Equity Research: Research Summary PCS Topics: AMD, INTC ...

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Equity Research: Research Summary

September 10, 2015

KBCM Topics: D, IP, LULU, NWE, SCSS PCS Topics: AMD, INTC, MRVL, NVDA, ON, SYNA, HUBS

Estimate Changes

Ticker NWE

Old 2015E New 2015E

3.20

3.20

Cons. 3.18

Old 2016E New 2016E Cons.

3.40

3.35

3.44

Old 2017E New 2017E Cons.

--

--

Analyst Ridzon

Important disclosures for the companies mentioned in this report can be found at .

Please refer to the analysts' recently published reports for company-specific valuation and risks.

KeyBanc Capital Markets Inc. | Member NYSE/FINRA/SIPC

September 10, 2015

INDUSTRIAL: KeyBanc Intermodal Weekly ? Week 35 Update -- Fowler

Research Summary 3

INDUSTRIAL: Breaking Ground: A Monthly Look at Non-Res Construction Starts ? August -- Box

4

TECHNOLOGY: Notebook ODM Tracker Update -- McConnell

5

ENERGY: D - ALERT: No Additional Public Equity Needs This Decade -- Tucker

6

TECHNOLOGY: Expanding TAM and Increasing Strategic Value -- Barnicle

7

INDUSTRIAL: IP - ALERT: Commentary on China and Brazil Negative, as Expected-- Josephson, CFA

8

CONSUMER: LULU - ALERT: 2Q - Earnings Opportunity -- Yruma

9

ENERGY: NWE: Lost DSM Tracker; Lowering 2016 Estimate -- Ridzon

10

CONSUMER: SCSS: Investing in Innovation ? Acquiring Remaining Interest in BAM Labs -- Thomas,

CFA

11

Disclosure Appendix

12

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September 10, 2015

Research Summary

KeyBanc Intermodal Weekly ? Week 35 Update

Todd C. Fowler / (216) 689-0219 / tfowler@

Joseph Frankenfield, CFA / (216) 689-4297 / joseph.y.frankenfield@

Key Investment Points

Intermodal volumes for week 35 (ending September 5) increased 17% year-over-year, and are up 4% 3Q15 to-date and 3% year-to-date. Intermodal train speeds were down 0.4% from last week but up 0.5% year-over-year. Terminal dwell was down 1% from last week and 9% year-over-year. See the following exhibits for current week, 3Q15-to-date and 2015 volume, train speeds and dwell times by carrier.

Volume comparisons reflect a later Labor Day holiday, likely resulting in a volume decline next week. That said, volumes continue to trend positively ahead of the seasonal fall peak, though growth rates differ by carrier and geographically, reflecting share shift between eastern and western ports and varying rail service. Rail service as measured by train speeds and dwell times generally remains ahead of prior year levels, but still below normalized levels. We anticipate rail service to continue to improve in coming months as capital investments more fully materialize, potentially benefiting intermodal volumes. Over the intermediate term, we continue to anticipate some secular benefit from modal shift and truck capacity constraints, while stabilizing or improving rail service could reduce operational headwinds.

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September 10, 2015

Research Summary

Breaking Ground: A Monthly Look at Non-Res Construction Starts ? August

Joe Box / (216) 689-0283 / jbox@ Sean Egan / (216) 689-5977 / sean.j.egan@

August construction starts >$20M marked the third consecutive monthly decline with project starts falling 28% YOY; less volatile TTM starts remain healthy at +22% YOY, though both TTM rate of growth and absolute dollars continue to soften from May's level. Positive data in August largely stemmed from a major Energy/Chemical project, as well as Apartment and Infrastructure projects.

Key Investment Points

The Numbers

Total large-scale construction project starts with August start dates decreased 28% YOY to $16.6B, although August 2014 was a challenging comp (+31% YOY to $23.2B). Apartment starts were the most robust this August (+44% YOY), whereas YOY declines were seen across 4 of the 5 other project categories.

However, TTM large project starts were 22% higher at $296.8B vs. $242.6B for the comparable period last year given continued strength in the Apartment and Industrial categories, while Health/Education and Commercial categories have somewhat moderated.

The largest positive YOY variance in August project start dollars was seen within Apartment projects (+ $1.6B) given the continued strength in urban projects. Conversely, the Office category saw starts decrease $2.3B given difficult comparisons from several highprofile projects starting within the prior period.

Regionally, the Midwest saw the strongest YOY improvement in August with project start dollars up 12% as the remaining regions were either flat or saw a YOY decline. However, on a TTM basis, the Gulf Coast region continues to see the highest level of non-residential construction starts; which are up 51% compared to the prior period. Although a $6.3B LNG facility is targeted to start in September in the Gulf Coast, we suspect the 51% growth rate could moderate heading forward given the tough comparisons heading into the back half of the year. Of note, the Northeast was again the second-best performing region on a TTM basis, led by Apartment and Commercial projects.

The Takeaway

TTM project start dollars have now decelerated YOY for the 4th straight month, which suggests that our view that we may be near peak start activity could be materializing. However, because of the longer project duration for these starts, we continue to see solid spending visibility over the next 12-18 months. We therefore maintain a more balanced view toward the equipment rental space (HEES, URI) as we begin to consider appropriate valuation should we migrate into the later stage of the non-res cycle in 2016. As such, we reiterate our Sector Weight ratings for HEES and URI.

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September 10, 2015

Research Summary

Notebook ODM Tracker Update

August Shipments Exceed Expectations for the First Time This Year; Q3 Estimate Remains +5%

August unit shipments were above expectations. Unit shipments of 11.3 million, up 17% m/m, were above our estimate of 11.1 million, up 15% m/m, primarily due to higher-than-expected shipments at Quanta and Compal, which came in 200k and 100k higher than expected, respectively, partially offset by weaker shipments at Pegatron, which came in 150k lower than expected. We believe upside at Quanta was due to some shipment pull-ins from September, and upside at Compal was mainly due to share gains from Pegatron and better-than-expected pulls at an Asian OEM. We note that this is the first month of shipment upside at the notebook ODMs this year.

Our unit shipment estimate of +5% q/q/-14% y/y remains unchanged. Given shipment upside in August, most notebook ODMs now become more confident in meeting their Q3 shipment target of up 5% to 10% q/q with the exception of Quanta (low single digits). That said, given the weak macro economy, we remain relatively cautious and maintain our unit shipment estimate at +5% q/q/-14% y/y.

PC demand outlook is sub-seasonal for Q3. Conversations with the PC supply chain indicate a sub-seasonal outlook for PC end demand in Q3, despite Microsoft's Windows 10 launch and Intel's upcoming release of its Skylake family of processors in late Q3. While Q2 is expected to be a bottom for end demand, signs of excess notebook system inventory at PC OEMs, continued currency headwinds, no hardware upgrade requirements for Windows 10 (free), a higher bill of materials for Skylake platforms (due to the 10% to 15% price premium for DDR4), and uncertainty with macroeconomic demand are driving a subdued outlook for this quarter.

We view better-than-expected notebook ODM shipments in August as positive for Intel. While investors remain highly skeptical of Intel's implied CCG sales guidance for Q3 (+8% q/q) and overall sales guidance for the year (-1% y/y), we contend that this guidance is not as aggressive as it looks: (1) Intel sell-in versus PC supply chain sell-out in Q2 (see page 2) was the lowest since 2Q12, indicating that Intel undershipped PC end demand in 1H15, and (2) unit demand forecasts at motherboard manufacturers remain more optimistic than notebook ODMs for Q3 given acute demand weakness in 1H15, with units still expected to grow over 10% q/ q. In addition, we believe Intel's unchanged 2015 outlook for DCG growth (15%+ y/y) should support the stock at current levels. Other PC-exposed companies under our coverage universe include AMD, MRVL, MU, NVDA, ONNN and SYNA.

Semiconductors

Michael McConnell 503.821.3890 mmcconnell@pacific-

Hans Chung, CFA 503.821.3944 hchung@pacific-

Stock Implications Positive, Negative, -- Neutral

Company

Stock Rating Target

Advanced Micro Devices, Inc.

AMD

SW

NA

Intel Corporation

INTC

OW

$35.00

Marvell Technology Group Ltd.

MRVL

SW

NA

NVIDIA Corporation

NVDA

SW

NA

ON Semiconductor Corporation

ON

SW

NA

Synaptics, Incorporated

SYNA

SW

NA

Price

$1.85 $29.24 $10.54 $22.23 $10.23 $71.73

Mkt Cap.

$1,439.3M $143,539.2M

$5,640.6M $12,359.9M $4,463.3M $2,795.3M

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September 10, 2015

Research Summary

Dominion Resources, Inc. (Sector Weight)

D - ALERT: No Additional Public Equity Needs This Decade

Matt Tucker / (917) 368-2203 / mtucker@ Grier Buchanan / (917) 368-2376 / gbuchanan@

Key Investment Points

Speaking at an investor conference this morning before market open, management indicated it has no plans or need to issue additional public equity for the remainder of this decade, following its $500M common equity issuance in 1Q15. D's prior plan had contemplated $0.5B-$1.0B in additional equity and/or equity-linked issuance over 2015-2018. We estimate the avoided dilution equates to roughly $0.05-$0.09 in EPS (~1-2%), assuming $0.5B-$1.0B common equity issuance in 2016 at D's current share price. Our current 2015-2016 estimates do not reflect any additional public equity issuance, consistent with D's new plan. Management attributed the avoided equity needs largely to the expected cash flows from its GP and LP interests in Dominion Midstream Partners, LP (DM).

New Market Access Projects. D announced two new Market Access projects at Dominion Energy: a $150M project with firm commitment to serve LDC and power generation demand, and a separate $34M project to serve power generation.

Major Projects on Track. Management maintained its $19.2B capex budget for 2015-2020, and indicated all major projects (e.g., Brunswick County, Cove Point LNG, ACP) are on schedule and on budget.

Solar Transactions. As announced earlier this week, D sold a 33% interest in its 425 MW portfolio of 2013-2015 solar projects to SunEdison (SUNE) for $300M, with proceeds tabbed to pay down DRI debt. D also agreed to acquire a 50% equity interest (99% tax equity interest) in SUNE's 210 MW Three Cedars solar project for $320M.

Initial Take. We would expect a favorable response to the revised financing plan, although we think the reaction in D's shares may be limited by expectations, as management has saved major announcement for this conference in recent years. We view the new Market Access projects as incremental positives, and while not major needle movers, they serve to underscore D's strong midstream positioning.

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September 10, 2015

HubSpot, Inc.

Expanding TAM and Increasing Strategic Value

HubSpot introduced new products for marketing and sales at its annual INBOUND conference on Wednesday, increasing HubSpot's TAM, as well as its strategic value to customers. These new initiatives could drive additional revenue in 2016, making consensus estimates too conservative for 2016. We reiterate our Overweight rating and $60 price target.

Key Investment Points

HubSpot's product announcements enhance marketing and sales offering. At its INBOUND conference, HubSpot introduced several important new features for its marketing and sales offerings. More importantly, the company introduced new products that will enhance its core marketing and sales offerings, including reporting and lead scoring.

Agency feedback on CRM continues to be positive. At INBOUND, we spoke with several agencies, and they remain very positive on HubSpot's CRM and Sidekick solutions for sales. They highlighted the ease of use of the products. Because the CRM product pulls in data automatically, customers can spend significantly less time on data entry, compared to other CRM solutions. The product is also intuitive enough that sales representatives can be onboarded in hours.

New products include upsell opportunities to HubSpot's base. HubSpot's new products include: Sites ($300/month), Reports ($200/month), and Ads Add-On ($100/ month). They represent upsell opportunities for HubSpot. As a result, these products are likely to enable HubSpot to continue to drive increases in revenue per account. The new products also expand HubSpot's TAM to more than $30 billion.

Estimates likely too low for 2016. Currently, consensus estimates are forecasting 2016 revenue to grow at 57% of the 2015 growth rate and for 2017 to grow at 89% of the 2016 growth rate, which seems to suggest too much deceleration in growth. So, estimates seem way too conservative. We believe there could be meaningful upside to 2016 and 2017 revenue expectations.

Research Summary

Brendan Barnicle / 503.821.3935 bbarnicle@pacific-

Trevor Upton, CFA / 503.821.3908 tupton@pacific-

NYSE: HUBS Rating: Price Target: Price:

Overweight $60.00 $46.27

HUBS $46.27 (+85% Y/Y)

$80

$70 Bull Case $70 (+51%)

$60 Target $60 (+30%)

$50

$40

$30

Bear Case $23 (-50%)

$20

Nasdaq (+6% Y/Y)

11/14 12/14 01/15 02/15 03/15 04/15 05/15 06/15 07/15 08/15 09/15

Sources: Company reports, FactSet, KeyBanc Capital Markets Inc..

Company Data

52-week range

$26 - $55

Market Cap. (M)

$1,530.6

Shares Out. (M)

33.08

Enterprise Value (M)

$1,394.5

Avg. Daily Volume (30D)

265,573.0

SI as % of Float

7.2%

Net cash/market cap

8.9%

Sources: Company reports, FactSet, KeyBanc Capital Markets Inc.

Estimates

FY ends 12/31

F2014A 1Q15A 2Q15A 3Q15E

EPS (Net)

$(2.77) $(0.18) $(0.17) $(0.33)

Cons. EPS

--

--

--

$(0.32)

Revenue (M)

$115.9

$38.2

$42.9

$44.2

Cons. Revenue

--

--

--

$44.5

FCF

(24.36)

(2.61)

0.40

(8.12)

Valuation

EV/Sales

12.0x

--

--

--

Sources: Company reports, FactSet, KeyBanc Capital Markets Inc.

4Q15E $(0.23) $(0.21) $47.1 $47.3 (4.80)

F2015E $(0.91) $(0.89) $172.3 $173.0 (15.13)

F2016E $(0.82) $(0.79) $228.8 $222.0 (14.64)

--

8.1x

6.1x

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September 10, 2015

Research Summary

International Paper Company (Sector Weight)

IP - ALERT: Commentary on China and Brazil Negative, as Expected

Adam J. Josephson, CFA / (917) 368-2289 / ajosephson@

Marc Solecitto / (917) 368-2213 / marc.solecitto@

Key Investment Points

At a conference this morning, IP noted that business in China has become "more challenging" of late, and that its box volumes in China are essentially flat (compared to "up a couple percent" on its 2Q14 call in July 2014, for perspective). IP also said Brazil is clearly in a recession, and that in its box business in Brazil, the Company is down "a little bit more than the market" on account of its exposure to electronics and high-end items. IP has yet to see the weakness in emerging markets seep into the U.S. market. IP entered 2015 thinking it could generate 5% EBITDA growth, and that appears exceedingly unlikely in light of the weakness in China, Brazil, Russia, etc. We expect IP's EBITDA to decline both this year and next.

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