Standard and Poors 500 Guide 2013

Abbott Laboratories

S&P Recommendation

Price

$64.96 (as of Nov 2, 2012)

12-Mo. Target Price

$76.00

Investment Style

Large-Cap Growth

GICS Sector Health Care

Sub-Industry Pharmaceuticals

Summary This diversified life science company is planning to split into two publicly traded companies, one in diversified medical products and the other in research-based pharmaceuticals.

Key Stock Statistics (Source S&P, Vickers, company reports)

Options: ASE, CBOE, P, Ph

Analysis prepared by Equity Analyst Herman Saftlas on Oct 22, 2012, when the stock traded at $65.76.

Highlights

ABT plans to spin off its R&D-based drug business in the form of shares of a new publicly traded firm called Abbvie (proposed NYSE symbol ABBV). We project Abbvie’s sales in 2013 would be modestly above the $18 billion that we forecast for 2012, with growth in the principal Humira franchise roughly offsetting generic erosion in lipid-lowering drug lines. Assuming the issuance of one new Abbvie share for each presently traded ABT share, we estimate Abbvie’s EPS for 2013 would be about $3.30.

We estimate 2013 sales of the remaining diversified healthcare business (legacy Abbott) to rise about 5% from the $21.7 billion that we estimate for 2012. Despite likely weakness in vascular products, we see strength in diagnostics, nutritionals and branded generic drugs. Helped by projected improvement in gross margins, tight control over costs, and taxes at a rate modestly below the pro-forma 23% that we see for 2012, we estimate legacy Abbott’s EPS at $2.25 for 2013.

For Abbott as presently constituted, we estimate EPS of $5.08 for 2012, and $5.55 for 2013.

Investment Rationale/Risk

Effective January 1, 2013, ABT plans to spin off to shareholders its R&D-based drug business in the form of shares of a new publicly traded firm called Abbvie, subject to customary approvals. We expect Abbvie to have sales of $18 billion in 2012, about half generated by Humira. The remaining diversified healthcare products businesses will retain the Abbott name. Legacy Abbott sales are indicated at $23 billion for 2012, in our view, comprising nutritionals, diagnostics, devices and branded generics. We believe the spin-off will result in higher valuations for each company, with investors better able to focus and appreciate the respective growth potential of each firm.

Risks to our recommendation and target price include failure to successfully execute the planned split-up, as well as possible pipeline setbacks.

Our 12-month target price of $76 applies a peer-level multiple of 13.7X to our 2013 EPS estimate. Our sum-of-the-parts analysis also indicates inherent worth of about $76. ABT plans a $1.60 annual dividend for Abbvie, and a $0.56 annual dividend for Abbott.

Qualitative Risk Assessment

Our risk assessment reflects Abbott’s operations in competitive markets and its exposure to the potential for generic competition. However, we believe the company has a relatively strong new product pipeline, with possible significant launches in medical device and pharmaceutical areas. We view the company as financially strong, with a sound balance sheet.

Business Summary October 22, 2012

CORPORATE OVERVIEW. Abbott Laboratories is a leading player in several growing health care markets. Through acquisitions, product diversification and R&D programs, ABT offers a wide range of prescription pharmaceuticals, infant and adult nutritionals, diagnostics, and medical devices.

During 2011, pharmaceuticals accounted for 58% of operating revenues, while nutritionals represented 15%, diagnostics contributed 11%, and vascular represented 9%. Sales of other products represented 7% of 2011 sales. Foreign sales accounted for 59% of total sales in 2011.

ABT’s Pharmaceutical Products Group markets a wide array of human therapeutics. Major products include: Humira to treat rheumatoid arthritis and psoriatic arthritis ($7.9 billion in 2011 sales); Kaletra, an anti-HIV medication ($1.2 billion); TriCor/Trilipix, cholesterol treatments ($1.7 billion); Niaspan, a niacin-based cholesterol treatment ($976 million); and Lupron, a treatment for prostate cancer ($810 million). This division was augmented by the $6.2 billion purchase of the Solvay drug business in February 2010.

Nutritionals fall under U.S.-based Ross Products and Abbott Nutrition International. Products include leading infant formulas sold under the Similac and Isomil names, as well as adult nutritionals, such as Ensure and ProSure for patients with special dietary needs, including cancer and diabetes patients. ABT also markets enteral feeding (tube fedding) items.

Abbott Diabetes Care markets the Precision and FreeStyle lines of hand-held glucose monitors for diabetes patients. This division also markets data management and point-of-care systems, insulin pumps and syringes, and Glucer-na shakes and nutrition bars tailored for diabetics.

Abbott Vascular markets coronary and carotid stents, catheters and guide wires, and products used for surgical closure. The principal product is the new Xience drug-eluting stent (DES), which is presently the leading product in the domestic DES market. Boston Scientific has marketed the Xience stent manufactured by Abbott under the Promus name under a distributor agreement with ABT. However, Boston Scientific is moving to replace Promus sales with its own proprietary Promus Element stent.

Abercrombie & Fitch Co.

S&P Recommendation

Price

$32.78 (as of Nov 2, 2012)

12-Mo. Target Price

$37.00

Investment Style

Large-Cap Growth

GICS Sector Consumer Discretionary

Sub-Industry Apparel Retail

Summary This apparel retailer, which specializes in lifestyle branding, operates over 1,000 retail apparel stores across four brands.

Key Stock Statistics (Source S&P, Vickers, company reports)

Options: ASE, CBOE, P, Ph

Analysis prepared by Equity Analyst Jason N. Asaeda on Aug 23, 2012, when the stock traded at $36.12.

Highlights

We see net sales reaching $4.38 billion in FY 13 (Jan.), driven by international expansion. ANF plans to open 5 flagship stores (4 A&F and 1 A&F/kids) and about 30 Hollister mall locations primarily in Europe. The company is paring back future international expansion, with a focus on under-penetrated markets to minimize cannibalization effects. In the U.S., we look for ANF to remain focused on closing underper-forming stores. The company has closed 135 stores since FY 11 and has identified another 180 stores for closure by FY 16. Given aggressive competition in the U.S. and a combination of macroeconomic headwinds and cannibalization effects in Europe, we project same-store sales to decline 9% in FY 13, versus increases of 5% in FY 12 and 7% in FY 11.

We expect EBIT margins to expand 8.0% in FY 13, from 7.6% in FY 12, supported by growth in ANF’s more productive international and e-commerce businesses and lower product costs in the fall season, partially offset by deleveraging of operating expenses.

Assuming limited share repurchase activity, we estimate EPS of $2.50 in FY 13, versus $2.31 (excluding $0.88 in charges) in FY 12.

Investment Rationale/Risk

We believe a combination of high-quality products and engaging store shopping experiences lend both the A&F and Hollister brands strong global appeal. We also look for the recent opening of Gilly Hicks stores in the U.K. and Germany to determine if this young woman’s intimate brand has international growth potential. That being said, we expect sales trends in Europe to remain weak until the macroeconomic backdrop improves. In the U.S., we see potential for ANF’s focus on bringing inventories more in line with sales trends, on shortening its product development calendar, and on strengthening its customer relationships to drive higher U.S. store productivity in FY 14.

Risks to our recommendation and target price include significant deterioration in the global macroeconomic environment, fashion and inventory risk, and difficulties in opening international stores.

We arrive at our 12-month target price of $37 by applying a multiple of 12X to our FY 14 EPS estimate. Given near-term headwinds for the company, we think the shares should trade at a discount to their 10-year historical average forward P/E multiple of 16X.

Qualitative Risk Assessment

Our risk assessment reflects our view of ANF’s strong balance sheet and cash flows, offset by a consumer base whose tastes change constantly.

Business Summary August 23, 2012

CORPORATE OVERVIEW. Abercrombie & Fitch, established in 1892, operates four branded retail concepts: Abercrombie & Fitch (279 domestic, 15 international stores as of April 28, 2012), abercrombie kids (154, 5), Hollister Co. (491, 84), and Gilly Hicks (18, 3), and e-commerce sites for each concept. Each targets a different age demographic, minimizing cannibalization, and all employ casual luxury positioning.

MARKET PROFILE. The company participates in the specialty apparel retail market targeted at youth, spanning the tween to young adult demographic, an age group that includes seven to 24 year olds. While the U.S. apparel market is considered mature, with demand mirroring population growth and a modicum related to fashion, the youth marketplace is generally considered attractive based on its spending clout. According to The NPD Group consumer data, collectively, this group accounts for approximately 31% of total apparel spending, with the sweet spot being teenagers, who represent about 18%.

COMPETITIVE LANDSCAPE. The retail landscape is consolidating, with share accruing to the mass merchants and specialty chains while the traditional department store is losing ground. Specialty chains compete on customer knowledge garnered from daily interactions, focus groups and marketing intelligence, and this knowledge is often combined with high customer service levels to result in an attractive price/value equation for the consumer. ANF’s target demographic is attracted to strong brands, as well as fashion and value, when determining apparel selections. The specialty channel holds the largest share (33%) of the apparel market, according to NPD Group, with the trend/youth retailers garnering a 24% share of the specialty channel. With barriers to entry minimal (capital investment in merchandise, rent and labor expense) and potential returns on investment high and quick (four wall return on investment exceed 30% in 12 months for many specialty retailers), there was a steady flow of new industry participants through most of this decade, but more recently we’ve seen more store closures and slowed expansion plans. In addition to competing with other apparel retailers, regardless of channel, for youth discretionary spending, ANF competes with merchandise and services, especially consumer electronics and entertainment services.

Accenture Plc

S&P Recommendation

Price

$67.91 (as of Nov 2, 2012)

12-Mo. Target Price

$72.00

Investment Style

Large-Cap Growth

GICS Sector Information Technology

Sub-Industry IT Consulting & Other Services

Summary Ireland-based Accenture is a global management consulting, technology services and outsourcing company.

Key Stock Statistics (Source S&P, Vickers, company reports)

Options: ASE, CBOE, P, Ph

Analysis prepared by Equity Analyst Dylan Cathers on Oct 01, 2012, when the stock traded at $69.73.

Highlights

Revenue growth was 9.2% in FY 12 (Aug.). For FY 13, we look for growth of 5.5%, with a slight currency headwind. We believe the company will continue to see solid gains in its outsourcing business, despite a weak economic outlook. ACN is benefiting from clients looking for help to lower their costs. We believe technology outsourcing and business process outsourcing will remain areas of strength. Unsurprisingly, growth-oriented projects are softening; we point to the year-over-year decline in consulting bookings in the August quarter. Europe will likely continue to be an area of concern, as IT spending is delayed.

ACN’s goal is to make incremental improvements in operating margins, and it has been successful in doing so over the past few fiscal years. We expect this trend to continue in FY 13 with margins widening to about 14.1% from 13.9% in FY 12. We believe solid execution, steady levels of attrition and cost-containment measures will offset rising wages, the use of subcontractor labor and continued investments in the business.

EPS was $3.84 in FY 12, and we see $4.27 in FY 13, aided by fewer shares outstanding.

Investment Rationale/Risk

We recently lowered our recommendation on the shares to hold, from buy, based on valuation. We have some concerns about softness in management consulting services. However, we think that the company is well positioned, and we believe clients will look for help containing costs and improving their operations. Also, we believe Accenture is gaining market share versus larger rivals. Over the long term, we view ACN as well diversified across geographies, verticals and horizontals, which should give it an edge over competitors, in our view.

Risks to our recommendation and target price include the possibility of increased competition in the IT services and business process outsourcing markets, leading to pressure on pricing and profit margins, and a slowdown in demand for IT services in general.

Our 12-month target price of $72 is based on a peer-premium P/E of 16.5X our calendar 2013 EPS estimate of $4.36. We think a premium P/E is warranted given what we see as ACN’s healthy new bookings and a solid balance sheet that has nearly $6.6 billion in cash and cash equivalents and little debt.

Qualitative Risk Assessment

Our risk assessment reflects what we see as the highly competitive nature of the IT consulting and outsourcing market, offset by what we consider ACN’s strong balance sheet and widely diversified customer base.

Business Summary October 01, 2012

CORPORATE OVERVIEW. Accenture (formerly Andersen Consulting) is a leading global management consulting, technology services and outsourcing enterprise, with operations in 48 countries, serving 17 industries. The company seeks to use its extensive knowledge of industries and business processes to help clients identify new business and technology trends, and to formulate and implement solutions to boost revenue, enter new markets, and deliver products and services more efficiently. Clients include Fortune Global 500 and Fortune 1000 companies, as well as mid-sized enterprises and government entities.

ACN divides its efforts among five operating groups, which together represent 19 industries. The Communications and High Tech group includes the communications, electronics & high tech markets, and media & entertainment markets. Services aimed at solutions in these markets include mobile technology applications, network optimization, broadband, and Internet protocol solutions. Financial Services includes banking, capital markets and insurance. In its Health and Public Service group, the company works with health-service organizations to reduce costs and improve the quality of heathcare services. The public service side helps agencies reduce overall costs and improve service delivery to their citizens. The Products group is the largest, and it serves a broad array of industries from automotive to consumer goods & services to industrial equipment to life sciences to retail. The Resources group focuses on commodity-based industries, including chemicals, energy, natural resources, and utilities.

ACE Ltd

S&P Recommendation

Price

$77.50 (as of Nov 2, 2012)

12-Mo. Target Price

$89.00

Investment Style

Large-Cap Value

GICS Sector Financials

Sub-Industry Property & Casualty Insurance

Summary This specialty insurer provides commercial insurance and reinsurance for a diverse group of international clients. In July 2008, ACE redomesticated its holding company to Switzerland from the Cayman Islands.

Key Stock Statistics (Source S&P, Vickers, company reports)

Options: ASE, CBOE, P, Ph

Highlights

The 12-month target price for ACE has recently been changed to $89.00 from $85.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on ACE from MarketScope, see below.

10/24/12 12:27 pm ET…S&P MAINTAINS BUY OPINION ON SHARES OF ACE LIMITED (ACE 80.01****): We raise our 2012 operating EPS estimate by $0.43 to $7.96, 2013′s by $0.72 to $8.47, and our target price by $4 to $89. ACE reported Q3 operating EPS of $2.01, vs. $2.20, above our $1.60 estimate and the $1.82 Capital IQ consensus. Crop insurance losses of $0.28, vs. profits of $0.16, were offset by some other favorable claim trends, although prior year reserve releases were lower in the current quarter. Our $89 target price assums the shares trade at 10.5X our 2013 operating EPS estimate, at the upper end of ACE’s historical range. /C. Seifert

Qualitative Risk Assessment

Our risk assessment reflects our view of ACE as an opportunistic underwriter, offset by concerns we have about reserve levels in certain lines of business and the potential that credit quality in ACE’s fixed income investment portfolio could deteriorate.

Business Summary September 14, 2012

CORPORATE OVERVIEW. ACE Ltd. underwrites an array of insurance and reinsurance, and also provides funds to support underwriting capacity for Lloyd’s syndicates managed by Lloyd’s managing agencies. Net earned premiums totaled $15.4 billion in 2011 (up 14% from $13.5 billion in 2010), with North American Insurance operations accounting for 45%, Overseas General Insurance for 37%, Global Reinsurance for 7%, and Life Insurance and Reinsurance for 11%. Underwriting results deteriorated in 2011, but remained profitable. The combined loss and expense ratio ended the year at 94.6%, versus 90.2% in 2010. Included in these results was the loss ratio, which totaled 65.7% in 2011, versus 59.2% in 2010. The expense ratio improved a bit, to 28.9% in 2011 from 31.0% in 2010.

Insurance - North America provides property and casualty insurance and reinsurance coverage, including excess liability, professional lines, satellite, excess property and political risk, to a diverse group of industrial, commercial and other enterprises.

Insurance - Overseas General includes the operations of ACE International, which provides property and casualty insurance, accident and health insurance and consumer-oriented products to individuals, mid-sized firms and large commercial clients. It also provides customized and comprehensive insurance policies and services to multinational companies and their cross-border subsidiaries. In addition, the segment includes the insurance operations of ACE Global Markets, which mainly encompasses operations in the Lloyd’s market.

Global Reinsurance includes the operations of ACE Tempest Re and several other subsidiaries that mainly provide property catastrophe reinsurance worldwide to insurers of commercial and personal property.

Life Insurance and Reinsurance includes the operations of ACE Tempest Re and ACE International Life and businesses of Combined Insurance. ACE Tempest Re offers traditional life reinsurance products and an array of other reinsurance products aimed at helping life insurance companies manage their mortality, morbidity, lapse and/or capital market risks. ACE International Life offers individual life and group insurance and savings products in Indonesia, Thailand, Vietnam, Taiwan, UAE, China, Egypt, Europe and Latin America. On April 28, 2004, ACE sold approximately 65% of Assured Guaranty Ltd. (NYSE: AGO) in an initial public offering that netted ACE about $835 million.

Adobe Systems Inc

S&P Recommendation

Price

$34.39 (as of Nov 2, 2012)

12-Mo. Target Price

$34.00

Investment Style

Large-Cap Growth

GICS Sector Information Technology

Sub-Industry Application Software

Summary This company provides software for multimedia content creation, distribution, and management.

Key Stock Statistics (Source S&P, Vickers, company reports)

Options: ASE, CBOE, P, Ph

Analysis prepared by Equity Analyst Scott Kessler on Sep 25, 2012, when the stock traded at $33.44.

Highlights

We estimate that sales will rise around 5% in FY 12 (Nov.), reflecting growth from client migrations to new versions of existing products such as Creative Suite and Acrobat, and contributions from acquisitions. We see global economic conditions influencing sales, and ongoing weakness in Europe and past natural disasters in Japan temper our outlook. We look for sales to also rise 5% in FY 13.

We think non-GAAP operating margins will be flat in FY 12 at around 37%. We expect ADBE to be aided by cost containment measures, but we see a less favorable revenue mix. We also note expenses such as R&D and sales and marketing trending higher due to hiring as well as added headcount from M&A. We look for operating margins to improve in FY 13 to 39%, as ADBE continues to invest and scale operations in the context of new offerings, but benefits from prior spending and scale attributes.

We estimate GAAP-driven EPS of $1.70 for FY 12 and $2.05 for FY 13. In our projections, we include the impact of stock-based compensation expenses that are often excluded from others’ forecasts.

Investment Rationale/Risk

We have been encouraged by recent healthy gains in sales of products such as Acrobat and Creative Suite, and in subscriptions. However, we are concerned about growth in certain regions, including Europe and Japan. We view favorably ADBE’s move to release mid-cycle versions of Creative Suite, which incorporate more frequent updates amid rapid technological change. We look for somewhat smaller strategic acquisitions ahead as ADBE seeks faster sales growth. Nonetheless, we expect much of ADBE’s future growth to be organic.

Risks to our recommendation and target price include the potential for weak demand for new products, loss of share to competing products or standards, and lack of support from makers of popular hardware platforms.

Our 12-month target price of $34 is based on P/E and P/E-to-growth (PEG) analysis. Applying the recent P/E of the S&P Applications Software sub-industry, allowing for a premium due to ADBE size and market positioning, results in a price of $38. Similar PEG-driven calculations yield a price of $23. Weighting these inputs leads to our 12-month target price.

Qualitative Risk Assessment

Our risk assessment reflects the regularly changing nature of the software arena, and our view that the success of new products will depend on the global economic environment. These factors are offset by our view of the company’s size and market leadership, strong operating history, and solid balance sheet.

Dividend Data

No cash dividends have been paid since 2005.

Business Summary September 25, 2012

CORPORATE OVERVIEW. Adobe Systems (founded in 1982) is one of the world’s largest software companies. It offers creative, business and mobile software and services used by consumers, artistic professionals, designers, knowledge workers, original equipment manufacturers, developers and enterprises for producing, managing, delivering and experiencing content across multiple operating systems, devices and media. Some of the company’s core products include: Acrobat (for document creation, distribution and management), Illustrator (to make graphic artwork) and Photoshop (for photo design, enhancement and editing). In 2005, ADBE acquired Macromedia, a leading developer of software that enables the creation and consumption of digital content, for $3.5 billion in stock and related costs. Through this transaction, the company gained Macromedia’s significant products, including Dreamweaver (Web development) and Flash (which provides an environment to produce dynamic digital content).

While acquisition activity had been minor in the two subsequent fiscal years, ADBE acquired Web analytics company Omniture for $1.7 billion in 2009. ADBE reasoned that its products offered the tools to create online content and, with Omniture, it could now help customers measure the efficacy of such content and thus allow them to better monetize it. The company acquired Swiss enterprise content management software provider Day Software in 2010, for about $240 million. In 2011, ADBE bought Efficient Frontier, a digital performance marketing company, for $375 million.

The company’s software runs on Microsoft Windows, Apple Mac OS, Linux, UNIX and other non-PC platforms. ADBE is making a push to provide solutions that can develop content for connected devices such as smartphones. ADBE participates in the Open Screen Project, with the aim of allowing developers of content to deliver their creations across connected devices that use the company’s Flash and Adobe Air technologies. Begun in 2008, the Open Screen Project included many top smartphone manufacturers as participants.

CORPORATE STRATEGY. ADBE’s indicated strategy is to address the needs of a variety of customers with offerings that support industry standards and can be deployed in a variety of contexts. We believe ADBE is focused on leveraging its market-leading software franchises with bundles and enhancements. Selling multiple products together has enabled ADBE to gain market share, increase penetration with existing customers, and expand its overall customer base. The Creative Suite is the company’s flagship bundled offering. Macromedia was acquired to further this strategy.

ADT Corp (The)

S&P Recommendation

Price

$42.86 (as of Nov 23, 2012)

12-Mo. Target Price

$46.00

Investment Style

Large-Cap Value

GICS Sector Industrials

Sub-Industry Security & Alarm Services

Summary Spun off from Tyco International in September 2012, ADT is believed to be the largest provider of electronic security, interactive home automation and related monitoring services in its two geographic markets of the U.S. and Canada.

Key Stock Statistics (Source S&P, Vickers, company reports)

Analysis prepared by Equity Analyst Michael Jaffe on Nov 20, 2012, when the stock traded at $42.25.

Highlights

We expect revenues to rise by 5% in FY 12 (Sep.), followed by another 5% advance in FY 13. We see these forecasted increases being driven by net customer additions, slight moderation in attrition rates, and higher average revenues per user (ARPU). We see ARPU being lifted by price hikes to certain existing customers, higher monthly rates being charged to new customers, and a higher proportion of ADT Pulse subscribers. ADT Pulse allows subscribers to remotely monitor and manage their home and businesses through their security systems, with that service generating about $10 per month more than the company’s standard services.

We see operating margins widening moderately in both FY 12 and FY 13. We expect the largest part of this forecasted improvement to be driven by our outlook for higher ARPU, efficiencies gained through certain restructuring actions taken in recent years, and other cost containment activities.

Our EPS forecasts are $1.78 in FY 12 and $1.90 in FY 13.

Investment Rationale/Risk

Based on our views of ADT’s prospects and operating model, and our relative P/E valuation model, we believe the shares are fairly valued. We think ADT operates in a business area that is only moderately cyclical, and find it favorable that it generates a large level of recurring revenues. We also think ADT will benefit from its recent spin-off from Tyco International (TYC 27, Hold), as management should be able to place greater focus on improving operating results.

Risks to our opinion and target price include a slower-than-expected economy causing homeowners and businesses to cancel or hold off on signing security services contracts, and the introduction of a particularly well received system by a competitor.

Our 12-month target price for ADT is $46, or 24X our calendar 2013 EPS forecast of $1.92. This valuation is a sizable premium to ADT’s peers, which we think is merited by the company’s large market share and its typically high levels of cash flow. However, in light of our limited growth outlook for ADT over the coming year, we think its recent trading level near 22X our calendar 2013 estimate is about appropriate.

Qualitative Risk Assessment

Our risk assessment for ADT reflects its typically high levels of cash flow generation, what we view as a business with only a limited amount of cyclicality, the company’s powerful position in North America, and what we view as a solid balance sheet.

Dividend Data

No cash dividends have been paid.

Business Summary November 20, 2012

CORPORATE OVERVIEW. The ADT Corporation became an independent company on September 28, 2012, when Tyco International (TYC 27, Hold) separated its businesses. At that time, each TYC shareholder received one ADT common share for each two Tyco shares held, in addition to shares in the other Tyco businesses that were spun off and/or merged. ADT is a leading provider of electronic security, interactive home automation and related monitoring services. At the time of its separation, ADT was serving a total of over six million residential and small business customers in the U.S. and Canada. Its residential customers are typically owners of single-family homes, while its small business customers include retail businesses, small-scale commercial facilities, offices of professional service providers, among others.

The company’s electronic security offerings involve the installation and monitoring of residential and small business security systems designed to detect intrusion, control access and react to movement, smoke, carbon monoxide, flooding, temperature and other environmental conditions and hazards, as well as to address personal emergencies, such as injuries, medical emergencies or incapacitation. Upon the occurrence of a triggering event, ADT’s electronic security systems connect to one of the company’s state-of-the-art monitoring centers. Depending upon the type of service contract, ADT’s monitoring center personnel respond by relaying appropriate information to local fire or police departments and notifying the customer or others on the customer’s emergency contact list. If needed, additional actions can be taken by call center associates.

Through the introduction of ADT Pulse, the company’s customers are now able to remotely monitor and manage their homes and small business environments through their electronic security systems. Depending on their service plan, customers can remotely access information regarding the security of their home or business, arm and disarm their security system, adjust lighting or thermostat levels or view real-time video from cameras covering different areas of their premises. These functions are all accomplished via secure access from web-enabled devices (such as smart phones, laptops and tablet computers) and a customized web portal. ADT Pulse allows customers to create customized schedules and automation for managing lights, thermostats and appliances, and can be programmed to perform functions such as recording and viewing live video and sending text messages, based on triggering events.

Advanced Micro Devices Inc

S&P Recommendation

Price

$2.10 (as of Nov 2, 2012)

12-Mo. Target Price

$2.50

Investment Style

Large-Cap Value

GICS Sector Information Technology

Sub-Industry Semiconductors

Summary This company is a leading supplier of microprocessor and graphics semiconductors that are used in computers and related products.

Key Stock Statistics (Source S&P, Vickers, company reports)

Options: ASE, CBOE, P, Ph

Analysis prepared by Equity Analyst Christin Armacost on Oct 22, 2012, when the stock traded at $2.17.

Highlights

We expect revenue to decline 18% in 2012 and 14% in 2013, reflecting a weak macro economy and company-specific issues. AMD continues to be plagued by weakness in the PC food chain globally; market share losses, particularly in desktop; and price pressure. As a result, it took a $100 million writedown of inventory in the third quarter. Overshadowing the significant sequential revenue decline AMD forecast for the December quarter is the announcement of a restructuring to bring its quarterly breakeven to $1.3 billion of revenue.

We believe AMD’s non-GAAP gross margins bottomed in the third quarter at 31%, and will increase only to around 37% in 2013. This is below management’s target range of 44% to 48%, likely no longer realistic. We expect operating expenses be about 40% of revenue exiting 2013.

We estimate per share losses of $1.21 (including a one-time charge of $0.90 taken in the first quarter) in 2012 and $0.44 in 2013. We do not expect AMD to be profitable in any quarter through 2013.

Investment Rationale/Risk

Our hold recommendation reflects our concerns about how quickly AMD can recover against a weak macro backdrop and in an industry going through structural changes. We believe the company has made progress in its development efforts, yet this does not appear to be translating into significant market share gains and growth. Further, we note that on the third quarter call, management did not commit to the timing of a return to breakeven or to a gross margin structure. With little expected in terms of catalysts, execution through the industry downturn is critical to returning AMD to sustainable growth.

Risks to our recommendation and target price include lower demand for computers and servers, lack of new and significant design wins, manufacturing issues, and the possibility of prolonged net losses putting the company into a net debt position.

Our 12-month target price of $2.50 is based on a price/sales of about 0.4X our 2013 sales per share estimate, toward the low end of the five-year range of 0.20X to 1.3X.

Qualitative Risk Assessment

AMD is subject to the cyclical swings of the semiconductor industry, demand fluctuations for computer end-products, vacillation in average selling prices for chips, and strong competition from Intel, which is a much larger rival in microprocessors.

Dividend Data

No cash dividends have been paid.

Business Summary October 22, 2012

CORPORATE OVERVIEW. Advanced Micro Devices designs and sells digital integrated circuits (ICs), including x86 microprocessors and chipsets for computers, embedded microprocessors for commercial and consumer applications, and, as a result of the company’s acquisition of ATI Technologies in October 2006, graphics processors.

A microprocessor is an IC that serves as the central processing unit, or brain, of a computer. The performance of a processor is a critical factor for the performance of the computer. The main measures for microprocessor performance include: work-per-cycle, or how many instructions per cycle, clock speed, how fast the CPU’s internal logic operates as measured by units of hertz, and power consumption. Other factors impacting performance include the number of cores on a microprocessor, bit rating of the microprocessor, memory size, and data access speed. AMD also sells chipsets, which send data between the microprocessor and the computer’s input, display, and storage devices.

Developments in circuit design and manufacturing process technologies have resulted in significant advances in microprocessor performance. Currently, microprocessors are designed to process 32 bits or 64 bits of information at one time. The bit rating of a microprocessor generally denotes the largest size of numerical data that a microprocessor can handle. Microprocessors with 64-bit processing capabilities enable systems to have greater performance by allowing software applications and operating systems to access more memory.

Embedded microprocessors are used in applications, such as industrial controls, point of sale/self-service kiosks, and casino gaming machines, among others. These chips require moderate-to-high performance and are relatively lower in cost, size, and power. The embedded market has grown at a healthy pace as customers, who generally used to design the embedded chips, are increasingly opting to use industry-standard x86 instruction architecture as a way to reduce costs and speed up time to market.

Graphics processors are used in computers to increase the speed of rendering images and to improve image resolution and color definition. In this business, AMD’s discrete graphics processing unit (GPU) includes the relatively popular ATI Radeon products, which are widely utilized to improve graphics for video games and other multimedia functions.

AES Corporation (The)

S&P Recommendation

Price

$10.15 (as of Nov 8, 2012)

12-Mo. Target Price

$14.00

Investment Style

Large-Cap Growth

GICS Sector Utilities

Sub-Industry Independent Power Producers & Energy Traders

Summary The world’s largest independent power producer, AES produces and distributes electricity in international and domestic markets.

Key Stock Statistics (Source S&P, Vickers, company reports)

Options: ASE, CBOE, P, Ph

Highlights

The 12-month target price for AES has recently been changed to $14.00 from $15.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on AES from MarketScope, see below.

11/07/12 10:40 am ET…S&P MAINTAINS BUY OPINION ON SHARES OF AES (AES 10.30****): We are trimming our target price by $1 to $14 due to lower peer valuations. We are maintaining our ′12 and ′13 EPS estimates at $1.25 and $1.36, respectively. Q3 recurring EPS of $0.36, vs. $0.26, matches our estimate and beat Capital IQ’s consensus by $0.01. Revenues were lower and per-revenue cost of sales was higher than we expected, but were more than offset by a lower than expected effective tax rate and minority interest expense. We have a positive view on AES’s growth projects focusing on Latin America as well as its balance between unregulated and regulated businesses. /CBMuir

Qualitative Risk Assessment

Our risk assessment reflects the company’s relatively large capitalization and mix of lower-risk regulated utility businesses in North America, offset by higher-risk merchant power operations and utility operations in emerging markets in South America, Eastern Europe, Central America and Asia.

Business Summary August 23, 2012

CORPORATE OVERVIEW. AES Corporation (AES) owns and operates a portfolio of electricity generation and distribution business in 27 countries through its subsidiaries and affiliates. The company has two principal businesses: generation and regulated utilities.

The generation business provides power for sale to utilities and other wholesale customers while the regulated utilities business distributes power to retail, commercial, industrial and governmental customers. In 2011, the generation unit contributed 50.4% of total revenues. It primarily sells electricity to utilities or other wholesale customers under power purchase agreements that are generally for five years or longer. The generation business also sells electricity to wholesale customers through competitive markets.

The remaining 49.6% of total revenues in 2011 came from the regulated utilities business. It markets electricity to residential, business, and government customers through integrated transmission and distribution systems.

The company also reports results geographically by segment. Geographically, revenues come from Latin American operations (72% of 2011 revenues), North American operations (16%), European operations (9%), and Middle Eastern and Asian operations (4%). The company’s largest exposures geographically are to Brazil (38%), the U.S. (13%), Chile (9%), Argentina (6%) and El Salvador (4%). We expect that the acquisition of DPL will increase the share of revenue form the U.S. to about 22% and decrease the share from Brazil to about 34% in 2012.

CORPORATE STRATEGY. AES pursues both a global and a local growth strategy to increase its business. The company’s global strategy focuses on large-scale projects and pursues strategic initiatives. More recently, AES has targeted a narrowing of its geographic focus. It concentrates on mergers and acquisitions, exploring opportunities in the climate change business such as the production of greenhouse gas reduction activities and related industries that involve environmental issues. The company also aims to mitigate exposure to price swings. In 2011, 71% of the revenues from its generation business was from plants that operate under PPAs of three years or longer for at least 75% of their output capacity. Additionally, a large portion of its capacity under construction will be subject to PPAs.

Aetna Inc.

S&P Recommendation

Price

$44.56 (as of Nov 6, 2012)

12-Mo. Target Price

$50.00

Investment Style

Large-Cap Blend

GICS Sector Health Care

Sub-Industry Managed Health Care

Summary This company offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services.

Key Stock Statistics (Source S&P, Vickers, company reports)

Options: ASE, CBOE, P, Ph

Analysis prepared by Equity Analyst Phillip Seligman on Nov 05, 2012, when the stock traded at $43.76.

Highlights

We look for companywide operating revenue to grow 6.5% in 2012 and 10% in 2013. By year-end 2012, we forecast 215,000 net fewer ASC members, mainly on the loss of two jumbo accounts, and more than 50,000 fewer fully insured commercial members. We see 20,000 fewer Medicaid members, as the new Missouri Medicaid contract and expansion in other states are outweighed by AET’s exit from the Connecticut Medicaid program. However, we see 48,000 more Medicare Advantage (MA) members following the lifting of the sanctions imposed by Medicare. Next year’s revenue will benefit from the conversion of a large ASC account to a Medicare account.

We forecast that the overall medical cost ratio will continue to rise through 2013, on more-normalized medical cost trends, higher MA enrollment, and a lower level of favorable prior-year reserve development in 2012 and assuming none in 2013.

We look for 2012 operating EPS of $5.12, versus 2011’s $5.17, and $5.55 in 2013. Our model excludes the planned acquisition of Coventry Health Care (CVH 44, Hold) in mid-2013 until the transaction closes.

Investment Rationale/Risk

We think AET has the scale, diversity, innovative information technology and healthy cash flow to perform better than most insurers amid health care reform. We view positively its cost control initiatives, including investments in accountable care solutions, and increasing diversification, including international expansion and moves to penetrate the growing Medicaid and Medicare markets. In this regard, we believe its planned acquisition of CVH makes sense. It will increase AET’s Medicaid, Medicare, and individual/small-group commercial market presence, and will likely enable it to increasingly penetrate these markets. AET sees the deal slightly accretive to 2013 EPS, and adding $0.45 in 2014 and $0.90 in 2015.

Risks to our recommendation and target price include intensified competition, a weaker economy, and adverse medical cost trends.

We apply a multiple of 9X to our 2013 EPS estimate to derive our 12-month target price of $50. This multiple is slightly below the group’s, on AET’s relative inability thus far to broadly penetrate the MA and Medicaid markets.

Qualitative Risk Assessment

Our risk assessment reflects AET’s leadership in the highly fragmented managed care market. Competition has been intensifying, as consolidation has led the largest companies, including AET, to bump up against one another in more markets and geographies. Still, we believe AET’s expanding product, market and geographic diversity will permit stable operating performance over the long term.

Business Summary November 05, 2012

CORPORATE OVERVIEW. In December 2000, Aetna sold its financial services and international operations for $5 billion ($35.33 a share, not adjusted) and the assumption of $2.7 billion of debt. AET shareholders received $35.33 a share in cash, plus one share of a new health care company named Aetna. Revenue contributions (including net investment and other income) from the company’s business operations in 2011 were: Health Care 92.6%; Group Insurance 5.9%; and Large Case Pensions 1.5%.

The Health Care segment offers health maintenance organization (HMO), point-of-service (POS), preferred provider organization (PPO) and indemnity benefit products. The company had total health plan enrollment of 18,178,000 lives as of September 30, 2012, down from 18,459,000 as of December 31, 2011. Commercial risk enrollment was 4,703,000 lives, versus 4,758,000, while commercial administrative services (ASC; fee-based, self-funded accounts) was 11,578,000 lives, versus 11,868,000. Medicare Advantage (MA; health plan) enrollment was 443,000 lives, versus 398,000, while Medicaid enrollment was 1,253,000 lives, versus 1,272,000 and Medicare Supplement was 201,000, versus 163,000. The company also provided dental benefits to 13,608,000 members, versus 13,670,000, and pharmacy benefits to 8,815,000 members, versus 8,820,000.

Group Insurance provides group life, disability and long-term care products. Group life contracts and group conversion policies totaled 41,050,000 at December 31, 2009 (latest available).

Large Case Pensions manages various retirement products, including pension and annuity products, for defined benefit and defined contribution plans. Aetna has not marketed its Large Case Pensions products since 1993, but continues to manage the run-off of existing business. Assets under management totaled $11.2 billion at December 31, 2009 (latest available).

AFLAC Inc

S&P Recommendation

Price

$50.63 (as of Nov 2, 2012)

12-Mo. Target Price

$58.00

Investment Style

Large-Cap Growth

GICS Sector Financials

Sub-Industry Life & Health Insurance

Summary AFL provides supplemental health and life insurance in Japan (80% of earnings) and the U.S. Products are marketed at work sites and help fill gaps in primary coverage.

Key Stock Statistics (Source S&P, Vickers, company reports)

Options: ASE, CBOE, Ph

Analysis prepared by Equity Analyst Robert McMillan on Oct 25, 2012, when the stock traded at $50.14.

Highlights

We expect Aflac Japan sales, after rising a strong 14% in 2011 despite the earthquake, to grow in the high single digits in 2012 and low single digits in 2013. We expect continued growth in the bank distribution channel. We see Aflac Japan’s pretax margins remaining around 20% in 2012 and 2013. In coming quarters, we anticipate moderating sales stemming from management’s lowering of the discounted advance premium rates on certain products, but this should also help profitability.

For AFL’s U.S. business, we expect revenues, after rising 3.8% in 2011, to advance in the low/ mid-single digits in 2012 and 2013, on strength in core traditional and broker sales channels. We are encouraged that U.S. sales advanced 5.2% in the third quarter despite still uneven U.S. economic growth and sluggish small employer hiring. We see the company’s aggressive push into the large case group benefits market contributing to long-term growth. We see pretax margins of around 18% in 2012 and 2013.

We forecast operating EPS of $6.63 in 2012 and $7.00 in 2013, excluding any realized investment gains or losses.

Investment Rationale/Risk

We believe AFL maintains a strong capital position and generates consistent earnings, which should allow the company to increase its dividend and repurchase its shares. While we expect the de-risking of its investment portfolio to slow earnings growth over the next few years, we believe this will lead to a higher valuation longer term. We view the fundamentals of AFL’s Japan operations as strong, and we expect the business to benefit from improved margins and strong premium growth.

Risks to our recommendation and target price include investment losses, unfavorable movements in the yen/dollar exchange rate, lower organic premium growth, and agent recruiting difficulties.

Our 12-month target price is $58, or about 8.5X our forward four-quarter operating EPS estimate of $6.82; the shares recently traded at 7.3X this forecast. We believe continued improvements in operating results and a return to more normalized markets will allow the valuation multiple to expand, albeit to levels still considerably below recent historical levels as long as interest rates remain at extremely low levels.

Qualitative Risk Assessment

Our risk assessment reflects AFL’s strong market share position and solid risk-based capital ratio, and its consistent track record of share repurchases and dividend increases. We also note that since the start of the financial crisis, AFL has taken steps to de-risk its investment portfolio.

Business Summary October 25, 2012

Aflac is the number one provider of voluntary insurance at the worksite in the U.S. and the number one life insurance company in terms of individual insurance policies in force in Japan, providing financial protection to more than 50 million people. Aflac voluntary insurance products pay cash benefits directly to the insured to help protect against income and asset loss when a specific health event or life situation causes financial challenges.

Aflac Japan’s main strategy for growth focuses on broadening its product line, diversifying its distribution system, and maintaining operational efficiency. To enhance its ability to broaden its product line, Aflac Japan has focused on shortening the development cycle to bring products to market quickly. The company’s distribution channels include affiliated corporate agencies, independent corporate agencies, individual agencies, and a marketing alliance with Dai-ichi Mutual Life, and Japanese banks. As of year-end 2011, AFL had agreements to sell its products with 370 Japanese banks, or over 90% of the total banks in Japan. In addition, AFL in November 2007 announced that Japan Post Network Co., Ltd. had chosen the company to be the exclusive provider of cancer insurance products for distribution through its postal office network in Japan. In October 2008, AFL began selling its products through Japan Post. Aflac Japan’s goals continue to be to improve the effectiveness of its affiliated corporate agency channel, and to ramp up sales in the bank and Japan Post channels. In our view, one of the company’s greatest competitive strengths is its position as Japan’s low-cost producer.

Aflac U.S.’s strategy is to: develop relevant products, improve and expand the distribution system, build brand awareness, and maintain operational efficiency. Aflac U.S.’s distribution system seeks to reach both employer and employee. As AFL looks to expand its reach, we believe it will be necessary for Aflac U.S. to continue to develop and expand its recruiting and training of agents. The Aflac Duck advertising character has built a tremendous amount of brand recognition for Aflac, in our opinion.

Agilent Technologies Inc

S&P Recommendation

Price

$37.00 (as of Nov 2, 2012)

12-Mo. Target Price

$46.00

Investment Style

Large-Cap Blend

GICS Sector Health Care

Sub-Industry Life Sciences Tools & Services

Summary This Hewlett-Packard (HPQ) spin-off is a diversified global manufacturer of test and measurement instruments, and life sciences and chemical analysis instruments.

Key Stock Statistics (Source S&P, Vickers, company reports)

Options: ASE, CBOE, P, Ph

Analysis prepared by Equity Analyst Jeffrey Loo, CFA on Aug 24, 2012, when the stock traded at $37.88.

Highlights

We expect sales, including recently acquired Dako, to rise 4% in FY 12 (Oct.) to $6.86 billion, following the 22% rise in FY 11, which was aided by the Varian acquisition. We expect the electronic measurement segment to grow 2% as strength within the industrial markets is partially offset by weakness in semiconductors. We see the chemical analysis unit growing 5%, benefiting from growth in the food safety market, but offset by softness in petrochemical. In life sciences, we see sales growth of 5%, driven by the pharmaceutical and biotech markets, but remain cautious of the uncertain government end-market. We note A’s presence in the U.S. government and academic market is lower than its peers. We expect sales within Diagnostics and Genomics to reach $390 million. We see gross margins expanding 0.1% and forecast a 0.4% rise in operating margins on leverage and cost savings.

In June, A acquired Denmark-based Dako, a cancer diagnostics company, for $2.2 billion, the largest in its history, representing A’s growing focus on clinical and molecular diagnostics.

We see operating EPS of $3.06 in FY 12, excluding non-recurring charges.

Investment Rationale/Risk

We view the shares, recently trading at 11.5X our forward 12-months EPS estimate, below peers and historical levels, as attractively valued. Although we see continued near-term softness in the global markets, we have a favorable view of A’s diversified end-market mix, with exposure to the non-cyclical life sciences and chemical analysis markets as well as cyclical electronic measurement markets. We also believe A is well positioned with geographical diversity and a growing presence in emerging markets. Over the long term, we expect A to focus on expanding aggressively through new product offerings in high-growth industries, complemented by opportunistic acquisitions including the diagnostics market.

Risks to our recommendation and target price include a weaker-than-expected global economy, narrower margins than we project, and weaker-than-anticipated traction for new product introductions.

Our 12-month target price of $46 is supported by a P/E ratio of 14X our forward 12-months EPS estimate of $3.24, slightly below peers and historical levels, as we believe a slight discount is warranted given global economic challenges.

Qualitative Risk Assessment

Our risk assessment reflects the volatility of Agilent’s results in the past, offset by recent efforts to streamline its businesses and divest parts of its portfolio that contributed to this variability.

Business Summary August 24, 2012

CORPORATE OVERVIEW. Agilent Technologies, which was spun off from Hewlett-Packard (HPQ) in 1999, provides investors with exposure to the communications, electronics, life sciences and chemical analysis industries. Agilent’s revenues during FY 11 (Oct.) came from three business segments: electronic measurement 50% (51% in FY 10), life sciences 27% (27%) and the chemical analysis market 23% (22%).

The company’s electronic measurement products provides electronic measurement instruments and systems, software design tools and related services that are used in the design, development, manufacturing, installation, deployment and operation of electronics equipment. Agilent sells its products and services to network equipment manufacturers, handset manufacturers, and communications service providers, including the component manufacturers within the supply chain for these customers.

General purpose test products and services are sold to the electronics industry and other industries with significant electronic content, such as the aerospace and defense, computer and semiconductor industries. Agilent has a suite of fiber optic, broadband and data and wireless communications and microwave network products. It sells electronic measurement products that are