and later vintages,
+1 212 526 9484
mark.devries@barclays.com management noted that unless the slope of paid claims worsens, investors should
BCI, New York benefit from potential excess reserves over the next few years.
Jeremy Campbell, CFA

A reduction in LLPAs or g-fees seems likely: Management is more optimistic on a
+1 212 526 9750 downward adjustment to LLPAs than g-fees but believes that some policy response
jeremy.campbell@barclays.com to the FHA's premium cut is warranted. Regardless, management notes that lenders
BCI, New York (especially the larger lenders) are more cautious on FHA lending due to the putback
and legal risks, while the GSEs have made some progress on rep and warrant
23 February 2015
clarity.
Management is cautiously optimistic that PMIERs may be softened: Management

believes that PMIERs could be softened but, in their view, a worst case scenario is
the current proposal rather than a more restrictive proposal. When the PMIERs are
finalized, any future premium credit for 2009 and later vintages would go a long way
toward immediately reducing the capital shortfall, while a seasoning factor would
have a longer-term benefit. Management also hopes that the new rules provide
clarity on how the rules may be updated rather than rely on an "ad-hoc" approach.

Financial Services
State Street: 2014 10-K Review: 4Q GAAP EPS Pushed Down For More
FX Reserves
Stock Rating Overweight New/forward-looking disclosures from STT's 2014 10-K include:
Industry View Positive Legal: With its 10-K, STT restated 4Q GAAP EPS lower by $0.12 as it increased its
Price Target USD 90.00 4Q FX legal accrual from $50mn to $115mn. Its aggregate accrual for legal
Price (20 Feb 2015) USD 77.63 loss/regulatory matters was $224mn ($111mn at 3Q). It is engaged in discussions
EPS FY1 (E) 5.15

with government agencies, civil litigants re potential settlements. It is responding to
DOJ and SEC subpoenas on solicitation of asset servicing business of public
EPS FY2 (E) 6.15
retirement plans.
New Biz: During 2014, STT secured $1.14trn AUC in new business, with $767bn
Ticker STT
installed prior to quarter end. As of 4Q14, STT had $406bn of new business still to
U.S. Large-Cap Banks be installed. In 2014, SSgA had $28bn AUM of net new business and there was
Jason M. Goldberg, CFA $15bn of new business awarded but not installed by 4Q14.
+1 212 526 8580
jason.goldberg@barclays.com Capital: Restatement did not really alter B3 T1CE (10.8% Standardized). It estimates
BCI, New York its G-SIB buffer may increase from the 1% under the FSB's proposal to 1.5% under
Fed's. It repurchased 5.6mn (1.3%) shares in 4Q14 for $410mn, or 24% of its CCAR
Brian Morton, CFA 2014 ask ($470mn, or 1.5%, remaining). Its January share count declined by 0.7%.
+1 212 526 2163
brian.morton@barclays.com Markets: A 10% increase or decrease in worldwide equity valuations would result in
BCI, New York a corresponding change in its revenue of 2% (MSCI +3.4% QTD). If fixed-income
security values were to increase or decrease by 10%, it would anticipate a
23 February 2015
corresponding change of 1% in its revenue (Agg Index +0.5%).
Costs: It completed the Business Ops and IT Transformation program at the end of
2014, achieving, over the course of the program, greater than $625mn of total
pre-tax savings on an annual basis with full effect in 2015.
Rates: Rates +100bps shock, NII +$384mn (vs. +$343mn in 3Q14). Net unrealized
AFS after-tax gains (ex. ABCP) were $490mn at 4Q14, up from $490mn of gains in
3Q14.

Financial Services
Canadian Regional Banks: With Modest Q1 Expectations, Focus Turns to
Oil Overhang vs. B2B Buildup
With relatively modest Q1 expectations for the Canadian banks, we believe the
Canadian Financial Services market will look beyond the numbers in the quarter. For CWB, with oil price falling
John Aiken, CA, CFA
another 20% post-Q4, we anticipate the spotlight remains centred on low oil prices,
+1 416 863 8961
john.aiken@barclays.com and its impact to the bank's outlook and financial targets for 2015. For LB, with
BCCI, Toronto integration efforts of B2B completed last quarter, we believe the market will be
looking for signs that momentum from this segment remains on track. Heading into
Joseph Ng, CFA Q1, although volatility and oil price overhang will likely continue to weigh on its
+1 416 863 8965
valuation, with stronger growth upside, we believe CWB continues to offer
joseph.ng@barclays.com
BCCI, Toronto
interesting value proposition for longer term investors.
CWB - Shadow of prolonged oil price weakness will likely continue to weigh on
23 February 2015
valuation: With Alberta representing one of CWB's core markets, and the importance
of the energy sector to the province's economy, we believe the market will be looking
for any initial negative impact stemming from ongoing oil price weakness, as well as
any possible changes to the bank's view and/or outlook from last quarter. With the
overhang from sustained low oil prices weighing on CWB's valuation, for now, the
stock has lost its premium valuation status, trading at 9.6x forward price-earnings,
approximately 1.9x below its historical average, and roughly 1.4x below the group
average (vs. historical premium of 0.7x). Against the backdrop of low oil prices
weighing on the near term economic outlook, we anticipate CWB's valuation will
continue to be tested. That said, with the bank still likely on track to achieve its 2015
objectives, including double digit loan growth for the year, trading almost 2.0x below
its historical average forward P/E, we believe valuation is becoming increasingly
attractive.
LB - With its integration efforts complete, the market will likely seek evidence B2B
strategy is bearing fruit: 2014 represented a transition for Laurentian, as the bank
focused on completing its integration efforts related to its B2B operations. Q1-15
marks the beginning of a new chapter, anchored by doubling its mortgage exposure
and commercial lending portfolio over the next five years. While this quarter's
earnings will be measured against the bank's 2015 adjusted EPS growth target of
5% to 8% for the year, we believe the focus of Q1 will be tangible signs that benefits
from LB's B2B strategy is taking hold. LB share price currently trades at 8.8x forward
price-earnings, approximately 1.0x discount to its historical average and roughly 2.0x
below the group average (vs. a historical average discount to the group of 1.1x).
Although the discount likely reflects the market's expectations that LB's earnings
growth will continue to trail the group, with the bank's focus shifting from integration
efforts to generating revenue synergies from its B2B operations, and targeting fairly
solid 2015 adjusted EPS growth, roughly in line with the industry, we believe
continued progress in the quarter should go a long way in helping to bridge the
valuation gap.

Financial Services
U.S. REITs: Weekly Real Estate Securities Overview
Highlights:
U.S. REITs
Ross L. Smotrich REITs Underperformed Broader Markets for the Week Ending 2/19/15
+1 212 526 2306
ross.smotrich@barclays.com
Upcoming Events:
BCI, New York
March 15-19, 2015: Barclays European Property Tour and Management Meetings -
Prologis/Klépierre
Linda Tsai
+1 212 526 9937
linda.tsai@barclays.com View full report on Barclays Live Back to Top
BCI, New York
20 February 2015
Healthcare
Community Health Systems: Progress Continues on Multiyear Strategy
for Improvement
Stock Rating Equal Weight Before jumping into the results it is important to understand the broader picture for
Industry View Neutral Community Health Systems. The company has been run by the same team for
several decades and that team has had a very consistent (and successful) strategy
throughout. Community seeks to acquire rural hospitals and improve the operations
Price (20 Feb 2015) USD 49.48
through a set of more centralized management. In virtually every situation, the
EPS FY1 (E) 3.90 company has been successful in turning around the acquired assets. That said,
EPS FY2 (E) 4.40 there are always bumps in the road and some of that was visible in 2014. We would
Market Cap (USD bn) 5.7561 argue that 2014 is not particularly relevant to the future success of the company. We
Ticker CYH
are forecasting an EBITDA margin in 2015 of 15.4%, which is up just 40bps from
2014 levels. This is a company that operated with margins more than 100bps higher
U.S. Health Care Facilities for a decade. We estimate that EBITDA at just a 16% margin would be $130 million
Joshua R. Raskin, CFA higher and assuming a constant multiple, that would equate to appreciation in the
+1 212 526 2279 share price of 17%. We see Community as an execution story for the next 1-2 years,
joshua.raskin@barclays.com
and perhaps a growth story again after that period.
BCI, New York
Having pre-announced results for 4Q14, the attention is clearly on the solid
23 February 2015 guidance. Community is guiding to EBITDA in 2015 in the range of $3.0-$3.2 billion.
The midpoint of $3.1 billion is exactly in line with our estimate and also consistent
with the consensus estimate of $3.125 billion. All in the EBITDA guidance equates to
growth of 11.6% at the midpoint and is helping push EPS growth to 19% at the
midpoint. In summary, earnings in the quarter were exactly in line with the
pre-announcement made a month ago. This shifted the attention to the guidance for
2015. While there are some small one-time benefits, the guidance is consistent with
our estimates and the consensus and that should be seen as a relief.
ACTIONS: We are basically maintaining our EBITDA estimates for 2015 and 2016
and maintaining our price target at $58.

Healthcare
Health Care REIT: Strong Finish to 2014 Sets up Positive (and
Conservative) 2015 Outlook
Stock Rating Overweight Health Care REIT reported strong 4Q14 results and provided an outlook for 2015
Industry View Neutral that appears to be consistent with broader expectations, and in our opinion, a
conservative starting point. The company reported normalized FFO per share of
$1.03, some $0.03 per share above our estimate of $1.00 and $0.01 per share
Price (20 Feb 2015) USD 78.05
above the Street consensus of $1.02. Looking forward, the company is initiating
EPS FY1 (E) 4.30 guidance for 2015 with normalized FFO expected to be in a range of $4.25-$4.35,
EPS FY2 (E) 4.50 representing growth of 2.9%-5.3% over 2014. The new guidance compares to our
Market Cap (USD bn) 25.575 estimate of $4.30 per share and the current Street consensus of $4.33. Health Care
Ticker HCN
REIT also provided guidance for normalized FAD to a range of $3.83-$3.93,
representing growth of 4.6%-7.4%. This compares to our estimate of $3.84 per
U.S. Health Care Facilities share. Underlying that guidance, we believe that the assumptions remain
Joshua R. Raskin, CFA conservative for 2015. First, we note that the company assumes no additional
+1 212 526 2279 investments beyond those announced. Second, this is all offset by an expected
joshua.raskin@barclays.com
disposition total of $400 million in 2015. Third, the company is assuming that same
BCI, New York
store cash NOI growth slows to a range of 3.0%-3.5% in 2015, off of growth of 4.2%
23 February 2015 in 2014. All in, we believe that the guidance will prove to be conservative.
Overall, we see the quarterly results as slightly above expectations and the outlook
for 2015 as solidly in line with consensus (despite several conservative
assumptions). We continue to argue that Health Care REIT's senior housing RIDEA
assets are manifesting in growth stronger than expectations, and favorable operating
trends set a solid baseline for 2015 growth.

Healthcare
Illumina Inc.: 2014 Form 10-K Review
Stock Rating Equal Weight Illumina filed its 201 Form 10-K on February 18, 2014 (the same day as last year).
Industry View Positive After our comprehensive review of the filing, we make the following observations:
Price Target USD 215.00 1) Illumina has 143.8 million shares outstanding as of January 30, 2015, up 12.1%
Price (20 Feb 2015) USD 203.13 y/y and up 1.0% from the 4Q14 basic share count. 2) Illumina has 473 issued
EPS FY1 (E) 3.15

patents and 421 patents pending, up 71 and 38 y/y, respectively. 3) Illumina's
backlog was $540 million at the end of 2014, up from $21 million y/y. Approximately
EPS FY2 (E) 3.75
$130 million of the backlog was associated with the Genomics England project,
which is expected to be completed by the end of 2017. 4) Illumina has shown
Ticker ILMN impressive employee metrics and leverage as the company has grown. 5) Total
leased real estate at the end of 2013 represented 1.34 million square feet. 6) Half of
U.S. Life Science Tools & Diagnostics Illumina's revenue is generated in the United States, and increased 33% y/y. 7)
Jack Meehan, CFA
Illumina repurchased $237 million of shares in 2014, the largest pace of repurchases
+1 212 526 3909
jack.meehan@barclays.com since 2011. 8) Illumina has convertible senior notes outstanding due in 2019 and
BCI, New York 2021. 9) Illumina noted one recently issued accounting update. 10) Illumina entered
into settlement agreements for both of its outstanding legal proceedings, with Syntrix
Matthew Taylor, CFA and Sequenom. 11) CEO Jay Flatley and CFO Marc Stapley provided the necessary
+1 212 526 6965
certifications on February 17, 2015, and Ernst & Young provided an unqualified
matthew.c.taylor@barclays.com
BCI, New York opinion of the company's financials
Actions: With the additional disclosures in the filing, we're tweaking our model and
23 February 2015
maintaining our price target of $215.

Healthcare
Teleflex: Margin Outlook Robust; Move to OW
Stock Rating Overweight MATT'S MINDSET: We are upgrading TFX to OW from EW based on increased
Industry View Neutral confidence in its ability to drive growth and margin expansion from, leading to what
we believe will be several years of at least mid-single digit revenue growth and
robust operating margin expansion - (+225 bps) in 2015. TFX has performed well
Price (20 Feb 2015) USD 120.16
since Benson Smith was named CEO in 2011 and it jettisoned its last non-medical
EPS FY1 (E) 6.28 businesses to focus on medtech. In our view, management has executed well on
EPS FY2 (E) 7.23 operational initiatives, including: 1) restructuring and consolidating its plant network;
Market Cap (USD bn) 4.9763 2) instituting a strong pricing discipline that has led to price increases; 3) controlling
Ticker TFX
costs and introducing efficiency programs; 4) doing disciplined M&A to add breadth,
growth, and new products; 5) investing more in organic product programs to drive
U.S. Medical Supplies & Devices value.
Matthew Taylor, CFA
We are impressed by TFX's ability to absorb FX body blows, as it expects EPS
+1 212 526 6965
matthew.c.taylor@barclays.com growth of 6-11% in 2015 ($6.10-$6.35), despite a $0.82 headwind from FX, $0.09
BCI, New York from share count, and $0.08 from interest expense (or a 23-28% growth excluding
these items). While this is robust growth, TFX is trading at under 17x our 2015 cash
23 February 2015 EPS number of $7.14, below names like ABT 19.8x, BCR 17.7x, and HYH 18.0x
where the organic margin ceiling and expected underlying EPS growth over the next
three years is lower. As such, we think TFX deserves a premium multiple and are
raising our PT to $145 based on 20x our 2016 cash EPS estimate of $7.23. Our
previous PT was $121, based on 19.5x our prior 2015 cash EPS estimate of $6.25.
There are few MedTech margin expansion stories, giving TFX a scarcity value and
its portfolio moves have made TFX a more attractive asset, in our view. Over the
next few years, TF has considerable margin runway from: 1) plant consolidation and
efficiency programs (+100 bps in 2015); 2) new programs (+30 bps); 3) favorable
mix (+70 bps); 4) distributor conversions (+70 bps); 5) Mini-Lap acquisition (+10
bps); FX (50 bps headwind in 2015). TFX expects the majority of its footprint savings
in 2016-17; we model another 270 bps of OM gains over that period. Further, we see
the potential for further upside due to direct-to-distributor conversions and M&A.

Healthcare
U.S. Health Care-Managed Care: 2016 MA Rates: Base Slightly Lower
But No Negative Surprises
On Friday evening, the Centers for Medicare & Medicaid Services (CMS) released
U.S. Health Care-Managed Care the 45-day notice for 2016 Medicare Advantage (MA) and Part D rates. The rate
Joshua R. Raskin, CFA
release is a preliminary look at reimbursement for MA plans for 2016 with final rates
+1 212 526 2279
joshua.raskin@barclays.com due out on April 6, 2015. Simply put, the rates contained in the notice will force
BCI, New York another round of benefit reductions, which could serve to slow growth rates below
the 10% membership growth rates seen in the past two years. While there is
23 February 2015 potential for changes between now and the final rate notice, we believe that we
could see a lower level of membership growth (but still growth) with margin
maintenance for MA plans in 2016.
In the note below we review every aspect of the announcement. That said the list
below is a rough outline of the incremental positives and negatives from this year's
release. Overall, we believe that the base rate is slightly lower than expected
(especially in light of the December 2, 2014, CMS release). However, the lack of any
new surprises is a bigger positive for the industry.
There are always several moving, and very confusing parts, but we estimate that the
2016 rates will likely be down somewhere around 0.54%. Because the industry fee
will be held flat in 2016, there is no impact to the overall industry. However, plans
with growth above the industry average will see higher fee costs.
Points to keep in mind before overreacting: 1) From 2011 through 2016 we estimate
that MA rates have aggregated more than 1,200bps below FFS cost trends, and yet,
the MA plans have been able to grow membership an aggregate 5.4mm lives or
45%. 2) With that in mind, we believe that there is a potential for a decline in growth
rates, NOT a decline in membership in 2016. 3) It is also important to note that the
large publicly traded MA plans have outperformed the broader MA program in recent
years. 4) This is far from the first time that rates will be down for the MA program. 5)
The changes in rates can have a much bigger impact on membership growth than
on margins for the plans. 6) As noted in the point above, despite base rates
increasing less than what we believe cost trends, managed care plans have several
levers they can pull to further maintain margins.

Industrials
Deere & Co.: Execution Supports EPS in Downturn
Stock Rating Overweight After a relatively strong 1Q, there is no big change to our thesis that DE's relentless
Industry View Positive focus on execution, still considerable cash deployment potential, and an already
significant downturn in large ag could lead to a bottoming of EPS in 2015. In the end,
it seems that a majority of DE's lower FY15 guidance was driven by currency
Price (20 Feb 2015) USD 92.43
headwinds, which we think most investors will be willing to look through because of
EPS FY1 (E) 5.35 DE's strong execution in the quarter and no significant changes to the underlying
EPS FY2 (E) 5.40 outlook. While we think DE's large ag business could be as low as 40% or less of
Market Cap (USD bn) 31.6511 profits by the end of FY15 (down from ~60% in FY13), we understand it's too soon to
Ticker DE
say DE is out of the woods yet - pressure on dairy markets is a concern for small ag
(particularly in Europe), South America seems uncertain, and the upcoming Spring
U.S. Machinery planting season will be closely watched as an early read on NA crop expectations.
Andy Kaplowitz At the same time, it's possible that DE's Ag & Turf outlook does have a hint of
+1 212 526 5586 conservatism to it - for the rest of the year DE is essentially guiding to the same
andrew.kaplowitz@barclays.com
~35% decrementals that it delivered in 1Q, despite potentially less negative mix and
BCI, New York
a lower material cost environment. So if DE can continue to execute well and get
Vlad Bystricky price in the downturn, which we think it can, we wouldn't be surprised to see modest
+1 212 526 3084 upside to margin over the next few quarters.
vlad.bystricky@barclays.com
BCI, New York C&F revenue and margin improvement should also help offset weaker ag markets.
Some investors seem concerned about the potential impact of energy and an
23 February 2015 incrementally weaker Brazil. We understand and realize that year-ago comparisons
will also get more difficult in 2H15, but DE's revenue guidance of +5% seems doable
with both better U.S. resi and non-resi recoveries, and margin seems to be trending
in the right direction.
Our price target goes to $97 on 18x our new FY16 estimate of $5.40 (was $93 on
17x our old FY16 estimate of $5.45). We still model modest declines across all
global ag markets in FY16. But, DE's ability to execute better than even in past
cycles, combined with still significant cash deployment potential, gives us more
confidence that EPS could stabilize, and we think that should warrant a higher
multiple over time.

Industrials
IMS Health: Upgrade to OW; Smart Cegedim deal to enhance improving
fundamentals
Stock Rating Overweight We upgrade IMS to OW ahead of its early April closing of Cegedim (EUR385M at
Industry View Neutral 8.3x FY14E Adj. EBITDA; <5x post-synergies; now included in our estimates). We
increase our applied Adj. EBITDA multiple to 13.2x (from 12.8x) to not only account
for 1) the cost savings upside; and 2) potential revenue synergies from Cegedim but
Price (20 Feb 2015) USD 26.22
also 3) improving fundamentals, and 4) potential for shareholder return.
EPS FY1 (E) 1.41
Cegedim cost synergies could be plenty... We see potential upside to the guided
EPS FY2 (E) 1.65
$50M of cost synergies over 3 years, and model in $70M as a start (we stick with $0
in year 1, but would be surprised not to see any). We expect synergies to come
Ticker IMS primarily from: a) labor efficiency opportunities (Cegedim's 4,500 employees with
~$470M in sales vs. ~10,000 at IMS supporting ~5.5x the revenue); b) data
U.S. Business & Professional Services center/RE overlap; c) product development; d) general overhead; and e) ~$10M of
Manav Patnaik
data costs that IMS will no longer pay to Cegedim (which we don't think is in initial
+1 212 526 2983
manav.patnaik@barclays.com guidance). Anecdotally, we see Cegedim in a similar position to IMS in 2010, when
BCI, New York CEO Ari Bousbib came in to drive $250M+ of annualized cost savings & ~460bps of
Adj. EBITDA margin expansion.
Eric Percher
+1 212 526 5496 ...with a boost to revenues too? IMS has not talked about revenue synergies and in
eric.percher@barclays.com fact assumes that a ¼ of the acquired revenues (incl. ~56K legacy CRM seats) will
BCI, New York decline (20)% - and while we model this, we think it is potentially conservative. We
feel that the combination of the #1 data provider (IMS) with the #2 pharma CRM
23 February 2015
(Cegedim) could be fruitful. Our channel checks with pharma clients indicate a
strong desire to have IMS's core data fully integrated with all of its support and
analytics.
Story playing out with improving fundamentals: While we took a constructive EW

stance on IMS when we initiated in May 2014, today we see: a) greater conviction
on growth trends in Tech Services (+13.6% C$ revenue growth in 4Q14); b)
moderation in pharma consolidation headwinds; and c) the potential for continued
smart, strategic M&A (to target its $75B TAM), alongside; d) the potential for
shareholder return.

Industrials
Mohawk Industries Inc.: Thoughts Following 4Q14 Earnings
Stock Rating Overweight Mohawk Industries (MHK) reported 4Q14 adjusted diluted EPS of $2.27, vs. our
Industry View Neutral $2.21 estimate (Street consensus of $2.21 and company guidance of $2.18 to
$2.27). The upside in the quarter was driven by stronger-than-expected sales and
margins in Carpet despite lower sales and profits in both Ceramic and Laminate &
Price (20 Feb 2015) USD 184.26
Wood. Overall, we are pleased with the progression of fundamentals in the quarter
EPS FY1 (E) 9.50 in the face of a 375bp currency headwind. We raise our price target to $210,
EPS FY2 (E) 11.25 maintain our Overweight rating, and we reiterate shares of MHK as our Top Pick.
Looking to FY15, we are adjusting our FY15 EPS estimate to $9.50 (from $9.72) and
Ticker MHK our FY16 estimate to $11.25 (from $11.57), as we incorporate approximately 500bps
of FX headwinds which results in a $0.58 headwind to FY15 earnings and $55mn
U.S. Building Products & Homebuilding headwind to FY15 EBITDA. Fundamentally, we are increasing our FY15 estimate by
Stephen Kim
approximately $0.25 and we incorporate approximately $0.09 of accretion from the
+1 212 526 2805
stephen.kim@barclays.com acquisition of an Eastern European ceramic tile manufacturer.
BCI, New York
Noisy 1Q15 guidance: With 4Q14 earnings, the company provided 1Q15 guidance in
23 February 2015
a range of $1.54 to $1.63. However, the company also cited that 1Q15 has four
extra days which should benefit top line by 6%, and we estimate this will benefit
earnings by $0.12.
FX volatility results in a 500bp headwind to rev and $0.58 to EPS: Because the
Marazzi business in Russia has higher-than-segment-average margins, we estimate
the $235mn top line headwind equates to a negative $35mn impact to EBIT.
Meanwhile, the $135mn headwind to the Laminate and Wood segment equates to a
negative $20mn impact to EBIT.
Lower raw materials should benefit Carpet margins beginning in 2Q14: While
Mohawk did not give formal guidance on raw material deflation in FY15, we expect
this to benefit the company by approximately 75bps in 2Q15 and 100bps in 2H15.

Industrials
Industrials: ISC Highlights: Poor Sentiment an Opportunity; Still Like
Truck/Non-Resi
U.S. Engineering & Construction An overarching takeaway from our recent Industrial Select Conference (ISC) is that
Industry View Positive our coverage universe is widely out of favor with some investors - which we think
could represent an opportunity for patient investors. Data from our Audience
U.S. Machinery
Response System (ARS) polling during the conference confirms the sense that we
Industry View Positive
had going in - investors are concerned about near-term growth prospects. Among
companies at our conference, names under our coverage represented 8 of the 11
Andy Kaplowitz
+1 212 526 5586
companies with the most negative/neutral bias (out of the 41companies that were
andrew.kaplowitz@barclays.com rated). We share investor concerns - one of the key questions on our mind heading
BCI, New York into the ISC was "are management outlooks conservative enough?" We can't say
definitively that they are, but we do see opportunities where investor bearishness
Vlad Bystricky seems skewed overly negatively and where management conservatism/realism
+1 212 526 3084
could result in resilient EPS vs. current expectations. Given how under-owned our
vlad.bystricky@barclays.com
BCI, New York stocks appear, we think even relatively in-line results over the course of the year
could support upside from current levels.
23 February 2015
In particular, we see company-specific opportunities for longer-term investors (given
what we heard at the Conference) in Machinery Top Pick CMI, as well as TEX and
JEC. For CMI, we continue to think that North American truck production could prove
stronger than current management forecasts and China market share gains remain a
tailwind. TEX management seems to have appropriately low expectations with
respect to end markets and potential FX headwinds in 2015 and, with investors
seemingly skeptical of the company's ability to achieve its targeted operating
improvements from internal initiatives through 2016, we see good opportunity if the
company can execute. For JEC, oil and gas related headwinds remain at the
forefront of investor concerns, but the company's public/institutional markets - with
tailwinds from public-private partnerships (PPPs) and improving state budgets - and
more aggressive share repurchases could support resilient EPS. We didn't hear
anything new from CAT, but we still think strong cash flow and conservative
guidance provides an opportunity.
With respect to end markets, North American truck remains the outlier in terms of
visible positive trends, while non-resi construction remains more mixed, but could
improve. Slowing energy markets are expected, but the ultimate impact is not yet
well understood. Sluggish emerging markets are here to stay for now (especially
Brazil and China), but there is some hope for improvements in India over time.
Europe seems more mixed - still only slow growth at best right now, but weakening
currency could be a boost to Euro economies over time. Ag equipment continues to
slow, but seems largely as expected thus far into the year. We see no clear bottom
in mining yet, which could get worse before it gets better.

Industrials
North America Airfreight & Ground Transportation: Transport Takeaways
from Barclays Industrial Select Conference
Last week, we hosted several of our large-cap transportation companies at Barclays'
North America Airfreight & Ground Transportation annual Industrial Select Conference in Miami. Given challenging investor sentiment
Brandon R. Oglenski
across the sector, we were incrementally encouraged to hear a consistent message
+1 212 526 8903
brandon.oglenski@barclays.com of solid North American demand and, most importantly, continued pricing gains
BCI, New York across most modes. Sure there are challenges; lower oil prices are impacting energy
traffic, rail service issues linger and the west coast port slowdown could have
Keith Mori, CFA consequences for intermodal demand more than initially thought. However, strength
+1 212 526 5019
in construction, autos, chemicals, consumer markets and even European exports
keith.mori@barclays.com
BCI, New York
were sighted as powerful offsets in 2015. Coupled with 'easy' comps from a
challenging 2014 winter, we see momentum continuing in transportation earnings
23 February 2015 growth this year. In our conversations with investors we did notice heightened
concerns that potential peak earnings and multiples may be developing in the
vertical. But as audience response rates suggest, transportation stocks continue to
benefit from a positive market bias relative to the broader industrial universe. We
walked away from the event most positive on UNP and a bit more cautious on CSX,
NSC and JBHT.
First signs of a potential 2015 guidance reset by CSX? Management signaled that
domestic coal challenges are making the outlook a bit 'more challenging' to achieve
guidance of double-digit earnings growth in 2015 relative to earlier expectations.
Outside of coal, strong end-markets, pricing gains and cost initiatives all provide
meaningful offsets to earnings growth.
UPS humbled by 4Q peak season result and committed to solving the puzzle. UPS
reiterated its disappointment with recent peak season performance and highlighted
ongoing initiatives to 'bend' the cost curve (Orion implementation; facility
retro-fitting). Importantly, management also emphasized a renewed focus on yield
management as a future solution (peak season surcharges), though admitted such
programs would take time to materialize. Further, UPS is experiencing double digit
volume growth in its key Europe-U.S. lane, as the stronger USD is driving shifts in
trade patterns.
Audience response signals UNP the favorite; and we walk away feeling right on our
'top pick' recommendation. UNP screened the most favorable by our conference
audience for ownership (55%, OW), general bias (65%, positive) and relative
through-cycle earnings growth (81%, above). UNP shares have benefited from
higher valuation levels in the past year, but with management highlighting the
strength of a diverse franchise, we see strong results continuing despite some
volume headwinds. We reiterate UNP as our top-pick.
For an analysis of all audience responses at our conference please reference '2015
Industrial Select Conference Sentiment Data' published on 23 February 2015.

Industrials
U.S. Aerospace & Defense: Barclays Industrial Select Conference:
Aerospace and Defense Takeaways
Last week, we co-hosted the Barclays Industrial Select Conference in Miami,
U.S. Aerospace & Defense featuring meetings/presentations from 60+ companies and 400+ investors. From a
Carter Copeland
high level, we'd note that like last year, core growth remains by far the most
+1 212 526 1661
carter.copeland@barclays.com significant issue on investors' minds across industrials. Sentiment scores were
BCI, New York above average for all of our companies in attendance, although not every name
registered as widely owned (although from this perspective UTX stuck out for our
23 February 2015 group). There were no clear shifts of significance in capital deployment demands of
investors, but share repurchases remained the most popular avenue for deployment.
For more insight into the data or broader industrial takeaways, see our team's
companion reports "2015 Industrial Select Conference Sentiment Data" and
"Thoughts from Industrial Select Conference 2015" also dated today. For A&D
specifically, our high level observations are as follows:
A Lack of Controversy Is What Set A&D Apart: Audience response data and our
conversations with investors revealed a much wider-than-normal dispersion of
sentiment and ownership trends across industrials. Out-of-favor names were very
out of favor, while in-favor names were almost uniformly loved. With unanswered
questions still looming for EM, energy markets, and Europe, controversy for names
across industrials remains high. But this certainly didn't seem to be the case for
A&D; lower fear-of-the-unknown negative surprises and expectations for upside to
estimates in many cases left most investors we spoke to generally comfortable
owning this group. By and large, what really stood out to us most at this year's event
was that investors were taking a glass-half-full approach in essentially all of the
meetings we attended, focusing their efforts on identifying areas of potential upside
rather than digging for downside risks.
Defense - Still Neutral Stance Due to Valuations, But Our Bias Leans Somewhat
Positively Short-Term From Negatively Prior: It's no secret that we've been growing
increasingly cautious on defense, largely due to valuations but also increasingly due
to the fear that growth expectations will grow to unachievable levels over time.
We've recently characterized our stance as neutral with a negative lean, but
following an optimistic and constructive set of meetings, we'd alter this view to one
that is still clearly neutral but leaning somewhat more positively, at least for the very
short term. We found company-specific commentary from the three primes in
attendance to be reasonably positive, but as we alluded to above, what set this
group apart was that it seemingly offered nothing to worry about (which almost
seemed to matter more than anything else). We can't recall a single question
focused on a potential return of sequestration, and for the most part, discussions on
margins (a recent focus of bears) were constructive and suggestive of modest
upside versus expectations. We'd still maintain the view that defense...
(Continued on Page 2)

Industrials
U.S. Autos & Auto Parts: Autos takeaways from Barclays Industrial
Select Conference
Last week we hosted BWA, DLPH and JCI at our annual Industrial Select
U.S. Autos & Auto Parts Conference (ISC) in Miami: We saw the following key takeaways:
Brian A. Johnson
+1 212 526 5627 Like last year, we used an audience response survey system. Comparing autos to
brian.a.johnson@barclays.com the broader industrial group, as well as to the prior year, we note the following:
BCI, New York
Highly positive bias toward DLPH stock, likely driven by EPS growth outlook; stock
23 February 2015 has upside from multiple expansion: DLPH came away as the stock with the highest
positive bias amongst all presenting companies, with 88% of audience participants
positive vs. the group average of 42%. The sentiment was likely a reflection of
DLPH's opportunity to post EPS growth above peers, as 82% of audience
participants expected DLPH EPS growth above peers vs. 43% for the group. While
nearly half of the participants were OW DLPH stock, polling data indicated there may
be further upside from multiple expansion - 50% of participants believe DLPH stock
should trade at 16-18x '15 EPS vs. the current multiple of 14x.
Relative to 2014, sentiment less positive for BWA and JCI: JCI saw a fall-off in OW
ownership (-21 points), while fewer investors were positive BWA stock (-25 points).
Focus on share buybacks; core growth: The audience largely preferred excess cash
to be applied toward share buybacks, though there was also interest in internal
investment for BWA and bolt-on M&A for DLPH. On investment issues, investors
mostly saw core growth as the key issue, though margin performance remained in
focus for BWA/JCI, with execution/strategy a focus at DLPH/JCI.
We came away most incrementally positive on JCI: The most incremental point of
the presentation was an acknowledgement that the most sub-scale parts of the
business are resi HVAC (UPG) and light commercial, with management noting that it
can't grow resi HVAC organically and instead will need to do something "disruptive."
Moreover, the business is trending positively - most importantly, in BE the robust
pipeline is converting to a relevant amount of orders in NA, though there is some
offset from China, which has been slower than management has hoped.
Management is also confident that JCI's multiple will re-rate, especially as better
margins materialize for the Auto business.
Mid-term bull thesis intact for BWA: Low oil prices could be actually be a slight
positive to BWA near-term, and will have little impact long-term. Similarly, BWA is
not at risk if diesel mix in Europe declines given similar content on gas vehicles.
BWA has an opportunity for higher incremental margins in '16 vs. '15, as BWA
benefits from the Drivetrain restructuring and the ramp of facilities (i.e. China DCT).
Finally, management's capital allocation focus is now more balanced, and the
recently announced $1bn share buyback plan does not preclude BWA from pursuing
M&A.

Industrials
U.S. Multi-Industry: 2015 Industrial Select Conference Sentiment Data
This year's conference marks our fourth time utilizing the Audience Response
U.S. Multi-Industry System (ARS) - real time audience polling on sentiment and investment debates. We
Scott R. Davis, CFA
find the data to be quite powerful and believe it can be an unbiased measure of
+1 212 526 5580
scott.r.davis@barclays.com consensus.
BCI, New York
2015 results were mostly unsurprising and reflect what we hear in conversations
with investors. The clearest takeaway here is that Machinery/E&C is currently the
Carter Copeland
+1 212 526 1661 most out-of-favor sector. Positive sentiment averaged only 20% for Machinery/E&C
carter.copeland@barclays.com names (vs. average of all companies at 42%). Investors were most positive on A&D
BCI, New York (50% average), followed by Multis (44%) and Transportation (42%).
Andy Kaplowitz Other takeaways: Last year saw substantial sentiment shifts with a notable
+1 212 526 5586 preference for small/mid cap and away from large. This year the data was more
andrew.kaplowitz@barclays.com scattered, but tended to favor larger names (UTX, HON, MMM, UNP). Names that
BCI, New York
had significant outperformance over the past ~6 months (MMM, ROP, ST) exhibited
improvement in general bias for the stock and higher P/E expectations.
Brandon R. Oglenski
+1 212 526 8903 Out-of-favor names this year include CAT, DOV, GE, JOY, GWW, and NAV.
brandon.oglenski@barclays.com
Unsurprisingly, many of these companies have significant upstream O&G / natural
BCI, New York
resources exposure. Consensus positive names include DLPH, DHR, HON, IP,
Scott L. Gaffner, CFA NOC, SEE, ST, UNP, and UTX. Regarding multiples investors are willing to pay,
+1 212 526 9132 average response came in at 15.6x 2015 earnings, in-line with last year.
scott.gaffner@barclays.com
BCI, New York Regarding cash use, this year we saw preferences largely in-line with what we saw
last year. There was a shift in preference toward larger M&A (13% this year vs. 9%
Duffy Fischer last year) vs. bolt-on M&A (18% this year vs. 20% last year). Worth noting, last year
+1 212 526 3212 we saw a meaningful shift away from dividends and toward M&A. Share repos
duffy.fischer@barclays.com
remained relatively stable at 37%; debt paydown and internal-investments also
BCI, New York
remained stable at around ~9% a piece. Investors indicated strong preference for
Stephen Kim ROP, DHR, HON, ST, TYC, and CCK to do deals. Investor desire for other
+1 212 526 2805 companies to do deals falls off sharply for most names.
stephen.kim@barclays.com
BCI, New York Detailed data inside.
23 February 2015 View full report on Barclays Live Back to Top

Industrials
U.S. Multi-Industry: Thoughts from Industrial Select Conference 2015
We walk away from this year's Barclays Industrial Select Conference scratching our
U.S. Multi-Industry heads a bit. While there were some consistent themes across presentations, versus
Scott R. Davis, CFA
years past, we've had a relatively difficult time drawing conclusions. And that has us
+1 212 526 5580
scott.r.davis@barclays.com thinking, perhaps a lack of conclusions is the conclusion. In other words, have sharp
BCI, New York moves in commodity prices / FX levels, coupled with global geopolitical
uncertainties, clouded the visibility of our average corporate, leaving it somewhat
23 February 2015 hesitant to speak in definitives? We think that may be the case... which would make
sense given the conflicting macro data points we are seeing of late (e.g. weak
commodity prices vs. bullish lending data). So, the obvious question becomes, does
this change our more constructive view on the sector / cycle? Not really... we still
see opportunities to invest, but we would point investors to self-help stories (GE),
secular growth stories (ROK), special sits (ST), or strong management teams (DHR /
HON/ ROP), at least until sentiment becomes a bit more positive, or seems more
ripe to turn.
With all that said, there were some conclusions we were able to draw:
N. American non-res seems set to accelerate in 2015: HON, HUB, TYC, WCC, IR
and HDS all spoke to positive trends here. HDS was perhaps the most bullish,
referring to the N. American non-res market as "robust".
On Oil & Gas: commentary was in line with what we heard on earnings calls, but
seeing as oil prices have seemingly found some stability, management teams
appear ready to turn their attention to restructuring initiatives (GE and HUBB stand
out here).
With regards to FX: we asked most companies "beyond the translational effects of a
stronger dollar, is dollar strength negatively impacting your competitive positioning?"
Overwhelmingly, the answer was "no". Corporates reiterated what we expected to
hear - supply chains are global, as are manufacturing footprints - and US
headquartered companies are just that...only headquartered in the US. ROK is a
good barometer here, we think, given the global nature of Automation and strong
European competitors.
On capital allocation: management teams indicated a willingness / desire to do

bigger deals (HUB, DHR, ROP, and HON most notably). And, investor response to
our ARS (audience response systems) questions suggest they're aligned with
management on this front. We've seen this head fake before, but given how high
cash levels are, we do think we'll see higher levels or large M&A in 2015 (versus
2014).

Power & Utilities
Public Service Enterprise Gp: Beating Consensus
Stock Rating Equal Weight PEG issued 2015 EPS guidance of $2.75-$2.95 which was ahead of expectations
Industry View Neutral and recently raised the dividend 5% to $1.56/share for 2015. We model utility
PSE&G's growth at 10%, but lower hedged margins at Power is an offset. We are
raising our target $2 to $44. We look for more detail at PEG's New York analyst
Price (20 Feb 2015) USD 41.63
conference March 2 on longer-term utility growth and PJM power markets including
EPS FY1 (E) 2.85 the proposed Capacity Performance standard.
EPS FY2 (E) 2.79
We are raising our EPS estimates to $2.85/$2.79/$2.94 for 2015-2017 from
$2.65/$2.63/$2.66 previously. For PSE&G our estimates incorporate 10% growth off
Ticker PEG the middle of the guidance range, which is an increase of $0.07 in 2017 for us. For
Power the increase reflects the benefits of 2015 intermediate fleet hedges
U.S. Power (+$0.07/share) and run times (+$0.05/share) and for 2015-2017 higher price
Daniel Ford, CFA
baseload hedges and forecasted improved Salem plant performance.
+1 212 526 0836
daniel.x.ford@barclays.com PEG expects to grow ratebase at 10% at PSE&G with $2.2B of investment in 2015
BCI, New York
and $2.4B annually over the next 4 years. On the negative side, PEG is impacted in
Gregg Orrill
2015 by a -$0.05/share impact from pension and a bonus depreciation offset to
+1 212 526 0865 ratebase of $150-$200M (-$0.02/share).
gregg.orrill@barclays.com
BCI, New York
PEG expects FERC to approve the PJM Capacity Performance (CP) Standard for
the upcoming May auction affecting pricing for the June 2018 auction year. PEG
20 February 2015 does not expect to benefit from incremental 2016 and 2017 CP auctions because
the price cap is below the PS zone.

Technology
Broadcom Corp.: Next Phase Continues to Take Shape
Stock Rating Equal Weight Over the past year+, we've seen Broadcom transition from an indiscriminate
Industry View Neutral growth-focused company to one focused on capital returns and profitable growth.
Connectivity has held up better than expected and BRCM is optimistic about a return
to growth in 2016. We do see an opportunity in Broadband with the transition to 4K
Price (20 Feb 2015) USD 44.68
but that catalyst is still a ways out, while Switching could see some negative
EPS FY1 (E) 2.76 catalysts in the near-term. Net net, the story lacks near-term catalysts but we do
EPS FY2 (E) 2.94 applaud the shareholder focus and are intrigued that investor interest has waned,
Market Cap (USD bn) 26.7633 but we remain on the sidelines.
Ticker BRCM Broadband & Connectivity - Connectivity Bottoms; 4K a Future Driver: BRCM
remains dominant in Broadband and we believe is set to benefit from the 4K
U.S. Semiconductors upgrade cycle (lasts 5-7 years); should start to ramp in 2016. Connectivity is likely
Blayne Curtis
down again in 2015 with low/mid share loss (likely low-end of $500-800M range) but
+1 617 342 4101
blayne.curtis@barclays.com we expect BRCM to maintain share in high-end handsets (GS6, AAPL).
BCI, New York Management does believe Connectivity can return to growth in 2016 driven by
non-handset markets such as wearables, Auto, etc. BRCM is developing new
Christopher Hemmelgarn products (low-power, wireless charging & sensor hub) and investing in disti partners
+1 212 526 6374
to address the fragmented IoT market.
christopher.hemmelgarn@barclays.com
BCI, New York ING - CAVM Enters but All is Not Lost: There are differences between Xpliant and
Tomahawk (namely programmable match tables vs. fixed function) but BRCM
23 February 2015
believes it has made the right tradeoffs in terms of the level of configurability to
deliver a solution that has a better balance of performance/speed/cost. We have
admittedly been in the CAVM camp here as we believe CAVM will offer similar
speed and cost with the added benefit of full programmability but we also recognize
BRCM's incumbent position and will be watching the Xpliant launch closely. We
would highlight that ASIC to merchant conversions are increasing and BRCM
expects to slowly penetrate Cisco's internal $1-2B TAM (60-70% GMs), helping
offset any modest share loss.
US CF / Capital Returns the Focus: BRCM continues to generate strong FCF ($1.7B
in 2014), and plans to increase its US CF to 45% (from 25-30%) by optimizing tax
rates (mid/high single form low single)-modestly accretive; tax holiday would be a
catalyst. In 2015, BRCM plans to repo $1B of shares, pay ~$300M in dividends, and
potentially make accretive acquisitions (could raise debt), though the bar is now
higher.

Technology
Palo Alto Networks: Good 2Q & 3Q Setup
Stock Rating Overweight Good setup for 2Q revenue, think FY15 numbers go up, margin expansion will
Industry View Positive become increasingly important: We like the setup for PANW going into 2Q because
the average security company has beaten estimates by an average of ~3% this
quarter, as well as because of new products like TRAPS and the new mid-sized
Price (20 Feb 2015) USD 141.61
appliance. We also like the setup for 3Q15 guide, as consensus is currently
EPS FY1 (E) 0.73 expecting ~40% y/y revenue growth, despite similar comparables y/y. We think
EPS FY2 (E) 1.37 profitability will continue to be an important metric, as PANW will need to expand
Market Cap (USD bn) 11.4061 margins consistently to reach 4Q15 and 4Q16 targets. The stock is expensive, but
Ticker PANW
with the rise in security spending and potential for upside to numbers, we feel
comfortable owning this name.
U.S. Software Good setup for 2Q15 and 3Q15 from new products and rising tide. Recall, PANW
Raimo Lenschow, CFA
made TRAPS generally available in September, so 2Q15 will be the first full quarter
+1 212 526 2712
raimo.lenschow@barclays.com with TRAPS on the market, which we think bodes well for billings. This will also be
BCI, New York the first quarter that the PA3060 appliance for mid-sized enterprises will be available,
which we think helps address a broader section of the market. As we have seen in
Saket Kalia, CFA prior quarters, the rising tide of security has benefitted most security companies, with
+1 212 526 8465
the average name reporting ~3% upside to CQ4 revenue, and we expect PANW to
saket.kalia@barclays.com
BCI, New York participate. We expect these factors could also drive better 3Q guidance than
consensus, which is currently modeling ~40% y/y revenue growth despite similar y/y
23 February 2015 comparables.
Operating margin will continue to be in focus, given the ramp needed this year: One
of our questions last quarter was the continuous ramp needed in operating margin to
achieve low-teens in 4Q15 and even more so to reach the 22-25% target in 4Q16.
We think part of the reason for the stock's premium valuation is the relatively
short-term target for profitability, so any hiccups here we think would not be received
well.
Stock is expensive on EV/S, but valuation could be shifting to FCF, in which case it
appears to us as reasonable. PANW is now trading at 10-11x FY16 EV/S, versus
other security names at ~6x. However, we wonder if some investors are shifting to
an EV/FCF valuation given the growing deferred revenue, in which case it is trading
at ~27x.

Technology
U.S. IT Consulting & Computer Services: A Look at the Week Ahead
Week ahead: Field trip to FLT (meeting with Ron Clarke, CEO, and Eric Dey, CFO)
U.S. IT Consulting & Computer Services GPN (meeting with Jeffrey Sloan, CEO, and Cameron Bready, CFO), and Worldpay
Darrin D. Peller
(02/23); CLGX earnings (02/24); EPAM earnings (02/25); CTSH NDR (02/26-02/27)
+1 212 526 7144
darrin.peller@barclays.com This past week, we met with Visa Europe management, published our ADS January
BCI, New York
credit data analysis, our thoughts on V/MA potentially benefiting from AXP's loss of
the JBLU and COST partnerships, our 4Q14 CLGX preview, our IDCC and ACTG
22 February 2015
4Q14 earnings reviews, and our latest agenda and confirmed companies list for the
Barclays Emerging Payments Forum (March 23-24 at The Westin New York at
Times Square).
Please submit your 1x1 requests to your Barclays salesperson ASAP. To register, or
if you have any questions, please contact your Barclays sales representative, or
Dillon Chan, Events and Roadshow Marketing, at
emergingpaymentsforum@barclays.com
For the week ending 2/20/15, payment processing names were up 5.8% (median
increase of 6.5%), financial outsourcing names were up an average 3.5% (median
increase of 3.4%), and IT consulting/outsourcing names were up 7.3% (median
increase of 7.4%) vs. the S&P 500 that increased 2%.
Figure 1 Up-to-Date Views on Coverage Universe (Industry View: Neutral)

Telecommunications
CommScope Holding Co., Inc.: 4Q Results: Reinforces Our Views
Stock Rating Overweight Given its preannouncement, limited unexpected data emerged from CommScope's
Industry View Neutral 4Q results as quarterly metrics, near term and annual guidance were in-line with our
estimates. Healthy enterprise trends, ongoing opportunities to optimize broadband
costs and improving international demand should in part offset near-term U.S.
Price (20 Feb 2015) USD 31.10
wireless pressure which is expected to alleviate through the course of the year. As
EPS FY1 (E) 2.00 we edge up our core estimates, the setup for an earnings upside story built upon an
EPS FY2 (E) 2.12 organic recovery and the TE Connectivity deal remains favorable, keeping us
Market Cap (USD bn) 5.8369 Overweight.
Ticker COMM In-line 4Q Sales, Though Margins Provide Incremental Upside: 4Q sales of $829M
were largely in-line with our $830M estimate as a continued recovery in enterprise
U.S. Telecom Services (+3.6% YoY) offset anticipated declines in wireless (-9.2% YoY). Better than
Amir Rozwadowski
expected margin improvement in the former eased the bottom line impact of the
+1 212 526 4043
amir.rozwadowski@barclays.com latter yielding adjusted operating income and EPS of $140M and $0.38 vs. our
BCI, New York $133M and $0.36.
Sandeep Gupta
Guidance Underscores a Back Half Weighted Spending Cycle: While management's
+1 212 526 0972 1Q15 guidance of ~$825M/$0.36 was above our low end consensus estimate of
sandeep.a.gupta@barclays.com $794M/$0.30, its 2015 outlook of ~$3.73B/~$2.00 confirms our expectations for a
BCI, New York back half weighted service provider spending. Though we recognize CommScope's
visibility can shift due to various service provider spending trends, our own carrier
20 February 2015
discussions give us comfort on the trajectory of capex through the course of 2015.
We Edge Up Our Estimates and Target; Earnings Revision Story Intact: For 2015
and 2016 we edge up our EPS estimates to $2.00/$2.12, respectively, from
$1.95/$2.04 on expectations for gradual spending improvement to pick up
momentum through the course of the year. In our view, while we recognize upside to
our near-term raised price target of $35 may be somewhat tempered given the
shares' recent performance, the combination of improving organic operations and
potentially material top and bottom line synergies from the TE Connectivity deal
keeps the earnings revision story outlined in our prior note (for further details see h
ere) intact alongside our Overweight rating.

Telecommunications
The PH Factor - Telecom & Media Weekly: Telus' new broadband usage
billing unlikely to have material financial or subscriber impact
Reinforces rational fixedline competition in W. Canada, benefiting Shaw: Starting
Canadian Telecommunications, Media, and March 30, Telus will begin charging residential internet customers usage fees when
Technology
they exceed their monthly data plan allowance. Customers will be charged $5 for the
Phillip Huang
+1 416 863 8968 first 50 GB of over usage, and $10 for each additional 50 GB up to a maximum of
phillip.huang@barclays.com $75. The company is also introducing an unlimited data add-on option for $30 a
BCCI, Toronto month or $15 for Optik TV subscribers. We note that these usage charges are still
significantly lower than those charged by its peers in Central/Eastern Canada (e.g.
23 February 2015
Bell and Rogers charge $2-3/GB in Ontario). While charging customers for
exceeding their monthly data allowance has become a standard industry practice
across Canada, Telus and Shaw have thus far not been enforcing their data caps.
The change in policy for Telus comes amid rapid growth in consumer demand for
internet data. Data consumption has doubled in the past 16 months from 51
terabytes to 104 terabytes. However, a large part of the growth has been driven by a
small group of users with approximately 5% of Telus' customers driving 25% of the
company' monthly network traffic. As such, management estimates that 4 of every 5
internet customers will not incur additional usage charges as a result of the
implementation of usage-billing. Given the relatively low overage fee, we do not
assume the policy change will drive any significant revenue upside in the near term,
although we believe it positions Telus well to monetize its broadband investments for
the long term as usage continues to grow. We also do not expect the new fees will
have a negative impact on customer churn given we believe Telus' existing data
allowances are relatively generous (e.g. most popular plans in the 25MBPS to
50MBPS tiers offer 250GB to 400GB data allowances) and its robust usage
notification system provides sufficient transparency to prevent unpleasant surprises.
Nonetheless, we view this as a positive development for Shaw as it reinforces the
rational competitive environment in western Canada and increases the company's
pricing power. Shaw now has greater flexibility to either follow Telus on
implementing overage fees, or further differentiate its broadband offering (in addition
to WiFi) as the only major broadband service provider in the market with no usage
fees.
Other notable developments this week:
SaskTel says government overlooking regional operators in wireless policy
More Canadian media outlets join automated digital ad group
Corus launches new mobile apps for its 38 radio stations
CTV GO app now available to Rogers' customers
OpenText wins patent infringement trial against Box and Carahsoft
Rogers brings Smart Home Monitoring to Vancouver

Telecommunications
U.S. Telecom Services: The Roz Report: Reading the Wireless Capex Tea
Leaves
With all four major wireless carriers having now reported results, it seems likely that
U.S. Telecom Services concerns around the pace of U.S. wireless spending that emerged towards the end
Amir Rozwadowski
of last year are likely to be less pronounced further solidifying our belief that U.S.
+1 212 526 4043
amir.rozwadowski@barclays.com capex trajectory is likely to follow more normalized back half loaded seasonality. Key
BCI, New York themes around continued macro and small cell investment, new capacity
augmentation and longer-term spectrum deployment support our bullish thesis on
Sandeep Gupta our capex exposed names including the tower sector and CommScope in the
+1 212 526 0972
wireless infrastructure arena.
sandeep.a.gupta@barclays.com
BCI, New York Ex AT&T, Capex Trends Prove Encouraging: While we certainly cannot overlook the
capex decline expected out of AT&T (-15%) we estimate that growth in capital
23 February 2015
expenditures out of the other three major wireless carriers will in fact pick up in 2015
vs. 2014 (low single digit growth vs. a 2% decline in 2014). While each carrier has its
own specific initiative, management commentary suggests the dual issues of
competition and the need to support rising data traffic growth as primary drivers.
As AT&T Moves Further South, So Should Spending: Mexico could present a new
opportunity as AT&T has clearly initiated its strategy to move further south with an
asset build out strategy. The combination of the Iusacell and Nextel assets provides
a robust portfolio of spectrum. However, sufficient capital may need to be deployed
for the carrier to deliver a quality of service that mimics that which is provided in the
U.S.
New Spectrum Deployment an Increasing Focus: We believe new spectrum

deployment will be an increasing focus in 2015 particularly as both T-Mobile and
Sprint will rely on their differentiated portfolios (i.e. 700MHz A-Block and 2.5GHz) as
a means to attempt to drive competitive differentiation in the market. We believe it is
unlikely that Sprint parts from its 2.5GHz portfolio at this juncture - we don't believe it
needs the near-term capital (particularly after its recent capital raise) and it has yet to
determine how much it will actually need in order to try and build a competitive
offering. Longer-term, the industry's ~$40B in spectrum spend for capacity
enhancing AWS spectrum seems to set the tone for favorable spending trends going
forward.
Small Cells Gaining Momentum: Demand for small cells is clearly gaining
momentum in earnest as carriers look to densify their networks. Led by Verizon's
$500M per annum uptick in capex dedicated to its own initiatives, commentary from
carriers, Crown Castle (who has a unique perspective given it has the largest
exposure vs. its tower peers), and supplier CommScope, we believe that the
technology is likely to augment vs. replace macro level investing which is still
expected to receive healthy dollar allocations. We look for additional color on specific
initiatives during the upcoming Mobile World Congress trade show in Barcelona
Spain next week.

Equity Strategy
Barclays Daily Market Wrap
20 February 2015
Terence Malone
Equity markets reversed early session declines to close in positive territory after the Euro-area finance ministers reached an agreement
with Greece regarding the country's debt. The deal would keep bailout funds to Greece in return for a commitment to meet certain
conditions, and help to work out the detail of longer-term Greek financing. S&P sectors were mostly positive, led by healthcare, while
energy and utilities pulled back. In fixed income, treasuries reversed gains, pulling back on the announcement on the agreement on debt
talks in Greece. Elsewhere, oil declined for the second straight session on the back of record crude supplies in the U.S.
Equity Strategy
Barclays In Case You Missed It
20 February 2015
Terence Malone
It was a relatively benign week of trading in equities, as dovish Fed minutes and hopes for a resolution to Greek-EU negotiations offset a
mixed bag of corporate earnings and relatively poor activity and inflation data. The Treasury market was poised to end the week
modestly higher, driven by the January FOMC minutes that were perceived as dovish and economic data that surprised to the downside.
Lastly in commodities, after opening higher to start the week, oil headed for its first weekly decline in a month as crude supplies in the
U.S. continued to hit record levels.
Equity Strategy
Barclays Market Cata-List
20 February 2015
Terence Malone
Earnings reports are actually expected to pick up a bit after this holiday-shortened week. Over 200 Barclays covered companies are
expected to post results over the coming days, including perennial late-earnings-season names in consumer, retail, real estate and
telecom. Barclays will host management meetings with ALSN, ALXN, ARRS, BWLD, CBSH, CRUS, CTSH, MAR, PSX and SIRI.

Cross Asset Research
Global Portfolio Manager's Digest: Price of flexibility
22 February 2015
Terence Malone, Marcus Gunn, Rob Bate
Evolving Saudi policy. Saudi Arabia has signaled that it is moving away from its traditional role as a swing supplier of crude, relaying the
role to more expensive non-OPEC suppliers. In our view, the kingdom is still poised to emerge as one of the most flexible suppliers of
petroleum products globally, giving it a strong chance to regain market share in an increasingly competitive market for crude exporters.
We believe this increases the likelihood of Saudi Arabia ramping up its petroleum exports by 0.5 to 1 mb/d by 2016.
Explanation of Summary of Changes table

Source: Barclays Research. Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in reporting
currency.
FY1 (E): Current fiscal year estimates by Barclays Research.
FY2 (E): Next fiscal year estimates by Barclays Research.
Stock Rating: OW: Overweight; EW: Equal Weight; UW: Underweight; RS: Rating Suspended
Industry View: Pos: Positive; Neu: Neutral; Neg: Negative
Back to Summary of Changes
Back to Top
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Barclays Jan 2015

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Barclays Jan 2015

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Equity Research

Americas Morning Research Summary

Rating Price Target EPS FY1 (E) EPS FY2 (E)

IMS Health IMS EW OW 27.00 30.00 1.34 1.41 N/A 1.65

Teleflex TFX EW OW 121.00 145.00 6.25 6.28 N/A 7.23

Target Price Changes

Broadcom Corp. BRCM EW EW 40.00 43.00 3.31 2.76 3.46 2.94

Deere & Co. DE OW OW 93.00 97.00 5.60 5.35 5.45 5.40

Enerplus Corporation ERF.TO EW EW 11.00 14.00 0.10 0.18 N/A 0.16

EOG Resources EOG OW OW 92.00 85.00 -0.30 -0.40 N/A 1.40

FOR ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES, PLEASE CLICK HERE

Rating Price Target EPS FY1 (E) EPS FY2 (E)

Newmont Mining NEM EW EW 22.00 26.00 0.46 1.02 N/A 1.05

Tesoro Corporation TSO OW OW 114.00 123.00 7.40 7.40 9.60 9.60

Teleflex (TFX) Tesoro Corporation (TSO) Ultra Petroleum Corp. (UPL)

Valero Energy (VLO)

U.S. IT Consulting & Computer Services U.S. Machinery U.S. MLPs

U.S. Multi-Industry U.S. Paper & Packaging U.S. Refining MLPs

U.S. REITs U.S. Telecom Services

Daily Market Wrap In Case You Missed It Market CataList

Global Portfolio Manager's Digest

2015 guidance maintained: HBM maintained its previously provided guidance

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Containerboard remains our preferred subsector with industry fundamentals

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Boosting PT to $14; maintain EW rating: We remain constructive on the company's

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The sector appears to continue to discount an oil price of $80-$85/bbl. We maintain

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Prepared to cut further: Lightstream indicated a willingness to further reduce

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EPS FY1 (E) 7.40

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Valuation appears stretched. The shares trade at a debt-adjusted multiple of 9.2x

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Heejung (Helen) Ryoo, CFA

Brian J. Zarahn, CFA Sunoco LP.: Strong Earnings Beat

Christine Cho, CFA KNOP 4Q14 Earnings Review

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EPS FY1 (E) 8.50

Mortgage: New commitments to originate residential real estate loans to be sold

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Jeremy Campbell, CFA

Management is cautiously optimistic that PMIERs may be softened: Management

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EPS FY1 (E) 5.15

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EPS FY1 (E) 3.15

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Story playing out with improving fundamentals: While we took a constructive EW

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