U.S. Equity Strategy - Investment Bank | Barclays · The missing ingredient is revenue growth. We become critical, however, when we focus on the quality of earnings per share growth

Equity Research12 August 2014

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.

PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 30.

U.S. Equity Strategy

Transitioning to lower returns We believe U.S. equities are transitioning out of a recovery rally and into a period of lower returns as the benefits of margin expansion and share repurchases prove to be already priced in and a return of faster revenue growth becomes a prerequisite for another re-rating higher. We are setting our price targets for the S&P 500 at 1975 for 2014 and 2100 for 2015.

The recovery rally of the past five years. U.S. equities have made a remarkable advance in the past five years, recovering from the credit crisis, powering through the European sovereign debt scare, and surging on a third dose of quantitative easing, leaving the S&P 500 close to an all-time high. This advance was grounded in increased earnings, itself a byproduct of elevated profit margins; boosted by share repurchases, which are approaching new records; leveraged with more debt, which has never been higher; and augmented by an expansion of valuation multiples, with most now above historical averages. Can the rally continue? We believe there is a missing ingredient.

Valuation multiples suggest the market is modestly expensive. The S&P 500 is up 50% since 2012 with expansion of valuation multiples occurring in five of the past six quarters and the trailing price-to-earnings ratio increasing to 17.7x. On balance, we believe valuation indicators point to a market that is now modestly expensive.

We are not concerned about monetary policy. While we cannot deny that easy monetary policy has encouraged equities to go up, we are not convinced that the end of central bank accommodation must compel them to go down, and monetary policy does not rank among our primary concerns. In fact, we note that price-to-earnings ratios have historically been higher when the 10y Treasury was at 5% than 2.5%.

The missing ingredient is revenue growth. We become critical, however, when we focus on the quality of earnings per share growth within the S&P 500. More specifically, top-line growth is poor. Sales growth has been less than 3% and we believe it will remain subdued because of weak domestic economic growth and an inability to restart last cycle’s growth engine: international sales. The last time the S&P 500’s price-to-sales ratio was higher than it is now, sales were growing at 7%.

Source: Barclays Research

Sales growth the last time the S&P’s 500’s price-to-sales ratio was higher than now:

7%

The missing ingredient

Sales growth today:

<3%

MACRO STRATEGY

U.S. Equity Strategy Jonathan Glionna +1 212 526 5313 [email protected] BCI, New York

Eric Slover, CFA 1.212.526.6426 [email protected] BCI, New York

Barclays | U.S. Equity Strategy

12 August 2014 2

Our views in brief… While the recent price increase of the S&P 500 has been justified by expanding margins, active share repurchases, and a reduction in systemic risk premiums, high revenue growth must emerge for the market to re-rate higher once again. Going forward, we believe price gains will match EPS growth, without further expansion of valuation multiples. Our EPS growth rate expectations are 7% in 2014 and 8% in 2015, contributing to S&P 500 price targets of 1975 in 2014 and 2100 in 2015. Our EPS growth rate expectations are in line with consensus for 2014 and below consensus for 2015. If our price targets are realized, the S&P 500 will produce total returns of 9% in 2014 and 8% in 2015.


Within the market, we recommend overweighting sectors that have undemanding valuations that do not depend on growth achievement and have potential positive catalysts. Our Overweight recommendations are financials, energy, information technology, and industrials. Conversely, we recommend Underweight allocations to consumer staples and health care.


Note on definitions: Overweight - The performance of the S&P 500 sector is expected to outperform the performance of the S&P 500 index in the next 3–6 months. Market Weight - The performance of the S&P 500 sector is expected to perform in line with the S&P 500 index in the next 3–6 months. Underweight - The performance of the S&P 500 sector is expected to underperform the performance of the S&P 500 index in the next 3–6 months.

For 2014:

1975

S&P 500 Price Targets

For 2015:

2100

Financials

Energy

Information Technology

Industrials

Overweight Sectors

Consumer Staples

Health Care

Underweight Sectors

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12 August 2014 3

Our thought process

FIGURE 1 Our thought process on US equities


100%+ total return over five years

U.S. equities have enjoyed a magnificent rally...

PE ratio to

17.7xfrom 15.4x

…that has outpaced earnings growth, expanding multiples…

PB ratio

2.5x vs. 2.2xlonger-term average

…and made the market modestly expensive by historical standards.

Gross share repurchase creating

2% annual EPS accretion

…our focus is on the quality of EPS growth…

Sales growthhas been less than

3%

…because there is a missing ingredient: organic revenue growth.

The last time price-to-sales was higher, sales were growing at7%

Will the market pay peak multiples for engineered earnings?

Historically, average PE higher

at 5% 10y than 2.5% 10y

We are not concerned about eventual rate hikes…

2014 U.S. GDP growth expected to be just 2%

…and we do not expect another re-rating higher absent renewed organic top-line growth…

We expect EPS growth of 7% in 2014 and 8% in 2015

…with stable multiples price gains tracking EPS growth.

Overweight Financials, Energy, Tech, and Industrials; Underweight Staples andHealth care

U.S. SCAPE is

21x compared

to 16x in EM

The U.S. is already expensive compared to global equity markets…

What’s Missing?


12 August 2014 4

The S&P 500 is up 50% since the beginning of 2012 Last month the S&P 500 reached a new all-time nominal high of 1988, creating a total return of more than 100% over five years (Figure 2). The advance of the index has been steady, and apart from occasional pauses, such as in 4Q12, 1Q14, and so far in August, has shown limited evidence of fatigue. The rally has also been broad-based, with every sector higher, led by the growing health care sector, the recovering financial sector, and the geared-to-economic recovery consumer discretionary sector. Laggards include the lower-beta utilities sector and oil price-sensitive energy sector (Figure 3), although we note that these two sectors are among the best performers so far in 2014.

Multiples have expanded as price gains exceed earnings growth During the last three years of the rally, expansion of valuation multiples has complemented earnings growth, leveraging the index higher. This multiple expansion was originally a result of declining systemic risk premiums, in our opinion, and has more recently been caused by positive sentiment, as market gains and lower volatility created optimism of further outperformance. As shown in Figure 4, valuation multiple expansion has occurred in five of the past six quarters, with the trailing price-to-earnings ratio increasing from 15.4x to 17.7x since the beginning of 2013.

FIGURE 2 S&P 500 is close to its record high

FIGURE 3 All sectors have participated in the rally

Source: Barclays Research. Data as of 8/10/14. Source: FactSet, Barclays Research. Data as of 8/10/14.

FIGURE 4 PE multiple expansion has complemented earnings growth

Source: Haver Analytics, Barclays Research

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U.S. equities have enjoyed a magnificent rally…

…that has outpaced earnings growth, expanding multiples…


12 August 2014 5

Most valuation measures now suggest the market is modestly expensive Measures such as the price-to-earnings ratio, price-to-book value, and dividend yield have track records of success as indicators of future equity market returns and are critical components of any valuation analysis, especially to provide a sober view and prevent speculative excess – in either direction. At present, some of these indicators, such as the price-to-earnings ratio, price-to-book value, and enterprise-value-to-EBITDA are close to the historical average, suggesting the market is fairly valued. Others, however, such as the dividend yield, price-to-sales, or cyclically-adjusted PE suggest the market is expensive; while others still, such as the equity risk premium, suggest the market is cheap, at least in relation to bonds (Figure 5 and Figure 6). On balance, we believe valuation indicators point to a market that is now modestly expensive by historical standards.

The equity risk premium is the last valuation measure that looks favorable While most valuation measures indicate the market is modestly expensive, there remains one that suggests cheapness: the equity risk premium. The earnings yield of the S&P 500 remains elevated in relation to the yield available in fixed income products such as Treasuries or investment grade corporate bonds, translating into a large spread between these competing asset classes (Figure 7). This is mostly a function of depressed real interest rates and low credit spreads rather than cheap stocks, in our opinion, as the earnings yield is close to the historical average. We believe the equity risk premium is useful for comparing two assets, such as stocks and bonds, but not useful as a predictor of future equity market returns. Indeed, we believe the price paid for an asset, as indicated by the price-to-earnings ratio, dictates returns over the long run, rather than the spread to competing assets.

FIGURE 5 S&P 500 multiples have become elevated

FIGURE 6 Valuation measures are mostly above long-term averages

Source: Compustat, Barclays Research. Data as of 8/05/14. Source: Compustat, Barclays Research. Data as of 8/10/14.

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PE (trailing), MedianPE (fwd), MedianPrice-to-earnings (forward)EV-to-EBITDA

CurrentMedian since

1976

Price-to-earnings (trailing) 17.7x 17.2x

Price-to-earnings (forward) 15.1x 13.3x

Cyclically adjusted PE (Shiller) 25.1x 20.3x

Enterprise Value-to-EBITDA 8.7x 8.0x

Price-to-sales 1.6x 0.9x

Price-to-book value 2.5x 2.2x

Dividend yield 2.3% 2.9%

Equity risk premium (vs real 10y UST) 6.3% 5.7%

…and made the market modestly expensive by historical standards


12 August 2014 6

FIGURE 7 The spread between earnings yields and real fixed income products remains elevated

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Real Treasury ERP Treasury Mean

Real Credit ERP Credit Mean

Source: Barclays Research. Data as of 8/05/14.

U.S. monetary policy is becoming less accommodative, but we are not concerned The end of accommodative monetary policy is one of the primary concerns of risky asset investors, in our opinion. This is based on the strong performance experienced by risky assets during the five years since the Fed began quantitative easing, and an uncertainty about further gains in a more restrictive monetary environment. While we cannot deny that easy monetary policy has encouraged equities to go up, we are not convinced that the end of the policy must encourage them to go down.

We base our opinion on three things:

• First, the Fed has been clear that accommodative policy will only end once the economy has enough momentum to sustain higher inflation, and therefore equities will get the advantage of stronger economic conditions coincidentally with the disadvantage of less accommodative policy.

• Second, there is a perception that U.S. equities have been going up whenever the Fed is buying and going down when they stop. But we do not find this to be the case. Rather, it appears that stocks go down in anticipation of quantitative easing ending (Figure 8).

• Third, higher interest rates are not negative for equity valuations. In fact, considering that higher interest rates are normally the result of higher inflation expectations and that higher inflation usually leads to higher earnings growth, it is justifiable for higher interest rates to encourage even higher price-to-earnings multiples. As Figure 9 shows, there is no evidence that stocks cannot climb to elevated earnings multiples during periods of higher interest rates and it is not until interest rates are more than 7% that price-to-earnings ratios have historically become constrained. In fact, the last time the 10-year Treasury yield was between 4% and 6% and the cyclically adjusted price-to-earnings ratio was lower than 15x was in 1924.

We are not concerned about eventual rate hikes…


12 August 2014 7

FIGURE 8 S&P 500 during recent Fed programs: stocks go down in anticipation of QE ending


FIGURE 9 Rates have not deterred high PEs until they exceed 7%: cyclically adjusted price-to-earnings ratio (y-axis) and 10y interest rates (x-axis)

Source: Global Equity Strategy: Bullish, with a ‘but’…, Robert Shiller, Barclays Research

Use of margin debt is high, but we do not view it as a warning sign Much attention has been paid to the rise in NYSE margin debt, with commentary suggesting it could be signaling a market top. We disagree. In our opinion, a sharp increase in the use of margin debt in relation to the size of the market is a warning sign, but the steady increase seen over the past five years is not. Figure 10 best illustrates our point. As shown, margin debt in relation to market capitalization has been steadily increasing since the early 1990s. We attribute this to greater participation from leveraged investors in the market during the past 25 years and believe it is a structural shift higher. The key to identifying if margin debt is providing a top signal is to look at the pace of change in relation to market capitalization. In 2000 the use of margin debt soared, breaking out of the long-term trend. This occurred again in 2007. In both cases the surge proved to be a warning sign. The current trend looks different, however, as it has been a gradual increase in line with the long-term trend, lacking the spike consistent with other sell signals. Figure 11 further illustrates this point. Looking at the 2000 and 2007 periods, peaks were clearly formed that decoupled from the annual change in market capitalization. Currently, there is no peak and no decoupling. This implies that the recent increase in margin debt was primarily driven by higher valuations, rather than a speculative reach to leverage potential returns. We believe margin debt deserves watching, particularly given its continued deflated rise, but it is not yet providing a signal consistent with prior market declines, in our opinion.

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…or other ‘late in the cycle’ indicators such as elevated margin debt or IPOs…

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12 August 2014 8

FIGURE 10 Margin debt in relation to market capitalization

FIGURE 11 Rate of change in margin debt

Source: FactSet, Barclays Research Source: FactSet, Barclays Research

IPOs are also gaining attention, but there is no signal here either Another classic top-of-the-market indicator is a rush from companies to complete initial public offers, taking advantage of attractively priced equity capital. During the past four years, IPOs in the U.S. market have steadily climbed, with recent volume similar to that seen in 2000 (Figure 12). Once again, we are not worried about this potentially negative signal, as we view the primary market as healthy with few signs of frenzy. In our opinion, IPO investors remain discerning with quality companies raising capital at reasonable valuations. We also note that total equity supply is not abnormal (Figure 13), signaling that companies that are already public do not view equity financing as excessively cheap. In fact, the opposite is arguably true, as companies continue to allocate material portions of free cash to share repurchases.

FIGURE 12 Attention grabbing IPOs have increased

FIGURE 13 But equity supply has not been abnormal

Source: Haver Analytics, Barclays Research Source: Federal Reserve, Haver Analytics, Barclays Research. Data as of 8/10/14.

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$mn

US corporate security issues: stocks


12 August 2014 9

EPS growth has been supported by lower taxes, share repurchases, and M&A, offsetting poor revenue growth While we are not concerned about the end of quantitative easing or the existence of late-cycle indicators, we do become critical when we focus on the quality of earnings per share growth within the S&P 500. More specifically, the lack of top-line growth. This has been offset, however, by margin expansion, which has largely been tax driven, more leverage, robust share repurchase activity, and M&A, allowing EPS growth to remain adequate. As Figure 14 shows, sales are growing at just 2%.

FIGURE 14 Sales growth remains low despite EPS improvement

Source: FactSet, Barclays Research

Tax rates have declined, boosting margins to peak levels One of the primary drivers of earnings growth for the S&P 500 has been margin expansion, as margins have increased to a cyclical high of more than 9% (Figure 15). While there are a number of reasons for the improvement in margins, including high revenue that led to positive operating leverage and lower unit labor costs, one that we believe is particularly noteworthy is lower taxes. Lower tax rates have been a powerful upward force on margins as we find income tax has fallen to 29% of pre-tax income from 32% four years ago (Figure 16). This has largely occurred because more earnings are coming from overseas where tax rates are lower. Recall, the U.S. has one of the highest corporate tax rates but foreign earnings are only subject to U.S. taxes if repatriated.

FIGURE 15 S&P 500 margin

FIGURE 16 S&P 500 median tax rate

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%

Net Income Margin: SPX ex-FIN ex-FIN, ENR

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Income Tax / Pretax Income: SPX ex-FIN ex-FIN, ENR

Source: Barclays Research Source: Barclays Research

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S&P 500: Sales Growth (LTM, y-o-y) S&P 500: EPS Growth (LTM, y-o-y)

…our focus is on the quality of EPS growth


12 August 2014 10

Lower interest expense has not contributed to margin expansion There is a perception that lower interest rates have also contributed to margin expansion, but we do not find this to be the case. Rather, lower interest rates have been negated by more debt, leading to stable interest expense. As evidence we note that while the average cost of debt has fallen by 100bp in the last four years (Figure 17), interest expense as a percentage of sales is actually higher. Meanwhile, it is worth noting that the decline in debt to capitalization seen as a result of the credit crisis has been more than reversed with the debt-to-cap ratio of the S&P 500 at a new peak and continuing the long-term march higher (Figure 18).

Share repurchases are elevated Companies have been allocating significant amounts of free cash to share repurchases to enhance EPS growth in an environment where revenue growth is stagnant. Similar to increased use of margin debt, share repurchases are also considered a potential indicator of the top of the cycle as they are often pro-cyclical. As shown in Figure 19, buybacks have not quite matched the level reached prior to the credit crisis but they are on their way, with a steady increase evident since 2010. Over the past twelve months, buybacks have totaled more than half of operating earnings for companies in the S&P 500. Considered another way, we estimate the median company is spending approximately 80% of free cash flow post dividends on stock repurchases. This activity has added to earnings per share, with gross buybacks creating 2% annual EPS accretion (Figure 20).

FIGURE 17 Lower interest rates…

FIGURE 18 …have been negated by higher leverage

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FIGURE 19 Share repurchases have grown with the earnings recovery

FIGURE 20 Gross buybacks create approximately 2% annual EPS accretion

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We estimate the median company is spending ~ 80% of free cash flow post dividends on stock repurchases


12 August 2014 11

M&A has increased As mentioned, U.S. equities look inexpensive compared to fixed income products based on the equity risk premium. This leads to a lateral conclusion that given the size of the equity risk premium, corporations should be borrowing funds in the credit market to buy equity, either through share repurchase or acquisition. We believe they are doing just that, with acquisitions being used to create operating synergies, offsetting a lack of organic growth opportunities.

A series of recent M&A announcements have investors focused on resurgence in M&A, following false starts at the beginning of 2011 and 2013 and a dearth of deals in 2012. The current macro backdrop, including low volatility, slow growth, and receptive credit markets have been supportive of M&A. Similar to share repurchases, M&A is not yet back to its pre-crisis volumes but it is getting close (Figure 21), with new deals seemingly announced most Monday mornings.

FIGURE 21 M&A volume

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All Deals >$300mn, US, 6mma Count, 6mma


Four factors are contributing to the increase in M&A, in our opinion. First, in contrast to prior periods, the median strategic acquirer has outperformed in the days following an announcement (Figure 22). Historically, acquisitions have often destroyed shareholder value, as buyers overpaid and synergies proved unrealistic. This cycle, the market seems more willing to reward companies faced with weak top-line growth that can gain operating leverage through economies of scale and expand margins. Second, financing is attractive, as yields in the credit market are near all-time lows. As shown in Figure 23, the earnings yield on acquisitions is elevated in relation to implied financing costs. Third, buyers are using M&A to create further tax savings, with a number of large tax inversion transactions attempted this year. Lastly, many companies, particularly in the technology sector have cash overseas that would trigger tax bills if repatriated. This cash can be put to work through international M&A instead.


12 August 2014 12

FIGURE 22 Acquirers have been rewarded for M&A this cycle

FIGURE 23 Prices are attractive considering financing costs

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Source: FactSet, Barclays Research. Source: Barclays Research

The credit market has facilitated these developments The credit market, in our opinion, has been one of the major facilitators of the share repurchases, acquisitions, and general re-leveraging that has occurred at large U.S. corporations. As shown in Figure 24, U.S. nonfinancial corporate debt is now at a record high of 56% of GDP. The Federal Reserve has been more vocal recently about the use of debt and financial stability, noting that while leverage has been lowered in the banking system, it is higher in the non-financial sector. In addition, bank regulators have been increasing their surveillance of leveraged lending practices at banks, following a 39% increase in volume in 2013. Still, the credit market remains wide open for large companies, in our opinion, as evidenced by the U.S. high yield market, which until recently had the lowest yield in its history despite growing by 80% in the last five years (Figure 25).

FIGURE 24 Nonfinancial corporate debt is at an all-time high in relation to GDP (%)

FIGURE 25 The size of the U.S. high yield market is also at an all-time high, despite low yields

Source: Haver Analytics, Barclays Research Source: Barclays Research

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12 August 2014 13

We believe faster organic revenue growth is required to spur the next re-rating higher The recent price increase of the S&P 500 has been justified by expanding margins, active share repurchases, and a reduction in systemic risk premiums, in our opinion. But, we believe there is a missing ingredient that must emerge for the market to re-rate higher once again, and this missing ingredient is organic revenue growth. Recently, revenue growth has been disappointing, fading back down below 3% following the rebound in 2010 and 2011 (Figure 26). We believe revenue growth will remain subdued because of weak domestic growth and an inability to restart last cycle’s growth engine: international sales. On the domestic front, Barclays real GDP forecast for 2014 is just 2% following a very weak first quarter. A rebound is expected in 2015, but to no more than 3%. The Federal Reserve has stated that the potential growth rate of the economy may be low for a long time, consistent with their expectation for maintaining the Fed Funds rate below its normal level for an extended period. Domestic revenue growth directionally tracks GDP for an index as broad as the S&P 500, making a recovery of this measure crucial to reviving revenue expectations.


FIGURE 26 Revenue growth has been unusually weak for the S&P 500

Source: Compustat, Barclays Research

Foreign sales have been a significant contributor to both revenue growth and margin expansion for the S&P 500, with foreign sales now representing approximately one-third of total sales, up materially in the last 10 years (Figure 27). Unfortunately, we believe this growth engine is unlikely to return to its previous pace. As mentioned, U.S. companies continue to pursue foreign acquisition targets either for tax motivations or more often for strategic reasons, and we expect this to continue. But, the additional tailwind provided by economic expansion in non-U.S. regions has likely slowed. Our economists forecast growth

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There is a missing ingredient: organic revenue growth


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rates in the Euro area of 0.9% and 1.4%, respectively, in 2014 and 2015. Even for emerging markets, real GDP growth is expected to be just 5% over the next two years. Recall that the World Bank and IMF have both recently lowered their global growth expectations. Slower global growth plus increased geo-political risk mean that the internationally-geared S&P 500 is unlikely to experience a revenue growth revival in the next two years, in our opinion.

Now, there is nothing wrong with turning 2% revenue growth into 6% EPS growth, and in fact, many management teams should be applauded for achieving this transmission. But, we question if the market is going to be willing to pay peak multiples on this type of engineered earnings growth, and considering where valuations are currently, another re-rating higher will require acceptance of peak multiples. In our view, the market is already pricing in the margin expansion and pace of buybacks that are occurring. This is shown in Figure 29, which plots the price-to-sales ratio for the S&P 500. The last time the price-to-sales ratio was sustainably above the current level was in the late 1990s, a period when sales at U.S. companies were growing at 7%, based on the Quarterly Financial Report from the U.S. Census Bureau. This same data series grew less than 3% in the first quarter of 2014. We admit that the first quarter was impacted by weather, but note that over the past eight quarters the average growth rate has been just 2.6%, hardly robust enough to justify peak valuation multiples, in our opinion.

FIGURE 27 International sales are now more important (S&P 500)

FIGURE 28 But a growth recovery is uncertain

Source: Barclays Research. Note: Median includes only companies with international sales. Source: Barclays Research

FIGURE 29 Prices rarely stay above 1.5x sales

Source: Compustat, Barclays Research

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We question if the market will pay peak multiples for engineered earnings


12 August 2014 15

Europe still matters One of our core beliefs is that top-line growth is too slow to justify further expansion of valuation multiples. There are many reasons why revenue growth has been disappointing, including a lack of capital expenditures as companies allocate cash flow to other alternatives such as share repurchases, but the primary one is subdued economic growth. In the U.S., which is the most important market for S&P 500 companies, economic expansion has not matched previous recoveries. Overseas, the conditions are in many cases worse. Europe is a good example, as this is the second most important market for S&P 500 companies and GDP is growing at less than 1%. As we show in Figure 30, economic growth expectations for the Euro area have diminished since the beginning of the year, and the Euro has responded to potential monetary easing by falling against the U.S. dollar. In addition, peripheral banking system risk has re-emerged with a crisis in Portugal. Still, U.S. equities have largely shrugged it off. We believe U.S. equity investors should continue to monitor Europe closely because a revenue growth revival will be difficult to achieve if this important market does not begin growing faster soon.

FIGURE 30 Weakness in Europe has not translated into weakness in U.S. equities

Source: Haver Analytics, Bloomberg, FactSet, Barclays Research. Data as of 8/8/14.


12 August 2014 16

U.S. equities are expensive compared to other equity markets Lastly, we note that U.S. equities are already expensive compared to other global markets. Our global equity strategists prefer Europe, UK, or emerging markets equities compared to the U.S. and fund flow data imply that a rotation out of U.S. equities is occurring. We expect it to continue. The rally in global stock prices began in the U.S. and other parts of the world have still not caught up. In Europe, the sovereign debt crisis contributed to risk-aversion that persisted into 2012 and has still not fully faded. Figure 31 shows that European stocks are at a substantial discount compared to U.S. stocks based on price-to-book value. In emerging markets, geo-political tension and continued concern about the implications of higher U.S. interest rates have weighed on valuations, with stocks broadly trading at a material discount to developed markets based on price-to-book. Our global equity strategists do not believe this discount is justified and they recommend an overweight stance in emerging market equities. In fact, based on a sector and cyclically-adjusted price-to-earnings measure, the U.S. screens as one of the most expensive equity markets in the world (Figure 32).

FIGURE 31 U.S. stocks are more expensive than Europe based on price-to-book…

FIGURE 32 …and are among the most expensive global markets based on SCAPE (Sector and Cyclically Adjusted Price-to-Earnings)

Source: MSCI, Barclays Research. Data as of 6/30/14. Source: Macro Daily Focus: Is the US Equity Overvaluation Real?, Barclays Research.

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12 August 2014 17

Our S&P 500 price targets are 1975 for 2014 and 2100 for 2015 Until organic revenue growth accelerates we expect stable multiples and returns that track EPS growth. We are setting our 2014 and 2015 price targets for the S&P 500 at 1975 and 2100, respectively. These price targets incorporate our expectation of 7% earnings growth in 2014, 8% earnings growth in 2015, and stable valuation multiples. If our price targets are realized, the S&P 500 will increase by 7% in 2014 and 6% in 2015, transitioning out of a recovery rally into a period of lower returns.

We expect EPS growth of 7% in 2014 and 8% in 2015 As mentioned, we do not expect further expansion of the S&P 500’s price-to-earnings multiple and therefore believe returns will be constrained to the growth rate of earnings. This growth rate, in our opinion will be 7% for 2014 and 8% for 2015. S&P 500 EPS was $100 in 2013, leading us to estimates of $107 for year-end 2014 and $116 for year-end 2015. On an adjusted basis our estimates are $117 for 2014 and $127 for 2015. Bottom-up consensus estimates for S&P 500 earnings per share are $118 in 2014 and $133 in 2015 and our estimates are therefore in line with consensus for 2014 and below consensus for 2015.

FIGURE 33 We forecast S&P 500 EPS growth of 7% in 2014 and 8% in 2015


For 2014, our top-down model indicates EPS growth of 7%. This model, which has had good predictive power for short-term forecasts, uses oil prices, employment, and currency rates to predict the growth of earnings for non-financial companies. These inputs are sensible given the importance of employment patterns as a signal of growth, confidence, and spending; the importance of oil as the primary source of U.S. energy; and the importance of the dollar to the numerous companies in the S&P 500 with foreign operations, suppliers, or buyers. Regression analysis indicates the combination of these three inputs provides the most insight among the more than 40 variables we tested. For 2015, however, this model differs materially from bottom-up consensus, indicating EPS growth of around 5%. This weak result is largely due to a strengthening of the dollar.

To reveal where the growth acceleration predicted by consensus for 2015 is expected to come from, we display bottom-up expectations by sector in Figure 34. The materials sector has the highest projected growth rate in 2015, led by construction materials and metals and mining, but given the small size of the sector, it contributes little to the overall growth rate. In consumer discretionary, which at 19% has the second the highest 2015 projected growth rates, autos and internet retail are the primary contributors. Financials are also projected to

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12 August 2014 18

grow earnings rapidly with banks and REITs both expected to be up more than 15% in 2015. Three large sectors that have projected growth rates in line with the broader index are health care, industrials, and technology. Within health care, biotech is expected to grow rapidly, with health care technology also strong. Within industrials the fastest growth is expected from building products and construction and engineering. In technology, rapid growth from internet software, electronic equipment, and IT services offsets weaker projected growth from communications equipment and semiconductors.

FIGURE 34 S&P 500 bottom-up consensus EPS estimates by sector

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% change 82% -30% 14% 7% 20%

S&P 500 100 104 110 118 133

% change 19% 3% 6% 8% 12% Source: FactSet, Barclays Research. Data as of 8/10/14.

Common among these expectations is a prediction of further margin expansion, with bottom up consensus calling for margins to expand to 10.9% in 2015. This is a robust improvement over an already cyclically high margin and it appears optimistic at the aggregate level, in our opinion, based on macro indications of profit. One such indicator of aggregate profits that we follow is ISM new orders. There is a strong relationship between ISM new orders and S&P 500 net income growth, and we note that the earnings growth projected by consensus in 2015 generally coincides with readings that are consistently between 58 and 60 (Figure 35). While this is possible, we believe it is more likely that EPS growth expectations will move lower.

The consensus forecasted improvement over an already cyclically high margin appears optimistic at the aggregate level


12 August 2014 19

FIGURE 35 12% EPS growth generally coincides with ISM new orders of 58-60


Overweight financials, energy, technology, and industrials We believe the market is transitioning into a period of lower returns as the benefits of margin expansion and share repurchases prove to be already priced in and a return of revenue growth becomes a prerequisite for another re-rating higher. Considering this thesis, we recommend overweighting sectors that have undemanding valuations that do not depend on growth achievement and have potential positive catalysts. This fits into our approach to selecting sectors, which considers valuation, growth, positive catalysts, and risks (Figure 36). The sectors that we consider most attractive are financials, energy, technology, and industrials.

We recommend an Overweight position in financials because the sector has attractive valuation that is not dependent on growth and is poised to benefit from higher interest rates. The energy sector is also cheap compared to history and it appears that a re-rating higher has commenced, with further upside if oil prices increase. The technology sector is inexpensive in relation to the S&P 500 despite record high margins and robust share repurchase activity and we believe valuation gains will occur. Industrials are poised to benefit from the ongoing recovery in capital expenditures and valuation still has upside, in our opinion, so we also recommend an Overweight to this sector.

Conversely, we believe the consumer staples sector is expensive when valuation is considered in relation to its growth prospects, as it has the highest price-to-earnings growth ratio. Similarly, we recommend an Underweight allocation to health care because growth prospects do not justify its premium valuation, in our opinion. Figure 37 displays select valuation measures at the sector level along with key secondary considerations.

We note that our sector calls are closely aligned with our Global Equity Strategy team’s recommended global sector weightings, which call for above benchmark positions in energy, industrials, financials, and technology against below benchmark positions in health care and consumer staples, in addition to materials and consumer discretionary. See Global Equity Strategy: Changes to our Barclays Global Recommended Portfolio for a list of recommended stocks.

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We recommend overweighting sectors that have undemanding valuations that do not depend on growth achievement and have potential positive catalysts




12 August 2014 20

FIGURE 36 Key sector selection considerations


FIGURE 37 Valuation measures with secondary considerations

Source: Compustat, Barclays Research. Data as of 08/05/14.

Valuation Growth

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- Price-to-sales - EPS growth

- Price-to-book value - Growth opportunities

- EV-to-EBITDA - Growth impediments

Positive catalysts Risks

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- Industry - Regulatory

- Flows - Volatility

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Financials 13.4x 8% Financials 1.2x 8%

Telecom 13.6x 30% Utilities 1.6x 8%

Energy 13.8x 8% Energy 2.1x 12%

Technology 14.8x 6% Industrials 3.1x 19%

Industrials 15.1x 8% Materials 3.1x 14%

Utilities 15.2x 4% Telecom 3.3x 26%

Health Care 16.2x 14% Technology 3.5x 20%

Materials 16.4x 7% Health Care 3.7x 16%

Staples 16.7x 4% Discretionary 4.0x 20%

Discretionary 17.2x 6% Staples 4.3x 23%

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Sector: Value Margin Sector: Value Payout ratio

Staples 1.1x 6.0% Telecom 4.8% 66%

Energy 1.2x 7.3% Utilities 3.8% 58%

Discretionary 1.3x 6.6% Staples 2.8% 46%

Telecom 1.5x 11.8% Energy 2.2% 31%

Industrials 1.5x 9.2% Health Care 2.2% 36%

Utilities 1.5x 7.9% Industrials 2.1% 32%

Materials 1.5x 6.8% Materials 2.0% 33%

Health Care 1.8x 7.7% Technology 2.0% 29%

Financials 1.9x 13.1% Financials 2.0% 26%

Technology 2.9x 17.0% Discretionary 1.9% 32%


12 August 2014 21

Financials (Overweight) – cheap and leveraged to higher interest rates The financial sector remains one of the cheapest in the S&P 500, having the lowest price-to-book ratio and price-to-forward earnings ratio. The sector’s price has recovered from the depths of 2009, but it remains 20% below where it was 10 years ago. There are obvious reasons for this, primarily the structural decline in return on equity at banks that has been caused by higher regulatory capital ratios; not to mention weaker trading revenue, sluggish loan growth, and exceptional legal costs.

Still, we believe some good news is finally approaching. If interest rates rise along the path that the Federal Reserve is projecting, banks should be able to reverse the 20-year trend of declining net interest margins. As shown in Figure 38, net interest margins at banks are correlated to absolute interest rate levels, and have followed rates lower for two decades. Interest income represents 60% of revenue at the average bank in the S&P 500 and most banks are asset sensitive, meaning their balance sheets are positioned to respond favorably to higher interest rates. In addition, banks will benefit from the economic conditions that typically coincide with higher interest rates, such as lower unemployment. Banks are not alone among the financial sector constituents that are positively geared to higher rates, with life insurance companies also positioned to benefit as revenue pressure abates and hedging costs decline. Banks and life insurers comprise more than half the market capitalization of the financial sector. REITs, which are less well positioned given their bond-substitute status, are 14% of the sector and property & casualty insurers, which are contending with a soft pricing environment, are 9%, excluding Berkshire Hathaway. Considering that the financial sector remains inexpensive, we believe the benefits of higher interest rates can be matched with price gains, leading to outperformance in relation to the S&P 500.

We like financials on valuation and positive rate exposure

Banks and life insurance companies are positively geared to higher rates

FIGURE 38 Bank net interest margins have declined alongside interest rates

Source: Federal Reserve, Haver Analytics, Barclays Research

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If interest rates rise along the path that the Federal Reserve is projecting, banks should be able to reverse the 20-year trend of declining net interest margins.


12 August 2014 22

Energy (Overweight) – cheap and leveraged to higher oil prices The energy sector is also among the cheapest in the S&P 500, having the third lowest price-to-forward earnings ratio and price-to-book value ratio. As shown in Figure 39, the price-to-book value ratio of the energy sector has been declining in relation to the price-to-book value ratio of the S&P 500 since 2008, when oil prices collapsed. This trend continued despite the recovery in global economic conditions and maintenance of an oil price around $100 per barrel. While a below average price-to-book may be justified by the capital intensity of the industry, we note that it has rarely over the past 40 years been below the current level in relation to the S&P 500.

In fact, other periods where the relative ratio was below 0.8x occurred in the late 1980s and early 1990s, when oil prices were generally below $20 per barrel. It appears that a re-rating higher is occurring. Year to date, the energy sector has outperformed the S&P 500. Geo-political events in oil producing countries such as Iraq pushed prices higher earlier this year and demand remains elevated while global spare capacity is declining. This has contributed to relative share price gains, in our opinion. Regardless of the near-term direction of oil, we believe the energy sector’s outperformance can continue because valuation is still attractive. We recommend an Overweight allocation.

The energy sector is cheap and leveraged to higher oil prices

FIGURE 39 Energy has re-rated lower over the last few years but a recovery is occurring

Source: Haver Analytics, Barclays Research. Data as of 08/05/14.

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While a below average price-to-book may be justified by the capital intensity of the industry, we note that it has rarely over the past 40 years been below the current level in relation to the S&P 500.


12 August 2014 23

Technology (Overweight) – undemanding valuation on record margins The expansion of profit margins has been one of the primary justifications for the increase in stock prices over the past few years. As discussed earlier, margins are at cyclical highs and expected to continue to increase. The sector that best exemplifies this theme is information technology. Margins in the technology sector are at a record high, based on our data, which has 40 years of history. This margin expansion has been driven by strong growth that spurred operating leverage and lower taxes, with Apple deserving special mention for its exceptional margins and material market cap effect on the sector.

Many technology companies have benefitted from the lower tax rates applied to foreign earnings, and we believe declining tax rates have had a disproportionally large effect on this sector. In addition, the technology sector has repurchased more stock than any other sector, by our estimates, illustrating another important theme for the market. Considering these trends of record high margins and robust share repurchase activity the technology sector could be expected to have exceptionally high valuation multiples. This is not the case. In fact, the technology sector is trading below the S&P 500 based on forward price-to-earnings. This is in contrast to history, as the sector has almost always commanded a premium valuation (Figure 40). It does have an elevated price-to-book value ratio, at 3.5x, but this is justified by a return on equity that is more than 20%. Overall, we believe the technology sector has undemanding valuation and we believe further upside exists: Overweight.

Technology has a multiple that is less than the market even though margins are at a record high

FIGURE 40 The technology sector does not have a premium valuation despite record margins


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12 August 2014 24

Industrials (Overweight) – valuation upside as capex recovers We believe companies have underinvested in capital expenditures this cycle as there has been more focus on returning cash to shareholders and less on investing for future organic growth. As shown in Figure 41, capital expenditures bottomed at 5.0% of sales in the summer of 2010 before beginning a steady recovery to 6.3%. It is still well below prior peaks, however, which usually occur closer to 8% of sales. This is surprising, given the success of quantitative easing, as indicated by a strong stock market and elevated business confidence. Still, economic data indicates the growth in capital expenditures is gaining pace. A normalized average from a number of regional surveys shows an upwards trajectory (Figure 42); bottom up indicators from automation, robotics, and oil exploration indicate increased capital spending; and data from the banking system further confirm these trends with commercial and industrial lending up 10% year-on-year.

Our industrials and global equity strategy teams both recently noted the improving outlook for capital expenditures and recommended investors buy industrial equities. We agree. In our opinion the sector still has valuation upside in relation to the S&P 500. Forward price-to-earnings for the industrials sector is 15x, which is in line with the S&P 500. The sector has often traded at a premium multiple. Other measures, such as enterprise value to EBITDA also indicate a sector that retains upside, in our opinion. We calculate enterprise value to EBITDA to be approximately 10x, which is similar to the 10y average. We believe the recent underperformance of the industrials sector in relation to the S&P 500 should reverse and recommend an Overweight position.

Industrial valuation still has upside and capex is recovering

FIGURE 41 S&P 500 capital expenditures to sales ratio

FIGURE 42 Capital expenditure expectations remain robust

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The recent underperformance of the industrials sector in relation to the S&P 500 should reverse.


12 August 2014 25

Consumer staples (Underweight) – expensive compared to history and expected growth Contrary to financials and energy, the consumer staples sector is one of the most expensive in the S&P 500, having the highest price-to-book value ratio and second highest price-to-forward earnings ratio. While a premium valuation may be warranted given the sector’s predictable long-term cash flow, measures have begun to look stretched in relation to history and in relation to earnings growth.

We acknowledge that price-to-book may not be the best measure for this sector given that many companies operate with minimum shareholders equity and considering that intangible assets such as brands may not be fully valued on balance sheets. But, outside of price-to-book value, other valuation multiples are also high, as indicated by Figure 43, which shows the long-term trend in enterprise value to EBITDA and forward price-to-earnings. On enterprise value to EBITDA, the sector’s current multiple of more than 11x has rarely occurred since the early 2000s. In fact, over the past 40 years the staples sector has only had a higher multiple 11% of the time, as measured monthly. On forward price-to-earnings, consumer discretionary has a higher ratio, but it also has a higher growth rate. EPS growth in 2014 is predicted to be 6% for consumer discretionary, compared to 4% for consumer staples. Outside of utilities, every sector in the S&P 500 is expected to grow EPS faster than staples in 2014. Some of these valuation concerns may already be weighing on the consumer staples sector, as it has underperformed the S&P 500 year to date. We still see better valuation elsewhere and recommend an Underweight allocation.

Growth does not support valuation in staples

FIGURE 43 Consumer staples long-term valuation measures

Source: Compustat, Barclays Research. Data as of 8/5/14.

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Over the past 40 years the staples sector has only had a higher multiple 11% of the time.


12 August 2014 26

Health care (Underweight) – no longer growing fast enough for premium valuation Slower top-line growth is a defining feature of the current market and it affects most sectors. Health care has not been immune. Over the last three years, the sales growth rate of the health care sector has barely exceeded the sales growth rate of the S&P 500. Still, over this same time horizon, the health care sector has surged, creating elevated returns and leading to valuation multiples that are now relatively expensive. At 16.2x the health care sector’s forward price-to-earnings trails only materials and the consumer sectors. Price-to-book value, at 3.7x is back close to the high levels last maintained prior to 2008.

As shown in Figure 44, health care has regained its premium valuation in relation to the market, as measured by a forward price-to-earnings in excess of the S&P 500. This is not unusual, as from 1994 until the onset of the financial crisis, the health care sector always had a higher multiple than the S&P 500. But going forward, we believe further expansion of the gap is unlikely, as the growth engine of health care earnings – spending on health care – has slowed. Note that our analyst recently downgraded the U.S. major pharmaceutical industry, which is the largest industry in the health care sector, to Neutral from Positive. This was largely due to valuation that was no longer compelling and limited top-line growth opportunities, which is in line with our outlook on the broader market.

Health care growth has slowed but valuation remains lofty

FIGURE 44 The health care sector has regained its premium valuation even as growth may be slowing

Source: Haver Analytics, Barclays Research. Data as of 8/5/14.

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12 August 2014 27

Utilities (Market Weight) – reasonable valuation but exposed to higher interest rates 2014 has been the year of the utility sector. It is up 9%, exceeding the S&P 500 and ranking among the best performing sectors in the index. We attribute this to the unexpected decline in interest rates that has occurred this year (Figure 45). Utilities were considered to be negatively exposed to higher interest rates because of their status as a bond-surrogate, offering a stable dividend yield that exceeded the yield available in the government bond or investment grade credit markets.

Following this year’s outperformance, valuation measures are still reasonable in absolute terms, although they are beginning to look full in relation to history. On price-to-book value, utilities screen as one of the cheapest sectors, with a multiple of 1.6x. But, this is high in relation to history and constrained by the regulation of returns on capital. On forward price-to-earnings, the sector’s multiple has become elevated, reaching more than 15x, which is uncommon. In fact, over the past 40 years, the sector has had a multiple of more than 15x only 15% of the time, measured monthly. The long-term average is 11x. Still, valuation is only one concern for the utilities sector. The other is negative correlation to interest rates. Our rates strategists predict that U.S. interest rates will increase and our regression analysis indicates that the utilities sector is the most sensitive to changes in interest rates. For every 100bp increase in interest rates, the utilities sector would decline by 5%, based on our multi-factor regression analysis, which is double the indicated decline of the next most sensitive sector.

Utilities is the most negatively correlated sector to higher interest rates

For every 100bp increase in interest rates, utilities would decline by 5%, double the indicated decline of the next most sensitive sector

FIGURE 45 The utility sector has outperformed in 2014 as interest rates have fallen


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Over the past 40 years, the sector has had a multiple of more than 15x only 15% of the time.


12 August 2014 28

Consumer discretionary (Market Weight) – expensive but not out of line with the index The consumer discretionary sector also enjoys a premium valuation in relation to most other sectors, but it is not out of line with history and it is supported by better growth. At 17.2x, the sector’s forward price-to-earnings ratio is the highest in the index. Price-to-book, which we believe is a less important measure for this sector, is also elevated, at 4x. Justifying these multiples are valuation measures such as return on equity, which at 20% is among

the highest of any sector, and earnings growth, which is projected to be strong in 2015.

For 2014, consumer discretionary EPS is projected to grow at a similar rate to the index, but, as mentioned earlier, growth is predicted to accelerate sharply in 2015. Consensus expectations call for 19% EPS growth in the consumer discretionary sector in 2015. While we recognize that valuation multiples are high in an absolute sense, we note that they are not out of line in relation to the index. In other words, consumer discretionary usually trades with a higher price-to-earnings ratio than the S&P 500. As shown in Figure 46, the relative PE of the sector to the S&P 500 has remained in a narrow band during the last five years, generally between 1.1x and 1.2x. The last time the sector had a lower forward price-to-earnings multiple than the S&P 500 was in 2000, and even then it only lasted a few months. While we believe that the sector is unlikely to outperform given its already high valuation, underperformance should be limited. We recommend a Market Weight allocation.

Given its high valuation, consumer discretionary is unlikely to outperform

FIGURE 46 The relative forward PE of consumer discretionary has been stable vs. the S&P 500


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The last time the sector had a lower forward price-to-earnings multiple than the S&P 500 was in 2000, and even then it only lasted a few months.


12 August 2014 29

Materials and Telecommunications – Market Weight On an absolute basis, the materials sector, which is only 3.5% of the S&P 500, is modestly expensive in relation to its long-term history. Over the last forty years, price-to-book value has averaged 1.9x and forward price-to-earnings have averaged 13x, compared to current levels of 3.1x and 16.4x, respectively. Enterprise value to sales, which is a relevant measure for this sector, is at 1.8x compared to a long-term average of 1.2x. These elevated valuation measures reflect the higher level of the market in general compared to long-term history and expectations of a continued global growth recovery, which should be supportive of earnings for the materials sector.

We note that the materials sector has the highest projected EPS growth rate in 2015, based on bottom up consensus, at 20%. This is largely driven by construction materials and metals and mining, although the chemicals industry, which is almost 75% of the market capitalization of the sector, is also predicted to grow earnings rapidly. We recommend a Market Weight allocation to materials as we believe performance will remain aligned with the broader market.

The telecommunications sector is less than 3% of the S&P 500 and is dominated by AT&T and Verizon, two companies that combined equate to 92% of the market capitalization of the sector. Still, an analysis of valuation at the sector level indicates cheapness, with measures such as forward price to earnings and enterprise value to EBITDA well below the S&P 500. The telecommunications sector has the second lowest price to forward earnings ratio in the index and enterprise value to EBITDA is more than three turns lower than the S&P 500. In addition, the sector boasts the highest dividend yield of any sector. Despite this, we recommend a Market Weight allocation. Our concern is that higher interest rates will constrain performance, similar to the utilities sector. Our analysis indicates that the telecommunications sector has the second highest negative correlation to interest rates, after utilities. We expect the telecommunications sector’s relatively cheap valuation to remain until expectations of higher interest rates are either realized or discarded, impeding outperformance.

Strong EPS growth in materials supports slightly elevated valuations; we expect sector to perform in line with the market

Telecom boasts the highest dividend yield of any sector. However, we are concerned that higher interest rates will constrain performance

Our concern is that higher interest rates will constrain performance, similar to the utilities sector.

Enterprise value to sales, which is a relevant measure for this sector, is at 1.8x compared to a long-term average of 1.2x.


12 August 2014 30

ANALYST(S) CERTIFICATION(S):

I, Jonathan Glionna, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

IMPORTANT DISCLOSURES CONTINUED

Barclays Research is a part of the Corporate and Investment Banking division of Barclays Bank PLC and its affiliates (collectively and each individually, "Barclays"). For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Research Compliance, 745 Seventh Avenue, 14th Floor, New York, NY 10019 or refer to http://publicresearch.barclays.com or call 212-526-1072.

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Guide to the Barclays Fundamental Equity Research Rating System:

Our coverage analysts use a relative rating system in which they rate stocks as Overweight, Equal Weight or Underweight (see definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry (the "industry coverage universe").

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Stock Rating

Overweight - The stock is expected to outperform the unweighted expected total return of the industry coverage universe over a 12-month investment horizon.

Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the industry coverage universe over a 12-month investment horizon.

Underweight - The stock is expected to underperform the unweighted expected total return of the industry coverage universe over a 12-month investment horizon.

Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or tocomply with applicable regulations and/or firm policies in certain circumstances including where the Corporate and Investment Banking Divisionof Barclays is acting in an advisory capacity in a merger or strategic transaction involving the company.

Industry View

Positive - industry coverage universe fundamentals/valuations are improving.

Neutral - industry coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.

Negative - industry coverage universe fundamentals/valuations are deteriorating.

Below is the list of companies that constitute the "industry coverage universe":

Distribution of Ratings:

Barclays Equity Research has 2580 companies under coverage.

45% have been assigned an Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 55% of companies with this rating are investment banking clients of the Firm.


12 August 2014 31

IMPORTANT DISCLOSURES CONTINUED

39% have been assigned an Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 46% of companies with this rating are investment banking clients of the Firm.

14% have been assigned an Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 42% of companies with this rating are investment banking clients of the Firm.

Guide to the Barclays Research Price Target:

Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock will trade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's pricetarget over the same 12-month period.

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