Credit Suisse Equity Research Americas/United States Out ...

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND

THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors

should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making

their investment decision.

Credit Suisse Equity Research Americas/United States

Out on a Limb 12 Contrarian Stock Ideas April 7, 2017

Credit Suisse Global Product Marketing Andrew St. Pierre

[email protected] [email protected]

(212) 538-4442 (212) 325-5618

Conchita Gonzalez de Castejon (CS HOLT) Arbin Sherchan, CFA

[email protected] [email protected]

(212) 325-2547 (212) 325-8967

Out on a Limb

Finding our edge: This report identifies companies where our analysts stand apart from the consensus

view, companies where our analysis reveals opportunities that the market has not yet priced in.

Leveraging a systematic process: We screened our current US coverage universe to identify

companies where our analysts’ views diverged from that of the Street, focusing on rating, earnings

projections as well as target price. To further strengthen the list of stocks, we worked closely with the

research analysts to select stories in which our conviction level is high. The result is a list of 6 Outperform-

rated names and 6 Underperform-rated stocks.

Why and what’s next: For each selected company, we outline our investment thesis, noting specifically

where we are different from the Street. Importantly, we highlight key catalysts on the horizon to help guide

you to investment opportunities in each name.

HOLT® perspective: We have included a snapshot of key metrics that HOLT ® uses to value a company

as supplemental perspective to our analysts’ fundamental analysis.

Stocks: We are more positive than the Street on the following companies: HSY, NSM, OKE, RIG, WCC

and WETF. We are more cautious than consensus on: ADS, AMC, DG, DPLO, IBM and SAM.

Contrarian Ideas: Outperforms

Company Ticker Where We're Different Page

Hershey HSY

Cocoa costs have collapsed over 35% but HSY's gross margin opportunity is not in Street numbers. As such, HSY's valuation

premium to food peers can move closer to its historical 18% premium compared to the 10% premium at which it currently

trades.

6

Nationstar Mortgage

Holdings NSM

We are 6% above the consensus for 2017 and 11% above for 2018; our estimates are above consensus beginning in Q2.

The reasons for our above consensus estimates are increased servicing profitability and improvement in origination

profitability beginning in Q2.

8

ONEOK OKE

Our 2018-2019 EBITDA estimates are 12-13% higher than the Street estimates for 2018 given repeated management

narrative that OKE should be able to de-lever to around 4.0x over the next 18-24 months without issuing equity which implies

that Street estimates are too low.

10

Transocean RIG Given improved balance sheet and diverse fleet, RIG is best positioned to benefit from offshore drilling recovery which we

expect to start in 2018 with rig activity stabilizing. 12

Wesco International WCC

The Street is missing the potential impact that larger capital projects (~50% of revenue) have on WCC’s two highest margin

areas (Industrial and Canada) as both areas saw a sequential pickup in Q4’16. Also, we think WCC has flown under the radar

as one of the best ways to play the Trump administration in our space

14

WisdomTree Investments WETF We think investors are too focused on ST flows and earnings (over 20% of the market cap is short), and should instead focus

on the LT growth potential of this 100% ETF focused business model, and also most importantly, its takeout potential. 16

Contrarian Ideas: Underperforms

Company Ticker Where We're Different Page

Alliance Data Systems ADS ADS’s credit risk measures are historically elevated and we continue to see risk of higher than anticipated charge-offs in 2017

requiring higher provision expenses in 2018. Weak retail data from ADS clients also adds incremental risks to the story. 19

AMC Entertainment Holdings AMC

We are skeptical of AMC’s recliner upgrade strategy as well as its overseas acquisitions (Odeon/UCI & Nordic cinemas in

Europe). We model flat box office growth in 2017 vs. sell-side consensus of LSD-MSD growth, as consensus is skewed

higher by outliers using less granular forecast methodology.

21

Boston Beer Company SAM

Our sales projections are 3% below consensus in FY17-18 as Angry Orchard cider and Twisted Tea hard soda are no longer

compensating for weakness in beer. We also question Sam Adams new packaging design to resonate with millennials to

drive growth as the brand over-indexes to boomers.

23

Diplomat Pharmacy DPLO

We believe DPLO’s fate is akin to that of Priority Healthcare and Accredo Health, neither of which endured as independent

entities, but unlike its predecessors, DPLO has few exit strategies, in our view given that a pathway to sustainable economic

profit generation is not clear.

25

Dollar General DG

We believe DG will continue to face pressures on earnings given increasing competition and rising labor costs but Consensus

estimates assume a reacceleration in DG’s earnings growth to 10% after a flat 2017, in line with the company’s long-term

growth algorithm..

27

International Business

Machines Corp. IBM

We are doubtful about Street's view, which seems to look for the signs of a turnaround within the business, as well as

management's positive view on revenue and margins given that we believe IBM is still over-earning and many of its business

areas (e.g. strategic initiatives and cloud) are margin dilutive.

29

Outperform -Rated Companies

Where We’re Different: While we are generally in-line with consensus for

FY17, we are more optimistic about FY18. Cocoa costs have collapsed over

35%, and the company has a gross margin opportunity that the Street has not

yet put into its numbers. As a result, we believe Hershey’s valuation premium

to food peers can move closer to its historical 18% premium compared to the

10% premium at which it currently trades. We also believe that confectionary

trends will improve in FY18, and forecast higher revenue growth than the

Street because we believe the company will breathe new life into the category

with investments in innovation. Hershey’s valuation premium is highly

correlated with its revenue growth premium to peers.

Investment Thesis: We assign an Outperform given that the company and

confectionary category are poised for more growth as well as Hershey's

significant remaining cost-saving opportunities.

Key Catalysts: In late October, management likely will begin to give more

details on cocoa deflation benefits and cost savings for 2018.

Valuation: Our $121 target price represents a 23.3x P/E multiple applied to

our 2018 EPS estimate of $5.20. This represents as 12% premium to

packaged food peers, which is still below its 17% premium historically.

Relevant Research: HSY: Raising Target Price and EPS After Compelling

Investor Day, HSY: With Independence Comes Increased; Responsibility; Raising

to Outperform

Hershey (HSY)

Chart sources: Company data, the BLOOMBERG PRORESSIONAL ™ service, Credit Suisse estimates

Data Snapshot

Robert Moskow | 212 538 3095 | [email protected]

Rating: Outperform

Target Price: $121.00

Current Price: $109.07

Market Cap ($B): $30.1B

At 22.2x NTM P/E, HSY is currently trading at a 7% prem ium to

packaged food peers compared to a 17% prem ium historically

Estimates FY1 FY2

CS $4.80 $5.20

Consensus* $4.78 $5.19

Ratings Buy Hold Sell

Street-wide 4 16 2

* Note: Consensus is Bloomberg Mean estimate as of 4/6/2017

Data Snapshot (HSY)

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Apr-16 Jun-16 Sep-16 Dec-16 Mar-17

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Hershey (HSY)

Source: Credit Suisse HOLT®

Market Implied Scenario in HOLT Lens™

HSY has consistently been creating shareholder value by achieving high return levels above the cost of capital and reinvesting in the business over the last three years.

Returns have been driven by strong margins with historically highest asset efficiencies amidst both organic and inorganic growth opportunities. It is worth noting that

Hershey's returns have been rising for the past six years and currently stand at a new peak of 18%. The economic profit has also been on the rise since 2008 and stands at

highest levels. HSY has been awarded an eCap (empirical competitive advantage) every year since 2009 signifying high quality through strong and stable cash generation.

Consensus estimates (depicted by pink bars) are positive, incorporating 430bps increase in returns to c.23% by 2018, along with GDP level of asset growth of 2%.

Market expectations price in improving returns to 23% coupled with an asset growth of 3% in the next 10 years (depicted by the green dots).

Scorecard Percentile

40

32

98

65

Quality

Valuation

Momentum

CFROI, % Sales growth, %

Real asset growth, % EBITDA margin, %

Total shareholder return, rel Asset turns, x

0

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30

1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026

Discount rate

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1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026

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1996 1999 2002 2005 2008 2011 2014 2017

Market implied growth

Market implied CFROI

https://holtlens.credit-suisse.com/dal/L1X48WhXpxwH9uj

Where We’re Different: We are 6% above the consensus for 2017 and

11% above for 2018; our estimates are above consensus beginning in the

second quarter. Our estimates are above the consensus on 1) increased

servicing profitability from lower amortization expense and more operating

scale benefits from recent additions and 2) improvement in origination

profitability beginning in the second quarter. Additionally there is the potential

for a further $0.15/share benefit from a debt refi that is not in our estimates.

Investment Thesis: We have Outperform rating on NSM as we believe

growth in earnings will begin to ramp up in 2Q as the company gets past the

expense overhang in originations and continues to board subservicing

balances. With the recent growth of subservicing, NSM’s cash flow outlook

remains attractive allowing the company to de-lever the balance sheet.

Key Catalysts: Key catalysts for NSM include debt refinancing that should

save the company $20+ million per year in interest expense – we expect this

to be announced early in the second quarter. In addition our estimates are

above the consensus beginning in the second quarter (reported in early

August).

Valuation: Our Outperform rating and $22 target price for NSM is $17 of

current book value, $2.30/share value for subservicing contracts (based on

$250 billion in balances, 2.75 bps of revenue per year, and 5 year duration),

and $2.80/share value for Xome (based on 10x third party after tax earnings).

Relevant Research: NSM: Meetings Highlight Confidence in Above Consensus

Estimates; Reiterate Outperform, NSM: Reiterate Outperform and Confidence in

Above Consensus Estimates

Nationstar Mortgage Holdings (NSM)


Data Snapshot

Douglas Harter | 212 538 5983 | douglas.harter@credit -suisse.com

Rating: Outperform




Free Cash Flow Generation Gives NSM More Opportunities

Estimates FY1 FY2

CS $1.90 $2.25



Street-wide 4 4 2


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Nationstar Mortgage Holdings (NSM)



NSM is one of the largest providers of servicing, origination and transaction services to single - family residences in the United States. RoA and leverage spiked in 2012-

2013, increasing CFROE levels above 20%. Returns fell to below the cost of capital in 2015 due to RoA’s collapsing. Today in the HOLT default model it is labelled as

“Restructuring” indicating strong momentum and valuation across regional players but low operational performance.

Consensus expectations (depicted by pink bars) are optimistic and foresee returns to increase to highs of 11%, supported by reviving ROA and healthy equity growth of

c.10%.

The market expectations are conservative, pricing in returns to be sub cost of capital at 3% and negligible asset growth in the next five years (depicted by the green dots).

Restructuring Scorecard Percentile

1

84

88

71

Quality

Valuation

Momentum

CFROE, % Adj. Total Asset growth, %

Equity growth, % ROA, %

Total shareholder return, rel Leverage, x

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Chart capped at +50%

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Market implied CFROE

https://holtlens.credit-suisse.com/dal/LYuHquhwoburm6Y

Where We’re Different: Our 2018-2019 EBITDA estimates for OKE are 12-

13% higher than the Street estimates for 2018 given repeated management

narrative that OKE should be able to de-lever to around 4.0x over the next 18-

24 months without issuing equity which implies that Street estimates are too

low.

Investment Thesis: Our total return outlook of 25% for OKE is above the

median for our coverage, supporting our Outperform rating.

Key Catalysts: (1) Volumes expected to increase, particularly in 2H17 for

NGL transport volumes, fractionation volumes and G&P. Key driver of strong

volumes is demand from three world class stream crackers scheduled to

come on line in 2H17 with more in 2018. (2) Ethane uplift to contribute

~$200mm the next few years with ~$40-$60mm in 2017. (3) Per 4Q16

earnings release there were 10-12 rigs on dedicated acreage in the

SCOOP/STACK region with estimates it could reach 17-20 by the end of the

year which should drive further volume growth in the region and is consistent

with commentary suggesting that Cheniere’s proposed Midship pipeline at

1.4bcf/d may not be enough take-away capacity.

Valuation: Our $64 TP for OKE is based on a equal-weight of 2018

EV/EBITDA, 2018 P/DCF valuation and 3-stage DDM that is discounted back

to a next twelve month valuation at 8% cost of equity.

Relevant Research: ONEOK (OKS/OKE): MLP Buy-In Coupled with Stronger

than Expected EBITDA Growth; Upgrade to O/P, MLPs: Takeaways from Our

Tulsa Tour

ONEOK (OKE)


Data Snapshot

John Edwards | 713 890 1594 | [email protected]

Rating: Outperform




OKE EV/2018 EBITDA Multiples In Line Reflecting More

Subdued Consensus View

11.4x 11.7x 11.7x 12.7x 13.3x15.4x

12.2x

12.7x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

KMI WMB BPL OKE EPD MMP

EV / 2018 EBITDA Median AverageProportionate LP share of Debt/EBITDA for WMB

EBITDA ($$M) 2017 2018 2019

CS $2,033 $2,401 $2,618

Consensus* $1,966 $2,138 $2,313


Street-wide 1 14 1

* Note: I/B/E/S Median Estimates.

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ONEOK (OKE)



ONEOK has delivered return levels above the cost of capital over last 3 years to near historic highs at 7% in 2016, driven in large measure by the successful renegotiation of

midstream contracts in the Bakken per contract reopener provisions in 2016. In relative terms in HOLT it is labelled as “Quality at Any Price”– implying high operational quality

with good momentum among regional peers but with low valuation support.

While, consensus estimates (depicted by pink bars) suggest further optimism in returns to 7%, and asset growth of improving to 8%; CS Research believes consensus

estimates appear low relative to management commentary regarding deleveraging the balance sheet to ~4.0x over the next 18-24 months without issuing equity.

Market expectations price in returns at 8%, highest in company’s history; coupled with optimistic asset growth of 7% over the next 5 years (depicted by the green dots).

Quality at Any Price Scorecard Percentile

99

36

70

93

Quality

Valuation

Momentum




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Where We’re Different: Management has done a good job of improving

liquidity and extending its debt profile which provides the company with ample

runway into an offshore drilling recovery which we expect to start in 2018 with

rig activity stabilizing. We expect pricing to follow in 2019/2020. We view RIG

as the beta play of the group owing to its balance sheet and diverse fleet.

RIG has won ~25% of floater rig years tendered over the last year.

Management has done a solid job of reducing costs and lower CAPEX and

we expect that trend to continue in 2017 as the company continues to right

size its fleet by retiring more rigs. Additionally, RIG recently exited the jackup

market which it viewed as non-core shedding roughly ~1B in CAPEX which

leaves just $XB in growth CAPEX on four drillships (two are contracted).

Investment Thesis: We have an Outperform on RIG due to its global

footprint and broad customer base which we believe should benefit its fleet of

ultra-deepwater and harsh environment rigs.

Key Catalysts: Over the past year, RIG has done a good job in shoring up

its balance sheet following its two secured financing deals in 2H16. We

expect RIG to look to acquire rigs likely in the harsh environment space after

positioning itself as a pure play floater company.

Valuation: Our $18 target price and Outperform rating for RIG is based on a

DCF (discounted cash flow) analysis using a WACC (weighted average cost

of capital) of 8.7%, terminal growth rate of 1.5% and average long-term

UDW rates of $350k/d.

Relevant Research: RIG: Time To Start Picking Up the Pencils, Offshore

Drillers: Most Like It Hot, but Not All

Transocean (RIG)

Chart sources: Company data, IHS Petrodata, the BLOOMBERG PRORESSIONAL ™ service, Credit Suisse estimates

Data Snapshot

Gregory Lewis | 212 325 6418 | [email protected]

Rating: Outperform




2016 Floater Fixtures Years by Rig Owner

0

5

10

15

20

25

NE COSL Odfjell SDRL Stena ATW DO ESV RIG

Estimates FY1 FY2

CS -$0.75 -$0.90

Consensus* -$0.55 -$0.94


Street-wide 6 15 16


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Transocean (RIG)



Transocean’s returns on capital dropped to c.3% in 2016, but they are well above the sector peer median of -1%.

CS analysts believe that with stabilization in rig activity, RIG benefits more than its peers in a recovery as customers have shown a preference for working equipment vs. idle

equipment over the last year. Transocean with its strong operational quality and valuation scores, may regain “Best in Class” status, should momentum improve further.

Consensus forecasts expect returns to decline over next two years to reach negative territory (depicted by pink bars); coupled with negative asset growth.

The market is pricing in some recovery in returns to 1% over next 5 years, well below historical mid-cycle levels; and negligible asset growth (depicted by the green dots).




-5

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Discount rate

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63

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Quality

Valuation

Momentum

https://holtlens.credit-suisse.com/dal/LDtguUVYvMZSFA5

Where We’re Different: We believe the Street is missing the potential

impact that larger capital projects (~50% of revenue) have on WCC’s two

highest margin areas: Industrial and Canada. Issues are cyclical, not

structural, and both areas saw a sequential pickup in Q4’16 (Canada

bottoming). We think WCC has flown under the radar as one of the best

ways to play the Trump administration in our space. In addition to any

infrastructure stimulus, WCC benefits the most from deregulation which

should push large projects forward and could help surprise on the margin

line. Besides the obvious benefit from infrastructure, deregulation is arguably

most impactful to WCC vs. peers if projects move ahead. As Trump tries to

prevent manufacturers from leaving the US, automation is more thematic.

WCC is a stealthy play on this theme as it's ETN's #1 supplier and a key

distributor of ROK, ABB and Siemens.

Investment Thesis: We see upside to WCC’s 2017 guidance, specifically if

Industrial (higher margin) and Construction get a 2H boost - WCC has not

assumed any upside from inflation/pricing and has a contingency in its guide.

WCC has strong FCF (>90% conversion) and the capacity to add bolt-on’s,

repurchase shares ($150M remaining) or pay down debt (3.2x leverage) – all

of which can fuel upside to guidance. We see GM resuming growth in 2018

and even with SG&A modeled higher, WCC can drive close to its 50% pull-

through target, in our view. As a project/contract based specialty distributor,

WCC is insulated from the threat of Amazon, implying less risk vs. peers and

should be reflected in its multiple over time.

Key Catalysts: Q1’17 Earnings 4/27; EPG Conference 5/22-5/23; Wesco

Investor Day 6/7

Valuation: Our $83 target price for WCC is derived using a 20x P/E multiple

on our FY2018 EPS estimate, discounted back.

Relevant Research: WCC: Underappreciated Story with Room to Run

WESCO International (WCC)


Data Snapshot

Andrew Buscaglia | 212 325 5870 | andrew.buscaglia@credit -suisse.com

Rating: Outperform




Organic sales declines moderating, particularly in the

higher margin Industrial segment

-20%

-15%

-10%

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0%

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10%

15%

20%

25%

1Q

13

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Estimates FY1 FY2

CS $3.88 $4.47



Street-wide 5 12 0


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WESCO International (WCC)



WCC has always been a value creating business, consistently generating returns higher than the cost of capital. The default HOLT model labels WCC “Best in Class” -

reflecting high operational performance with strong momentum supported by valuation. Returns in the last 3 years declined as reinvestment rate exceeded the top line growth

coupled with margin weakness. It is worth noting, even at these levels WCC operates at exceptional asset efficiencies across regional peers (3.0x relative to the sector

median of 1.6x).

Consensus forecasts expect returns to be stable at 14% (depicted by pink bars). Asset growth expectations are optimistic at average 9% over the two years.

The market is pricing in continued decline in returns to 11% over next 5 years, along with asset growth of 5% (depicted by the green dots). Market expectations appear

conservative relative to the company’s historic profile.

Best in Class Scorecard Percentile

79

62

63

86

Quality

Valuation

Momentum




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1996 1999 2002 2005 2008 2011 2014 2017 2020

Discount rate

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1996 1999 2002 2005 2008 2011 2014

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Where We’re Different: We think investors are too focused on ST flows and

earnings (over 20% of the market cap is short), and should instead focus on

the LT growth potential of this 100% ETF focused business model, and also

most importantly takeout potential. WETF is the largest independent ETF

manager with scale, and we think there would be a lot of interest from

acquirers if WETF was ready to sell. WETF’s net flows just inflected positive

in 4Q16, and in 2016 the CEO purchased 550,000 shares.

Investment Thesis: Over the next 12-18 months, we continue to rate WETF

an Outperform as we believe the firm will generate strong net flows in 2017,

and if you combine that with positive marks, the firm will be able to expand its

operating margin again given its very high incremental margins (75%+).

Key Catalysts: Rebound in the Japanese and European equity markets

should help the net flow profile of WETF’s two currency-hedged mega funds

(HEDJ and DXJ). Additionally, we look for new product launches in 2017,

including the US launch of WETF’s S&P 500 China ETF in June 2017.

Valuation: Our $16 TP and Outperform Rating is based on applying a 30x

multiple on our 2018 cash earnings estimate vs. our industry average estimate

of 11x due to WETFs high growth rate.

Relevant Research: WETF: Flows Inflected Positively in 4Q and Accelerating in

1Q17 - Reiterate Outperform

WisdomTree Investments (WETF)


Data Snapshot

Craig Siegenthaler | 212 325 3104 | craig.siegenthaler@credit -suisse.com

Rating: Outperform




Title: Average Annual Returns, WisdomTree U.S. Dividend-

Weighted Indexes and ETFs

Estimates FY1 FY2

CS $0.27 $0.52



Street-wide 3 5 4


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WisdomTree Investments (WETF)



WisdomTree Investments’ returns profile turned positive for the first time in 2011 since its inception, as the firm started earning positive operating margins. Returns declined

from all-time highs of 30% in 2015 to 11% in 2016 on declining top line and shrinking margins, but still remained much higher compared to firm’s cost of capital. This is also

evident in company’s positive economic profit profile over past 6 years.

Consensus forecasts expect returns to hover around 2016 levels of c.13% in 2017, and improve significantly to 17% in 2018 (depicted by pink bars); coupled with negligible

asset growth.

The market is pricing in further improvement in returns to 19% over next 5 years, and asset growth of 10% by 2021 (depicted by the green dots). Both market-implied growth

and returns are still significantly below historical levels, suggesting material upside if the company can deliver on historical levels of returns and/or growth.


52

5

6

8

Quality

Valuation

Momentum




-10

0

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40

1996 1999 2002 2005 2008 2011 2014 2017 2020

Discount rateChart capped at -10%

-30

0

30

60

90

120

1996 1999 2002 2005 2008 2011 2014


-40

-20

0

20

40

60

1996 1999 2002 2005 2008 2011 2014


0.0

0.5

1.0

1.5

2.0

1996 1999 2002 2005 2008 2011 2014

-10

0

10

20

30

40

50

1996 1999 2002 2005 2008 2011 2014 2017 2020


0

100

200

300

400

500

1996 1999 2002 2005 2008 2011 2014 2017



https://holtlens.credit-suisse.com/dal/LlEgPrHZzkC7KlT

Underperform -Rated Companies

Where We’re Different: ADS’s credit risk measures are historically elevated

and we continue to see risk of higher than anticipated charge-offs in 2017

requiring higher provision expenses in 2018. Bank profitability ratios continue

to follow a downward path; net interest margin, ROA, and ROE all declined

y/y from 2015 to 2016. In addition, total Tier 1 capital ratio at ADS’s banks

(Comenity and Comenity Capital) decreased y/y. Weak retail data from ADS

clients also adds incremental risks to the story, specifically L Brands (LB) and

Ascena Group (ASNA), which have significant mall-based exposure and make

up 22% of receivables.

Investment Thesis: Our Underperform rating stems from our view that ADS

is going through a period of increasing credit risk, which is a risk to EPS

forecasts, while also re-rating as a lending company as opposed to a

technology services firm.

Key Catalysts: Monthly Trust Data (April 15th) and 1Q17 Earnings (April

20th).

Valuation: Our $174 target price is based on our sum of the parts analysis,

which uses 9x EV/EBITDA on the non-bank businesses and 10.5x our 2017

EPS forecast for the card services business. These multiples reflect the range

at which competing credit card lenders trade.

Relevant Research: ADS: Bank Ratios Flat to Down; Credit Risk Elevated;

Retail Exposure Worrisome

Alliance Data Systems (ADS)


Data Snapshot

Paul Condra | 212 325 8903 | [email protected]

Rating: Underperform




Total Net Charge Offs

Estimates FY1 FY2

CS $16.92 $18.25

Consensus* $18.51 $20.99


Street-wide 17 9 2


Data Snapshot (ADS)

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Alliance Data Systems (ADS)



Alliance Data Systems is a typical high quality stock, awarded an eCap (empirical competitive advantage) in HOLT, due to strong and stable cash generation historically. That

said, company’s margins have declined over last 5 years by c.400 bps to 27% in 2016. Last year growth lagged substantially below the peer median. CS Research suggests

weak retail data from ADS clients and higher credit risk could weigh down on the stock further.

Consensus estimates (depicted by pink bars) suggest returns to decline to 30%, while asset growth expected to improve to 15%.

Market expectations price in further pessimism in returns to 20%, back to 2003 levels; coupled with declining asset growth of 4% over the next 10 years (depicted by the

green dots).




0

10

20

30

40

1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026

Discount rate

-20

-10

0

10

20

30

40

50

1996 1999 2002 2005 2008 2011 2014

0

5

10

15

20

25

30

35

1996 1999 2002 2005 2008 2011 2014

0.0

0.5

1.0

1.5

2.0

2.5

1996 1999 2002 2005 2008 2011 2014

-10

0

10

20

30

40

1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026


0

200

400

600

800

1996 1999 2002 2005 2008 2011 2014



Contrarian Scorecard Percentile

77

83

17

68

Quality

Valuation

Momentum

https://holtlens.credit-suisse.com/dal/L5ZnQ1X97kGUb5A

Where We’re Different: (1) We are skeptical of AMC’s recliner upgrade

strategy, given we have seen minimal lift in CFROI since AMC began re-

seating their screens with recliners. (2) We are not bullish on AMC’s

overseas acquisitions in Europe (Odeon/UCI & Nordic cinemas) given the

level of debt required to finance these acquisitions and the minimal impact to

CFROI from existing US recliner initiatives. (3) We model flat box office

growth in 2017 vs. sell-side consensus of LSD-MSD growth, as consensus is

skewed higher by outliers using less granular forecast methodology.

Investment Thesis: We argue that (i) after a year of building global scale via

M&A, 2017 will be a transition year with investment in the circuit likely to

depress cash flow; (ii) 2017 box office expectations (mid-single digit growth)

still look elevated; (iii) premium VOD could be disruptive to exhibitors'

business models long term; (iv) with leverage at close to 5x and CFROI®

unlikely to improve this year, we see little reason for AMC to be able to

sustain a premium multiple near term.

Catalysts: Updates on premium VOD agreements with studios, domestic box

office results (especially in Q2 where the slate is strongest).

Valuation: Our $26 price target is 8.2x our 2017 EV/EBITDA, within the

stock's recent trading range and in line with our TP's for RGC and CNK. Our

Target Price and Underperform rating are supported by our DCF which

utilizes a 1.8% terminal growth rate and 8% WACC.

Relevant Research: AMC: Transition year, premium VOD on the horizon

AMC Entertainment Holdings (AMC)


Data Snapshot

Omar Sheikh | 212 325 6818 | [email protected]





The impact of the recliner investment over the last four years

has been muted

Estimates FY1 FY2

CS $0.76 $1.01



Street-wide 11 2 1


Data Snapshot (AMC)

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AMC Entertainment Holdings (AMC)



Returns for AMC Entertainment Holdings have remained consistently below the cost of capital since its inception. This is also evident in negative economic profit generation,

suggesting value destruction for shareholders. 2016 Returns of 5% remained below the sector median of 8%

Consensus forecasts (depicted by the pink bars) expect returns to slightly improve to 6% over next 2 years. After historic high growth of c.70% in 2016 (mainly contributed

by recent acquisitions), consensus forecasts suggest it to taper down sharply to c.1%.

The market is pricing in very optimistic returns at 12% over next 5 years – a level which has never been achieved before. An asset growth of 8% is priced in by 2021

(depicted by green dots).


12

11

45

9

Quality

Valuation

Momentum




0

5

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15

1996 1999 2002 2005 2008 2011 2014 2017 2020

Discount rate

-20

0

20

40

60

80

1996 1999 2002 2005 2008 2011 2014

0

5

10

15

20

1996 1999 2002 2005 2008 2011 2014

0.0

0.1

0.2

0.3

0.4

1996 1999 2002 2005 2008 2011 2014

-20

0

20

40

60

80

1996 1999 2002 2005 2008 2011 2014 2017 2020

0

50

100

150

1996 1999 2002 2005 2008 2011 2014 2017



https://holtlens.credit-suisse.com/dal/LSnYCXm0jMamLuX

Where We’re Different: (1) Sales projections 3% below consensus in FY17-18. (2)

Sam Adams brand lost ~500 bps of retail market share in craft beer since 2013 with

no clear tipping point to reverse declines. (3) Angry Orchard cider and Twisted Tea

hard soda (around 50% of revenue) no longer making up for the beer weakness –

Angry Orchard retail sales continue to decline double-digits. (4) Lack of marketing plan

in a more challenging environment with craft growth plateauing doesn’t build our

confidence. (5) We questioned Sam Adams new packaging design to resonate with

millennials to drive growth as the brand over indexes to boomers.

Investment Thesis: We assign an Underperform rating because we think the shares

will face incremental pressure as the company's sales and earnings remain weak. We

envisaged Boston Beer to be taken private in a LBO transaction that would remove the

burden of being a public company, allow management to focus on fixing the business,

create optionality to invest and revitalize brands, and potentially structure in a way that

would allow the founding CEO to maintain some interest. We also envisaged TAP

(Molson Coors) being a potential acquirer for SAM.

Key Catalysts: Upcoming investor day on May 25 could be the appropriate day for

SAM to present a turn around plan for the company. Important to note also the current

CEO has announced his retirement this year, in time for the company to find a

replacement. This could be a second catalyst for the company, but no sight of this to

happen anytime soon.

Valuation: Our $133 target price for SAM assumes a 22x P/E multiple on our CY18

EPS estimate. This is in-line with US Staples peers. It implies a 9.5 EV/EBITDA, which

is discount to STZ and TAP. We think this is merited by declining earnings; forecasting

-1% EPS CAGR to 2019.

Relevant Research: SAM: Cloudy Seasons Ahead but Still Some Hop(e) on Tap;

Reiterate Underperform, SAM: No Inflection in Sight for the Craft Pioneer; Initiating at

Underperform

Boston Beer Company (SAM)

Chart sources: Nielsen xAOC+C, Company data, the BLOOMBERG PRORESSIONAL ™ service, Credit Suisse estimates

Data Snapshot

Laurent Grandet | 212 538 7901 | laurent.grandet@credit -suisse.com





Bigger Problems Revealed When Angry Orchard Started

to Decline Dramatically

(40%)

(20%)

0%

20%

40%

Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16

Reta

il S

ale

s G

row

th (

%)

Retail Sales Growth Trend by Brand

Sam Adams Angry Orchard Twisted Tea

Estimates FY1 FY2

CS $5.43 $6.03



Street-wide 1 6 3


Data Snapshot (SAM)

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Boston Beer Company (SAM)



Boston Beer is a typical high quality stock, awarded an eCap (empirical competitive advantage) in HOLT, due to strong and stable cash generation historically. That said,

company’s returns have been on a declining trend since 2010, shedding 700bps to c.14% by 2016 as asset turns declined. More recently the reinvestment rate of 3% is

below the sector peer median of c.9%. CS Research expects weak top line growth and earnings would put incremental pressure on company’s returns profile.

Consensus estimates (depicted by pink bars) suggest returns to sharply decline to c.11%, while asset growth at 3%. This decline, should it come to fruition, could result in a

loss of the eCAP status for Beer Boston Co.

Market expectations price in returns at c.9%, at the lower end over the past decade; coupled with flat asset growth of 2% in next 10 years (depicted by the green dots).




0

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20

1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026

Discount rate

-10-505

1015202530

1996 1999 2002 2005 2008 2011 2014

0

5

10

15

20

25

1996 1999 2002 2005 2008 2011 2014

0.0

0.5

1.0

1.5

2.0

2.5

1996 1999 2002 2005 2008 2011 2014

-10

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10

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40

1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026


0

200

400

600

800

1996 1999 2002 2005 2008 2011 2014




80

51

8

31

Quality

Valuation

Momentum

https://holtlens.credit-suisse.com/dal/LoncH02SUVd9XE2

Where We’re Different: Slowing organic revenue growth and profit degradation

should weigh on DPLO's shares, and while acquisitions may help it compensate for

the declining growth, the invested capital base is ballooning, with no appreciable

returns. A pathway to sustainable economic profit generation is not clear, based on its

ROIC profile and what we expect will be rising capital costs. We believe DPLO’s fate

is akin to that of Priority Healthcare and Accredo Health, neither of which endured as

independent entities, but unlike its predecessors, DPLO has few exit strategies, in our

view.

Investment Thesis: Our Underperform rating on DPLO stems from its slowing

organic growth outlook and intensifying competitive pressures. We see other specialty

pharmacy models, specifically those of the PBMs, as better positioned to grow more

productively, owing to distinguishing competitive advantages in their established payor

relationships.

Key Catalysts: Difficult Hepatitis C volume comparisons will weigh on reported

results through 1H17, and we see little relief for DIR fees that are further reducing its

profit opportunity. Efforts to hire a CFO and address the delay in its 10-K filing are a

distraction at a time when the company is integrating the acquired operations of Affinity

Biotech (February 2017).

Valuation: As of March 29, 2017, DPLO traded at 10.6x our CY18 EBITDA estimate,

well below its 18.1x average as a public company and off 70% from its all-time high

set in July 2015. However, its shares are up 22% year to date (vs. +5% for the S&P

500), with its 2017 guidance set offering some clarity on its near term outlook. We see

the shares as overvalued relative to declining growth and weakening ROIC profile on a

limited set of competitive advantages. Our $11 target price equates to roughly 7.9x our

FY18 EBITDA estimate and reflects the business' slower organic growth outlook

relative to its historical trend.

Relevant Research: DPLO: 4Q16 EPS below plan; Trimming 2017 view, DPLO:

Downgrading to Underperform on continuing growth, profitability concerns

Diplomat Pharmacy (DPLO)


Data Snapshot

Robert Willoughby | 212 325 1497 | robert.willoughby@credit -suisse.com





Regression of forward returns on capital to price to book

Note: 1) Defined as ([market value of equity + HOLT debt] / [inflation adjusted net assets, including capitalized operating leases and R&D, excluding goodwill and intangibles]). (2) Defined as forecast next twelve months CFROI based on consensus EPS estimates.

Estimates FY1 FY2

CS $0.60 $0.75



Street-wide 3 8 1


Data Snapshot (DPLO)

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Diplomat Pharmacy (DPLO)



Since its IPO, Diplomat Pharmacy has been embarked in an aggressive acquisitive strategy to support its top line growth. These acquisitions have had a positive impact on

HOLT CFROI, which excludes goodwill and non-operating intangibles, increasing from 15% in 2014 to 25% in 2016. However, when we include goodwill and intangibles,

HOLT so-called Transaction CFROI has stayed constant at c.11%.

Going forward, CS Research believes slowing organic growth, competitive pressures and rising capital costs weigh down on company’s prospects. Relative to 2016,

consensus-driven return on capital levels (depicted by pink bars) are forecasted to drop significantly to 12% by 2018. Growth is a key driver for this stock as the default

model suggests 34% in 2017, sharply fading thereafter.

Market expectations are for 7% returns and 7% asset growth in the next five years (depicted by the green dots).




0

10

20

30

1996 1999 2002 2005 2008 2011 2014 2017 2020

CFROI Transaction CFROI Discount Rate

0

10

20

30

40

50

60

70

1996 1999 2002 2005 2008 2011 2014

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1996 1999 2002 2005 2008 2011 2014

0.0

5.0

10.0

15.0

20.0

25.0

1996 1999 2002 2005 2008 2011 2014

0

10

20

30

40

50

1996 1999 2002 2005 2008 2011 2014 2017 2020


0

50

100

150

1996 1999 2002 2005 2008 2011 2014 2017




98

72

10

68

Quality

Valuation

Momentum

https://holtlens.credit-suisse.com/dal/Lq2SzOguhd0HX44

Where We’re Different: Consensus estimates assume a reacceleration in

DG’s earnings growth to 10% after a flat 2017, in line with the company’s

long-term growth algorithm. We believe this is unlikely, as increasing

competition and rising labor costs should pressure earnings for some time.

We question the logic behind ramping new store openings to 1,000 stores

per year when mature stores are likely comping negative, and also note that

tailwinds from share repo are diminishing. Due to these clear pressures, DG

may be forced to lower its outlook and reset overly optimistic Street

expectations.

Investment Thesis: We rate the stock Underperform as top-line issues,

margin pressure, and potential SG&A acceleration have begun to weigh on

our outlook.

Key Catalysts: Sustained comp and margin pressure through 2017 could

result in reset of DG’s long-term outlook at some point this year.

Valuation: We see risk to valuation if the company ultimately disappoints on

its return to 10% earnings growth. Our grey sky scenario has the stock

trading below $55 if earnings are flat once again in 2018, which would assign

a multiple of 7.5x to 2018 EBITDA. Our blue sky scenario assumes the

company can hit consensus and achieve its long-term target in 2018, which

we see yielding a stock price of about $85 based on a multiple of 10.0x

EBITDA. Our $62 target price assumes a weighted average using a 60/40

probability of each scenario, discounted back a year.

Relevant Research: DG: Downgrading to Underperform as Expectations Too

Optimistic; Reset Seems Inevitable

Dollar General Corp (DG)


Data Snapshot

Edward Kelly | 212 325 3241 | [email protected]





Comps Negative at Mature Stores Through Most of 2016

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

1Q16 2Q16 3Q16 4Q16

Aggregate Comp Contribution from New Stores Contribution from Mature Stores

Estimates FY1 FY2

CS $4.38 $4.65



Street-wide 13 16 2


Data Snapshot (DG)

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Dollar General Corp (DG)



Returns for Dollar General declined from historic highs of 19% in 2009 to 14% in 2016, on declining asset efficiencies as asset growth was overshadowed by flat top line

growth.

Consensus forecasts expect returns to decline further to 13% over next two years (depicted by pink bars); coupled with asset growth of 7%.

The market is pricing in more pessimistic levels of returns at 9% over next 10 years, and a low single digit asset growth of 3% (depicted by the green dots). CS Research

believes that increasing competitive environment and rising costs will put pressure on DG's long-term growth and profitability prospects.


75

61

13

52

Quality

Valuation

Momentum




0

5

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20

1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026

Discount rate

0

5

10

15

20

25

1996 1999 2002 2005 2008 2011 2014

0

2

4

6

8

10

12

14

1996 1999 2002 2005 2008 2011 2014

0.0

0.5

1.0

1.5

2.0

1996 1999 2002 2005 2008 2011 2014

-5

0

5

10

15

20

25

1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026


0

50

100

150

200

1996 1999 2002 2005 2008 2011 2014 2017



https://holtlens.credit-suisse.com/dal/LtVk5gCF5EIenwI

Where We’re Different: Street seem to look for the signs of a turnaround within the

business. Management also suggested in various occasions that revenues were close

to stabilizing and margins would expand at a PTI level (although we believe this is

being helped by lower workforce rebalancing charges). We have some doubts about

this given that we estimate CC, organic revenue last year still declined 3%, PTI

dropped 15% and margins fell by 280bps to 19.4% (on pre restructuring basis). In

our view that IBM is still over-earning and many of its business areas (e.g. strategic

initiatives and cloud) are margin dilutive. We model FY17/18 revenues at

$78.0bn/$76.6bn growth of -2.5%/-1.7% and PTI margins at 18.1%/17.5%.

Investment Thesis: While IBM guided EPS to $13.80, up 1% yoy, we believe that

this may not be reliable metric given several factors. First, we believe it may embed a

lower and possibly unsustainable low tax rate. For example in FY17/18 we assume a

tax rate of 11%/14% vs historical rate of 18%. Second, we assume IP revenues of

$1.6bn/$1.6bn but see potential downside to this estimate - we believe given the

nature of these sales, this may not be sustainable long term. Third, we note increasing

divergence between GAAP and Non-GAAP EPS (guiding 86% for FY17 vs 90%).

Lastly, as GM is expected to be flat or down in 2017, the EPS guidance of $13.80

implies $1bn reduction yoy in core opex (ex- workforce rebalancing, IP income). This

seems unlikely, given the company's workforce has gone up in 2016 to 414k from

412k in 2015.

Key Catalysts: IBM will report 1Q17 earnings in two weeks and give guidance for

2Q17 at the conference call.

Valuation: While a headline P/E of ~12x does look inexpensive, on an EV/FCF basis

IBM is currently trading at 15x, which is ~20% above peers.

Relevant Research: IBM: 2017 Analyst Day – Growth, but when?, IBM:

Time to hit the reset button

International Business Machine (IBM)


Data Snapshot

Kulbinder Garcha | 212 325 4795 | kulbinder.garcha@credit -suisse.com





IBM more expensive than peers on EV/ FCF basis

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

EV

/FC

F

EV/FCF Mean

Estimates FY1 FY2

CS $13.42 $12.72

Consensus* $13.77 $14.11


Street-wide 6 19 4


Data Snapshot (IBM)

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International Business Machine (IBM)



IBM has been awarded an eCap (empirical competitive advantage) since 2008 signifying high quality through strong and stable cash generation. That said, it should be noted

that IBM has not been able to reinvest in the business for the last three years and its top line has been on a decline since 2012. All performance metrics – CFROI, Sales

growth, Margins, Asset Turns and Asset growth trade below the peer medians. In the HOLT default model it has been labelled as “Value Trap”, indicating the low operational

performance and low momentum, but attractive valuation across peers.

Consensus forecasts expect returns to hover around 2015 levels of c.27% in 2017-2018 (depicted by pink bars); coupled with negligible asset growth. CS Research expects

that given the secular pressures on IBM topline and evident pressure on profitability that these implied returns could prove optimistic. High levels of mainframe exposure

(hardware as well as software), declining middleware segment are pressuring revenues, which along with gross margin pressure, combined with the need to invest means

that margins may continue decline. CS Research models PTI 16.3%/15.7% in 2017/2018.

The market is pricing in decline in returns to 21% over next 10 years, along with zero asset growth (depicted by the green dots).

Value Trap Scorecard Percentile

37

83

12

38

Quality

Valuation

Momentum




0

10

20

30

1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026

Discount rate

-15

-10

-5

0

5

10

1996 1999 2002 2005 2008 2011 2014

0

5

10

15

20

25

1996 1999 2002 2005 2008 2011 2014

0.0

0.5

1.0

1.5

1996 1999 2002 2005 2008 2011 2014

-10

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30

1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026


0

100

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300

1996 1999 2002 2005 2008 2011 2014 2017



https://holtlens.credit-suisse.com/dal/Lw7W8QvKmB9Xg4k

Disclosures

Companies Mentioned (Price as of 05-Apr-2017)

AMC Entertainment Holdings (AMC.N, $31.0, UNDERPERFORM, TP $26.0) Alliance Data Systems Corporation (ADS.N, $250.26, UNDERPERFORM, TP $174.0) Boston Beer Co. Inc. (SAM.N, $140.35, UNDERPERFORM, TP $133.0) Diplomat Pharmacy (DPLO.N, $14.27, UNDERPERFORM[V], TP $11.0) Dollar General (DG.N, $68.5, UNDERPERFORM, TP $62.0) International Business Machines Corp. (IBM.N, $172.88, UNDERPERFORM, TP $110.0) Nationstar Mortgage Holdings Inc. (NSM.N, $15.53, OUTPERFORM[V], TP $22.0) ONEOK, Inc. (OKE.N, $55.93, OUTPERFORM[V], TP $64.0) The Hershey Company (HSY.N, $109.07, OUTPERFORM, TP $121.0) Transocean Inc. (RIG.N, $12.44, OUTPERFORM[V], TP $18.0) Wesco International (WCC.N, $69.1, OUTPERFORM, TP $83.0) WisdomTree Investments (WETF.OQ, $8.8, OUTPERFORM[V], TP $16.0)

Disclosure Appendix

Analyst Certification

The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for AMC Entertainment Holdings (AMC.N)

AMC.N Closing Price Target Price

Date (US$) (US$) Rating

30-Apr-14 23.14 25.00 O

04-Jun-14 22.55 R

31-Jul-14 22.64 25.00 O

03-Dec-14 25.45 R

09-Jun-15 28.51 25.00 O

04-Feb-16 21.61 32.00 *

15-Mar-16 28.88 34.00

10-Jun-16 26.94 *

27-Jul-16 29.26 33.00 O

31-Jan-17 33.75 34.00 N

07-Feb-17 32.50 R

08-Feb-17 32.50 34.00 N

15-Mar-17 30.10 26.00 U

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

REST RICT ED

N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for Alliance Data Systems Corporation (ADS.N)

ADS.N Closing Price Target Price


17-Apr-14 245.06 269.00 O

15-Jul-14 275.74 284.00

17-Jul-14 275.02 290.00

07-Jan-15 279.95 307.00

16-Apr-15 299.93 315.00

29-Jun-15 291.45 NR

10-Dec-15 280.16 307.00 N *

28-Jan-16 199.00 235.00

03-Feb-16 194.70 225.00

19-Apr-16 211.62 227.00

21-Jul-16 228.85 233.00

17-Aug-16 203.71 190.00 U

19-Aug-16 200.14 161.00

20-Oct-16 204.77 163.00

26-Jan-17 221.70 174.00


O U T PERFO RM

N O T RA T ED

N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for Boston Beer Co. Inc. (SAM.N)

SAM.N Closing Price Target Price


15-Sep-16 164.50 156.00 U *

21-Oct-16 163.00 146.00

22-Feb-17 166.85 133.00


UN D ERPERFO RM

3-Year Price and Rating History for Diplomat Pharmacy (DPLO.N)

DPLO.N Closing Price Target Price


10-Oct-14 16.02 R

19-Nov-14 24.50 29.00 O *

02-Mar-15 31.53 37.00

11-Mar-15 28.69 R

09-Apr-15 33.91 37.00 O

11-May-15 36.11 40.00

05-Jun-15 39.26 R

09-Jul-15 46.79 40.00 O

03-Aug-15 47.50 55.00

05-Nov-15 33.01 50.00

15-Mar-16 25.93 29.00 N *

29-Apr-16 30.29 30.00

02-Nov-16 22.38 18.00

23-Nov-16 14.49 13.00 U

09-Jan-17 12.50 12.00

08-Feb-17 14.86 11.00


REST RICT ED

O U T PERFO RM

N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for Dollar General (DG.N)

DG.N Closing Price Target Price


30-Apr-14 56.44 59.00 N

09-Jun-14 62.25 65.00

27-Jun-14 57.19 59.00

18-Aug-14 64.14 74.00 O

01-Dec-14 66.32 76.00

22-Jan-15 69.77 80.00

02-Jun-15 74.98 84.00

03-Dec-15 68.12 80.00

10-Mar-16 83.23 90.00

27-May-16 89.88 95.00

25-Aug-16 75.61 80.00 N

05-Oct-16 66.97 70.00

01-Dec-16 73.48 69.00

23-Mar-17 68.90 62.00 U


N EU T RA L

O U T PERFO RM

U N D ERPERFO RM

3-Year Price and Rating History for International Business Machines Corp. (IBM.N)

IBM.N Closing Price Target Price


17-Apr-14 190.01 160.00 U

21-Oct-14 163.23 125.00

20-Jan-16 121.86 110.00


UN D ERPERFO RM

3-Year Price and Rating History for Nationstar Mortgage Holdings Inc. (NSM.N)

NSM.N Closing Price Target Price


23-Apr-14 30.41 38.00 O

02-Sep-14 34.38 40.00

06-Nov-14 27.87 36.00

26-Feb-15 27.05 33.00

05-May-15 19.51 25.00

04-Mar-16 12.67 19.00

05-Jan-17 18.72 22.00


O U T PERFO RM

3-Year Price and Rating History for ONEOK, Inc. (OKE.N)

OKE.N Closing Price Target Price


14-Sep-15 34.50 41.00 N

05-Nov-15 31.37 43.00

21-Dec-15 21.85 36.00

31-Dec-15 24.66 40.00 O

24-Feb-16 21.52 30.00 N

17-Mar-16 30.22 34.00

05-May-16 38.96 42.00

03-Aug-16 45.85 47.00

13-Sep-16 46.95 49.00

02-Dec-16 54.69 54.00

02-Feb-17 55.56 63.00 O

28-Feb-17 54.05 64.00


N EU T RA L

O U T PERFO RM

3-Year Price and Rating History for The Hershey Company (HSY.N)

HSY.N Closing Price Target Price


24-Apr-14 96.02 108.00 O

16-Jul-14 92.34 101.00 N

24-Jul-14 92.34 99.00

12-Jan-15 105.43 108.00

23-Apr-15 94.93 101.00

22-Jun-15 89.24 93.00

26-Apr-16 89.60 91.00

20-Jul-16 109.12 110.00

28-Jul-16 111.35 112.00

15-Nov-16 99.13 106.00

06-Jan-17 104.51 117.00 O

02-Mar-17 109.13 121.00


O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for Transocean Inc. (RIG.N)

RIG.N Closing Price Target Price


15-Apr-14 41.49 50.00 O

17-Apr-14 40.58 44.00

27-Jun-14 44.53 R

07-Aug-14 38.23 35.00 N

22-Sep-14 33.63 30.00

16-Oct-14 30.15 25.00

19-Dec-14 19.70 15.00

15-Jan-15 15.21 12.00

10-Feb-15 19.16 12.00 U

06-Aug-15 13.84 10.00

25-Feb-16 8.23 5.00

23-Sep-16 9.10 8.00 N

03-Feb-17 13.97 18.00 O


O U T PERFO RM

REST RICT ED

N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for Wesco International (WCC.N)

WCC.N Closing Price Target Price


25-Apr-14 88.12 90.00 O

08-Sep-14 84.09 90.00 *

29-Jan-15 67.22 84.00

23-Apr-15 70.75 81.00

23-Jul-15 62.30 76.00

14-Sep-15 52.51 76.00 *

23-Oct-15 48.87 56.00

17-Dec-15 40.04 50.00

29-Jan-16 40.38 49.00

04-Mar-16 47.89 53.00

02-May-16 59.54 65.00

16-Jun-16 55.37 68.00 *

28-Oct-16 55.15 66.00

13-Dec-16 70.05 80.00

26-Jan-17 74.15 83.00


O U T PERFO RM

3-Year Price and Rating History for WisdomTree Investments (WETF.OQ)

WETF.OQ Closing Price Target Price


03-Jun-15 21.48 26.67 O *

27-Aug-15 19.30 23.70

07-Oct-15 16.51 20.74

29-Oct-15 18.84 24.69

01-Dec-15 21.94 30.00

13-Jan-16 11.54 20.00

18-Feb-16 11.91 16.00

16-May-16 10.58 17.00

06-Jul-16 9.34 13.00

05-Aug-16 10.43 14.00

03-Nov-16 8.29 11.00

08-Dec-16 12.94 15.00

06-Feb-17 8.67 14.00


O U T PERFO RM

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

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

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

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

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

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings

based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiven ess of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12 -month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is be tween -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks . Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time.

Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

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

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

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

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

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

Global Ratings Distribution

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

Outperform/Buy* 45% (64% banking clients)

Neutral/Hold* 39% (61% banking clients)

Underperform/Sell* 14% (53% banking clients)

Restricted 2%

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

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Target Price and Rating Valuation Methodology and Risks: (12 months) for AMC Entertainment Holdings (AMC.N)

Method: Our $26 price target is 8.2x our 2017 EV/EBITDA. Our Target Price and Underperform rating are supported by our DCF which utilizes a 1.8% terminal growth rate and 8% WACC.

Risk: Key risks to our $26 Target Price and Underperform rating include (i) competition from other exhibitors in premium offerings, (ii) decline in box office proceeds either from attendance trends or shortened theatrical windows, and (iii) new competition from SVOD.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Alliance Data Systems Corporation (ADS.N)

Method: Our $174 target price is based on our sum of the parts analysis, which uses 9x EV/EBITDA on the non-bank businesses and 10.5x our 2017 EPS forecast for the card services business. These multiples reflect the range at which competing credit card lenders trade. Our Underperform rating stems from our view that ADS is going through a period of increasing credit risk, which is a risk to EPS forecasts, while also re-rating as a lending company as opposed to a technology services firm.

Risk: Risks to our $174 target price include greater competition for private label card issuance causing ADS to lose market share; increased credit-losses driving lower EPS, and an inability to continue repurchasing shares. Risks to our Underperform Rating include better than expected earnings growth and lower than expected credit loss ratios.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Boston Beer Co. Inc. (SAM.N)

Method: Our $133 target price for SAM assumes a 22x P/E multiple on our CY18 EPS estimate. This is in-line with US Staples peers. The stock has historically traded at a premium but we no longer think this is merited given the weaker fundamentals. We assign an Underperform rating because we think the shares will face incremental pressure as the company's sales and earnings remain weak.

Risk: Risk factors that could impede SAM's achievement of our $133 target price include 1) continued market share losses for the beer business, 2) further or sustained declines of the cider category, and 3) loss of shelf space to new category entrants. Risks to our Underperform rating for SAM are 1) a faster recovery of the Sam Adams and/or Angry Orchard brands that we are expecting, 2) costs savings above and beyond what we are modeling, and 3) a takeout.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Diplomat Pharmacy (DPLO.N)

Method: Our $11 target price for DPLO is 9.4x our 2017 EBITDA estimate, well below its public company average on slowing earnings growth and limited competitive advantages. We believe an Underperform rating and this multiple are appropriate given the slowing organic growth outlook for the company and heightened competitive pressures of the supply channel. We value companies on an EV/EBITDA basis in the pharmaceutical supply channel to assess the risk/reward profile of the individual stocks and the group as a whole. EV/EBITDA provides a historical and relative perspective to these valuations. We look at multiples relative to historical averages to ensure that the stocks are trading in-line with our synopsis of how current macro fundamentals fit into historical context. EV/EBITDA relative to a benchmark or to other industry peers sheds light on how the group or particular companies are currently performing relative to the economy or their competitors, respectively.

Risk: Risks to DPLO's achievement of our $11 target price and Underperform rating are: 1) industry pricing always bears monitoring; 2) DPLO could be a strategic acqusition target. 3) legislation could reverse the adverse impact of DIR fees.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Dollar General (DG.N)

Method: Our $62 target price for DG assumes the stock can trade at ~8x our estimate of NTM EBITDA and ~14x NTM EPS. We rate the stock Underperform as top-line issues (e.g. deflation, slowing SNAP momentum, competition), margin pressure and potential SG&A acceleration have begun to weigh on our outlook.

Risk: Risks that could impede our $62 target price for DG and cause us to increase our Underperform rating include a less competitive promotional environment, a lower than expected impact from the recent DLTR-FDO merger, and a significant improvement in conditions for the low-income consumer.

Target Price and Rating Valuation Methodology and Risks: (12 months) for International Business Machines Corp. (IBM.N)

Method: Our PT of $110 on IBM is based on 10x FCF/share excluding net debt position. We see this is appropriate given the declining stream we see ahead. We see the current market price has not priced in the potential downside of further revenue decline and Services margin pressure. Therefore we maintain Underperform rating.

Risk: Risks to achievement of our $110 target price for International Business Machines Corp. include declining Information Technology spending as a result of Cloud disruption, end market pressures for Services, as well as merger and acquisition integration risks as IBM remains acquisitive. The risk to our Underperform rating is hinged on the industry macro prospect over time and the recovery of its Software and Services businesses.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Nationstar Mortgage Holdings Inc. (NSM.N)

Method: Our Outperform rating and $22 target price for Nationstar is $17 of current book value, $2.30/share value for subservicing contracts (based on $250 billion in balances, 2.75 bps of revenue per year, and 5 year duration), and $2.80/share value for Xome (based on 10x third party after tax earnings).

Risk: Risks to the achievement of our $22 target price and Outperform rating for Nationstar are 1) higher servicing costs from increased regulatory scrutiny, 2) inability of Nationstar to acquire additional mortgage servicing rights, and 3) slower revenue and earnings growth from Xome.

Target Price and Rating Valuation Methodology and Risks: (12 months) for ONEOK, Inc. (OKE.N)

Method: Our $64 TP for OKE is based on a equal-weight of 2018 EV/EBITDA, 2018 P/DCF valuation and 3-stage DDM that is discounted back to a next twelve month valuation at 8% cost of equity. Our total return outlook of 25% is above the median for our coverage, supporting our Outperform rating.

Risk: Risks to our $64TP and Outperform rating include: commodity price risk, access to capital markets, lower than anticipated volumteric growth due to lower than expected Natural gas liquids prices and slower than guided dividend growth.

Target Price and Rating Valuation Methodology and Risks: (12 months) for The Hershey Company (HSY.N)

Method: Our $121 target price represents a 23.3x P/E multiple applied to our 2018 EPS estimate of $5.20. This represents as 12% premium to packaged food peers, which is still below its 17% premium historically. We assign an Outperform given that the company and confectionary category are poised for more growth as well as Hershey's signficant remaining cost-saving opportunities.

Risk: The risk factors that could impede achievement of our $121 target price and change our Outperform rating are 1) continued slowdowns in emerging markets, particularly China, 2) slower revenue growth in the U.S. due to lack of pricing and weaker category volume trends, and 3) unexpected commodity input cost inflation.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Transocean Inc. (RIG.N)

Method: Our $18 target price and Outperform rating for RIG is based on a DCF (discounted cash flow) analysis using a WACC (weighted average cost of capital) of 8.7%, terminal growth rate of 1.5% and average long-term UDW rates of $350k/d.

Risk: Risks of RIG not achieving our target price of $18 and Outperform rating are company-specific risks: (1) declining UDW day rates; (2) declining jackup dayrates; (3) construction delays; (4) nonaccretive or ill-timed rig acquisitions; (5) availability of credit to fund future growth; (6) customer and counterparty risk; (7) loss of customers; (8) accidents, (9) environmental and government regulations where rigs operate; (9) lack of available crew; (10) failure of shipyards to deliver newbuildings (11) further Macondo related settlements and industry-specific risks: (1) oil prices, (2) global oil demand, (3) global GDP, (4) global E&P capex spending, (5) interest rate risk, (6) environmental and government regulations, (7) oversupply of offshore drilling rigs, (8) increased competition, (9) inclement weather, and (10) geopolitical risks.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Wesco International (WCC.N)

Method: Our $83 target price for WCC is derived using a 20x P/E multiple on our FY2018 EPS estimate, discounted back. Our Outperform rating is based on the relative upside we see from favorable exposure to the Utility and Commercial, Institution and Government end markets as well as the project of the nature of the business which provides for more visibility vs. peers.

Risk: We see several risks to our $83 target price and Outperform Rating for WCC. Primary among these is a deteriorating economy where sales growth rates can turn very negative especially given the company's exposure to construction and industrial end markets. About 10% of Wesco purchases come from its largest supplier (Eaton Corporation) and about 30% of purchases come from the top 10 suppliers. A loss of one of these suppliers could impact product availability and possibly lead to a loss of business. The distribution business is highly fragmented and there is intense competition from both small and large players which could lead to pricing and volume pressures. Product shortages, changes in business mix, and loss of key suppliers are other critical risks including integrating acquisitions.

Target Price and Rating Valuation Methodology and Risks: (12 months) for WisdomTree Investments (WETF.OQ)

Method: Our $16 TP and Outperform Rating is based on applying a 30x multiple on our 2018 cash earnings estimate vs. our industry average estimate of 11x due to WETFs high growth rate.

Risk: Risks to our $16 Target Price and Outperform Rating include: 1) Deceleration in ETF Interest by Investors: If the secular trend of ETF adoption slows markedly, WETF will likely suffer a significant loss in their AuM base. 2) Weak US Dollar: The majority of WETF’s inflows over the near term have been the result of currency hedged non-US equity products. A reversal of this trend could see meaningful outflows which will result in lower top-line revenues. 3) Concentrated AuM: ~60% of WETF’s AuM is concentrated in 2 ETFs. Meaningful outflows from either of these products could impact WETF’s ability to generate profits.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (AMC.N, DPLO.N, HSY.N, IBM.N, NSM.N, OKE.N, RIG.N, SAM.N, WCC.N, WETF.OQ) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (AMC.N, IBM.N, NSM.N, RIG.N, WCC.N) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (AMC.N, IBM.N, NSM.N, RIG.N, WETF.OQ) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (AMC.N, IBM.N, NSM.N, RIG.N, WCC.N) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (AMC.N, IBM.N, NSM.N, RIG.N, WCC.N) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ADS.N, AMC.N, DG.N, DPLO.N, HSY.N, IBM.N, NSM.N, OKE.N, RIG.N, SAM.N, WCC.N) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (AMC.N, IBM.N, NSM.N, RIG.N, WETF.OQ) within the past 12 months

A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (ADS.N, AMC.N, DG.N, DPLO.N, HSY.N, IBM.N, NSM.N, RIG.N, SAM.N, WCC.N, WETF.OQ) within the past 12 months.

For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=293459&v=5fm3011h2lqhnnp9305xvkhcu .

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Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.

When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only

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