bmo_research highlights apr 20

8/9/2019 BMO_Research Highlights Apr 20

1/24

April 20, 2010

TODAY'S HIGHLIGHTS

U.S. Canadian / Int'lInitiating Coverage Sensata Technologies

TiVo

Estimates/Targets Raised Packaging Corp. Advantage Oil & Gas

Hasbro Vero Energy

IBM

Estimates/Targets Lowered Diamond Offshore Drilling Migao

Halliburton

Verizon Communications

Eli Lilly

FINANCIALS

REITs Canada Sector Comment REITers Digest Canadian Real Estate/REIT Weekly...

ENERGY & UTILITIES

North American E&P Canada Advantage Oil & Gas New Glacier Gas Plant Onstream Ahead of Schedule

North American E&P Canada Vero Energy Focusing on Cardium Oil Opportunities in 2010

Services & Equipment Canada Sector Comment Q1/10 Preview: Too Good To Last?

Services & Equipment U.S. Diamond Offshore Drilling Rising Downtime Equals Higher Costs

Services & Equipment U.S. Halliburton Caution Gives Way to Confidence; Upcycle Under Way

MATERIALS

Paper & Forest Prod. U.S. Packaging Corp. Q1/10 Results in Line

Fertilizers U.S. Terra Industries Coverage Discontinued

Fertilizers Int'l Migao Holding Pattern

CONSUMER

Broadlines/Hardlines U.S. Walmart Comments Following Overseas Meeting With Management

Toys & J uvenile Prod. U.S. Hasbro Business Still Booming, But We're Still Cautious

TECH/TELECOM/MEDIA

Enterprise Hardware U.S. IBM Better in Second Half

Enterprise Hardware Sector Comment Looking for a Turn

Semiconductors U.S. Sensata Technologies Initiating With OUTPERFORM

Telecom Services U.S. AT&T Q1/10 Preview: Wireless Postpaid to Soften but Margins...
http://research-ca.bmocapitalmarkets.com/documents/2FE668CB-835B-46DB-A6C5-5B57E3A09C92.pdfhttp://research-ca.bmocapitalmarkets.com/documents/A2398AB0-CFFF-4CB6-AB09-6288F9774C7D.pdfhttp://research-ca.bmocapitalmarkets.com/documents/9D02FB2C-46F9-45A6-9560-96A141349FF4.pdfhttp://research-ca.bmocapitalmarkets.com/documents/48C822D8-A9AB-4B8B-A299-5EC61572FBC1.pdfhttp://research-ca.bmocapitalmarkets.com/documents/534117F5-DBBD-4F1B-AF4A-CF3A4D01B11C.pdfhttp://research-ca.bmocapitalmarkets.com/documents/90332BBC-ACF6-4C84-8F0D-C68B000A1262.pdfhttp://research-ca.bmocapitalmarkets.com/documents/5A466156-D24B-443A-BE42-BC114B4A4F6D.pdfhttp://research-ca.bmocapitalmarkets.com/documents/B2DBFB72-2954-4205-8225-ADE5844B3B7A.pdfhttp://research-ca.bmocapitalmarkets.com/documents/81C43217-2163-4A31-8188-571E12CD28CD.pdfhttp://research-ca.bmocapitalmarkets.com/documents/4BB35352-8208-4AB7-BFCE-10CF6105CF57.pdfhttp://research-ca.bmocapitalmarkets.com/documents/D4105B00-9227-43BD-B1FF-D4C39C95FF3A.pdfhttp://research-ca.bmocapitalmarkets.com/documents/F89EE657-B3E4-4DD7-9BC4-378E10236B11.pdfhttp://research-ca.bmocapitalmarkets.com/documents/8826603B-33A1-42E3-B54A-69D818420950.pdfhttp://research-ca.bmocapitalmarkets.com/documents/48C822D8-A9AB-4B8B-A299-5EC61572FBC1.pdfhttp://research-ca.bmocapitalmarkets.com/documents/90332BBC-ACF6-4C84-8F0D-C68B000A1262.pdfhttp://research-ca.bmocapitalmarkets.com/documents/67649940-99A6-43DC-9B9E-7683FD95B22E.pdfhttp://research-ca.bmocapitalmarkets.com/documents/B2DBFB72-2954-4205-8225-ADE5844B3B7A.pdfhttp://research-ca.bmocapitalmarkets.com/documents/4BB35352-8208-4AB7-BFCE-10CF6105CF57.pdfhttp://research-ca.bmocapitalmarkets.com/documents/9D02FB2C-46F9-45A6-9560-96A141349FF4.pdfhttp://research-ca.bmocapitalmarkets.com/documents/1E15D972-2ABD-4A6C-9A75-5AFF41D6C0F8.pdfhttp://research-ca.bmocapitalmarkets.com/documents/81C43217-2163-4A31-8188-571E12CD28CD.pdfhttp://research-ca.bmocapitalmarkets.com/documents/48931FFB-91C4-46B3-8FC2-9B68D24DC6F6.pdfhttp://research-ca.bmocapitalmarkets.com/documents/534117F5-DBBD-4F1B-AF4A-CF3A4D01B11C.pdfhttp://research-ca.bmocapitalmarkets.com/documents/5A466156-D24B-443A-BE42-BC114B4A4F6D.pdfhttp://research-ca.bmocapitalmarkets.com/documents/369DF5DA-11F9-46FA-8F0A-4240B908F7FC.pdfhttp://research-ca.bmocapitalmarkets.com/documents/2FE668CB-835B-46DB-A6C5-5B57E3A09C92.pdfhttp://research-ca.bmocapitalmarkets.com/documents/72C3F98D-EAD0-4511-9027-C4F453B029BA.pdfhttp://research-ca.bmocapitalmarkets.com/documents/72C3F98D-EAD0-4511-9027-C4F453B029BA.pdfhttp://research-ca.bmocapitalmarkets.com/documents/2FE668CB-835B-46DB-A6C5-5B57E3A09C92.pdfhttp://research-ca.bmocapitalmarkets.com/documents/369DF5DA-11F9-46FA-8F0A-4240B908F7FC.pdfhttp://research-ca.bmocapitalmarkets.com/documents/5A466156-D24B-443A-BE42-BC114B4A4F6D.pdfhttp://research-ca.bmocapitalmarkets.com/documents/534117F5-DBBD-4F1B-AF4A-CF3A4D01B11C.pdfhttp://research-ca.bmocapitalmarkets.com/documents/48931FFB-91C4-46B3-8FC2-9B68D24DC6F6.pdfhttp://research-ca.bmocapitalmarkets.com/documents/81C43217-2163-4A31-8188-571E12CD28CD.pdfhttp://research-ca.bmocapitalmarkets.com/documents/1E15D972-2ABD-4A6C-9A75-5AFF41D6C0F8.pdfhttp://research-ca.bmocapitalmarkets.com/documents/9D02FB2C-46F9-45A6-9560-96A141349FF4.pdfhttp://research-ca.bmocapitalmarkets.com/documents/4BB35352-8208-4AB7-BFCE-10CF6105CF57.pdfhttp://research-ca.bmocapitalmarkets.com/documents/B2DBFB72-2954-4205-8225-ADE5844B3B7A.pdfhttp://research-ca.bmocapitalmarkets.com/documents/67649940-99A6-43DC-9B9E-7683FD95B22E.pdfhttp://research-ca.bmocapitalmarkets.com/documents/90332BBC-ACF6-4C84-8F0D-C68B000A1262.pdfhttp://research-ca.bmocapitalmarkets.com/documents/48C822D8-A9AB-4B8B-A299-5EC61572FBC1.pdfhttp://research-ca.bmocapitalmarkets.com/documents/8826603B-33A1-42E3-B54A-69D818420950.pdfhttp://research-ca.bmocapitalmarkets.com/documents/F89EE657-B3E4-4DD7-9BC4-378E10236B11.pdfhttp://research-ca.bmocapitalmarkets.com/documents/D4105B00-9227-43BD-B1FF-D4C39C95FF3A.pdfhttp://research-ca.bmocapitalmarkets.com/documents/4BB35352-8208-4AB7-BFCE-10CF6105CF57.pdfhttp://research-ca.bmocapitalmarkets.com/documents/81C43217-2163-4A31-8188-571E12CD28CD.pdfhttp://research-ca.bmocapitalmarkets.com/documents/B2DBFB72-2954-4205-8225-ADE5844B3B7A.pdfhttp://research-ca.bmocapitalmarkets.com/documents/5A466156-D24B-443A-BE42-BC114B4A4F6D.pdfhttp://research-ca.bmocapitalmarkets.com/documents/90332BBC-ACF6-4C84-8F0D-C68B000A1262.pdfhttp://research-ca.bmocapitalmarkets.com/documents/534117F5-DBBD-4F1B-AF4A-CF3A4D01B11C.pdfhttp://research-ca.bmocapitalmarkets.com/documents/48C822D8-A9AB-4B8B-A299-5EC61572FBC1.pdfhttp://research-ca.bmocapitalmarkets.com/documents/9D02FB2C-46F9-45A6-9560-96A141349FF4.pdfhttp://research-ca.bmocapitalmarkets.com/documents/A2398AB0-CFFF-4CB6-AB09-6288F9774C7D.pdfhttp://research-ca.bmocapitalmarkets.com/documents/2FE668CB-835B-46DB-A6C5-5B57E3A09C92.pdf


2/24

Telecom Services U.S. Verizon Communications Q1/10 Preview: Wireless Postpaid to Soften - Key Focus...

Digital Entertainment U.S. TiVo Initiating Coverage of TiVo With OUTPERFORM (S)

Entertainment Sector Comment Healthy Weekend, Domestic Box Office Up 10.4%

HEALTH CARE

Major Pharma U.S. Eli Lilly A Decent 1Q, but the Healthcare Bill Pinches

Biotech U.S. Amylin Pharmaceuticals Byetta Weaker Than Expected; Bydureon 4 or 9 Months...
http://research-ca.bmocapitalmarkets.com/documents/D4105B00-9227-43BD-B1FF-D4C39C95FF3A.pdfhttp://research-ca.bmocapitalmarkets.com/documents/A2398AB0-CFFF-4CB6-AB09-6288F9774C7D.pdfhttp://research-ca.bmocapitalmarkets.com/documents/53956E95-FBB7-4C97-B2A8-BB9CDC4545AF.pdfhttp://research-ca.bmocapitalmarkets.com/documents/F89EE657-B3E4-4DD7-9BC4-378E10236B11.pdfhttp://research-ca.bmocapitalmarkets.com/documents/DE9F774C-A124-4BBE-9289-443398683882.pdfhttp://research-ca.bmocapitalmarkets.com/documents/DE9F774C-A124-4BBE-9289-443398683882.pdfhttp://research-ca.bmocapitalmarkets.com/documents/F89EE657-B3E4-4DD7-9BC4-378E10236B11.pdfhttp://research-ca.bmocapitalmarkets.com/documents/53956E95-FBB7-4C97-B2A8-BB9CDC4545AF.pdfhttp://research-ca.bmocapitalmarkets.com/documents/A2398AB0-CFFF-4CB6-AB09-6288F9774C7D.pdfhttp://research-ca.bmocapitalmarkets.com/documents/D4105B00-9227-43BD-B1FF-D4C39C95FF3A.pdf


3/24

This report w as prepared by an analyst(s) employed by BMO Nesbitt Burns Inc., and who i s (are) not registered as a research analyst(s) under

FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 21 to 22.

Financials -

Real Estate/REITsIndustry Rating: Market Perform

Apr il 20, 2010Research CommentToronto, Ontario

Karine MacIndoe(416) [email protected]: Garreth MacRae / Pauline Alimchandani, CA

REITers DigestCanadian Real Estate/REIT Weekly(Ending Apr il 16, 2010)

Relative Price Performance - REITs vs. Broader Indices

(End of 2006-Current)

15

40

65

90

115

140

29-Dec

-06

28-Feb

-07

29-Apr-07

29-Jun

-07

29-Aug

-07

29-Oct-07

29-Dec

-07

29-Feb

-08

29-Apr-08

29-Jun

-08

29-Aug

-08

29-Oct-08

29-Dec

-08

28-Feb

-09

29-Apr-09

29-Jun

-09

29-Aug

-09

29-Oct-09

29-Dec

-09

28-Feb

-10

PriceOnlyPerformance(Indexedto100)

Source: Bloomberg, BMO Capital MarketsLast Datapoint: April 16, 2010

S&P/TSX Capped REIT

MSCI US REIT

S&P/TSX Composite

US Financials

S&P/TSX Financials

Index Comparison -Relative Price Changes

16-Apr-10

Index Value Last Wk

Last

Mth

Last

Qtr

Last

Year

% from

Time H

S&P/TSX Capped REIT Index 117.96 1.0% -1.6% 0.5% 52.7% -33.5

S&P/TSX Financials 189.65 1.3% 1.0% 9.4% 39.3% -16.0

S&P/TSX Composi te 12,070.66 -0.9% -0.2% 2.7% 29.2% -19.9

MSCI US REIT Index 677.11 -3.4% 0.7% 10.3% 59.5% -45.1

S&P US Financials 219.93 -1.3% 4% 9.2% 49.3% -56.8

S&P 500 1,192.13 -0.2% 2.8% 4.9% 37.8% -23.8

Source: Bloomberg, BMO Capital Markets

Summary

Weekly/quarterly performance: the S&P/TSX REIT Price Indexwas up 1.0% last week (0.5% last quarter, 53% last year), whichoutperformed the MSCI U.S. REIT Indexs -3.4% (+10% lastquarter; +59.5% last year) and the S&P/TSX Composites -0.9%(+3% last quarter; 29% last year). The top three performingREITs/Corps last week were GDC (22%), ACC (8%) and PRK(7%), while the weakest performers were LHR.UN (-5%),BTB.UN (-3%) and NPR.UN (-2%). The top three performers overthe last quarter were GDC (90%), MRC (34%) and BPO U$(24%), while the weakest were LRT.UN (-23%), BTB.UN (-16%)and SRQ.UN (-10%).

Relative Valuation: Canadian REITs are trading at 14.3x our2011E AFFO, representing an attractive 4.6-pt discount to U.S.REITs (10-year historical average discount is 2.5 pts). The higher-

than-normal (avg.) discount is attributable to more depressed cashflow levels in the U.S. If we replace the U.S REIT 2011 forecastswith 2007 actuals (assuming full eventual recovery of cash flows),the U.S. AFFO multiple is ~17x and the Canadian discountdecreases to 2.7 pts, in line with the historical average.

Insider & NCIB Activity: Insider buying activity for the week wasreported in Primaris (1,500 units). YTD the most active buyingwas seen in H&R (35,000 units by CEO), CAP (25,500 units),InnVest (15,000 units by the Mangalji Bros.), and on the convertside, First Capital ($485,000, Series C 6.25% converts, by Gazit).Insider selling activity for the past two weeks (previouslyunreported) was reported in First Capital Realty (12k units by theCFO) and Calloway (10k units by the CEO). YTD, the mostactive insider selling was reported in BTB (192,500 units by theDallaire family), Dundee (28,000 units) and Calloway (20,000units), and on the convert side, Royal Host ($450,000 Series C6.25% by G. Armoyan). No NCIB activity was reported for thisweek. YTD, the most active NCIB buying activity was reportedby Royal Host (1.3 million units at $2.45/unit under SIB) andInnVest (7,000 units at $5.77/unit).

We currently have Outperform ratings on BPO, CAR.UN,CSH.UN, HR.UN, INN.UN, KMP and NPR.UN. We arerestricted on AX.UN.

Canadian vs. US REIT Comparison -Relative Valuation

Date: 16-Apr-10

2011E

AFFO

Multiple

2010E AFFO

Multiple

2010E

AFFO

Yield

10 Yr

Bond

Yield

Spread 10 Yr Ave

Spread

High

Spr

Canadian REITs 14.3x 14.6x 6.85% 3.68% 3.17% 3.65% 0.66/

US REITs 18.9x 19.8x 5.04% 3.77% 1.27% 2.35% -0.77/

2011E 2010E 10 Yr Ave

SpreadHigh/Low Spread

2

Multiple Spread (US vs Canada) : 4.6x 5.2x 2.5x 6.3x/-1x

Source: Bloomberg, SNL Financial, BMO Capital Markets

1. Cdn Low recorded in May 2007, High in Jan, 2009; US Low in J an 2007, High In Feb 2009

2. High recorded in J an '07; Low in 1999


4/24

This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including

Advantage Oil & Gas(AAV-TSX; AAV-NYSE)

Stock Rating: Market Perform Industry Rating: Market Perform

Apri l 19, 2010Research CommentCalgary, Alberta

Gordon Tait, CFABMO Nesbitt Burns Inc.(403) [email protected]: Chris Bolton, CFA/Peter Kranz, P.Eng.

Price (19-Apr) $6.97 52-Week High $8.3Target Price $9.50 52-Week Low $3.1New Glacier Gas Plant Onstream Ahead of Schedule

Advantage Oi l & Gas Lt d. ( AAV)Price: High,Low,Close

ed by BMO Nesbitt Burns Inc., and who is (are) not regist erethe Analyst's Certifi cation, please refer to pages 5 to 7.

Event

Advantage announced that the companys new 100% working interest gas plant

at Glacier was brought on-stream ahead of schedule with production ratesexceeding 50 MMcf/d (8,300 boe/d).

0

5

10

15

20

25

0

5

10

15

20

25

Impact

Slightly Positive.

Forecasts

We are increasing our production forecast to 25,200 boe/d from 24,700 boe/d in

2010 and to 25,500 boe/d from 25,100 boe/d in 2011. Due primarily to the

higher production, we are increasing our 2010E CFPS estimate to $1.25 fro

$1.21 and our 2011E CFPS estimate to $1.14 from $1.12.

Valuation

Our $9.50 target price is based on 6.0x 2010E debt-adjusted cash flow (DACF)

plus approximately $4.00 per unit to account for our risked estimate of its

development upside (8.8x 2010E DACF only).

Recommendation

The fact that the Glacier gas plant came on ahead of schedule and on budget are

both positive. We had been expecting the plant to be commissioned later in

Q2/10 so the impact on our forecasts is relatively minor. The gas plant is

expected to reduce operating costs at Glacier by over 60%. Advantage also hasapproximately 40 MMcf/d of production shut-in that can be brought on strea

and processed through the new plant as other wells decline. We believe the

companys development at Glacier has been encouraging. However, we are still

concerned about the prospects for natural gas prices particularly as we head into

the summer. We continue to rate Advantage Oil & Gas Ltd. Market Perform.

0

20

40Volume (mln)

0

20

40

2005 2006 2007 2008 20090

100

200AAV Relative to S&P/TSX Comp TRI

Last Data Point: April 16, 2010

0

100

200

(FY-Dec.) 2008A 2009A 2010E 2011E

EPS -$0.15 -$0.56 -$0.56 -$0.5P/E na n

CFPS $2.59 $1.30 $1.25 $1.1P/CFPS 5.6x 6.1

Oil & Liq(b/d) 11,793 9,508 8,000 7,75Nat. Gas(MMcf/d) 122.9 104.5 103.2 106.Boe/d(6:1) 32,273 26,929 25,200 25,50EV/EBITDA 7.6x 6.2x 7.4x 8.4

Quarterly Div. Q1 Q2 Q3 Q

2008A $0.36 $0.36 $0.36 $0.32009A $0.12 $0.00 $0.00 $0.02010E $0.00 $0.00 $0.00 $0.0

Annual Dist. $0.00 Yield 0.0%Book Value $7.62 Price/Book 0.9

Shares O/S (mm) 162.2 Mkt. Cap ($mm) $1,13Float O/S (mm) 162.2 Float Cap ($mm) $1,13Wkly Vol (000s) 7,557 Wkly $ Vol (mm) $44.Net Debt ($mm) $466.9 Next Rep. Date 13-May (E

Notes: Net debt and shares O/S as at Q4/09Major Shareholders: Widely heldFirst Call Mean Estimates: ADVANTAGE OIL & GAS LTD (C$)2010E: -$0.24; 2011E: -$0.24

Changes Annual EPS Annual CFPS2011E-$0.58to-$0.59 2010E$1.21to$1.25

2011E$1.12to$1.14


5/24


Vero Energy(VRO-TSX)

Stock Rating: OutperformIndustry Rating: Market Perform

Apri l 20, 2010Research CommentCalgary, Alberta

Mark Leggett, CFA(403) 515-1508

[email protected]: Jason Chang

Focusing on Cardium Oil Opportunities in 2010 Price (19-Apr) $6.32 52-Week High $8.0Target Price $10.00 52-Week Low $2.7


Event

Vero achieved a 100% success rate on its Q1 drilling program consisting of 10

(8.6 net) horizontal wells. Q1 production averaged 8,400 boe/d with production

exiting the quarter at 9,800 boe/d, above previous guidance. Current production

has been choked back to 9,500 boe/d (80% gas) with more than 2,000 boe/d of

additional production capability. Drilling activity included four (3.5 net)

Cardium horizontal wells in the greater Edson area with two net wells tied-in,

while the start-up of two other wells has been delayed until May to maximize

incentives. Cardium production has increased to 800 boe/d (from 4 boe/d at the

end of 2009) from 3.67 net producing wells, which implies an average oil rate of

~185 b/d per well (actual production rates not disclosed), in line with our type

curve. Cardium production is expected to increase to 1,000 to 1,200 boe/d in

early May. For 2010, Vero reiterated an E+D capital budget of $80 to $90

million focused on the Cardium. 2010 production is expected to average 8,500

to 9,000 boe/d with exit production of 9,800 to 10,300 boe/d (63-66% gas).

-1.0

-0.5

0.

0.

1.

Ver o Energy I nc. ( VRO)Price: High,Low,Close Earnings/Share

2

4

6

8

10

12

Impact

Positive.

Forecasts

Our CFPS estimates have been increased to $1.35 in 2010 and $2.01 in 2011

reflecting an oilier profile and increase to our production forecasts. Our

financial estimates are based on production forecasts of 8,894 boe/d in 2010

(76% natural gas) and 9,965 boe/d in 2011 (64% natural gas).

Valuation

Vero currently trades at 2010E valuation multiples of 4.7x P/CFPS and 6.5x

EV/EBITDA. Our target price is more than supported by our sum-of-parts

NAV analysis of $13.36 (AECO $5.75/Mcf, Cdn. Par $80/bbl).

Recommendation

We continue to rate Vero shares Outperform. We are encouraged by initial

Cardium drilling success and the focus on oil opportunities in 2010 resulting in

an oilier production profile, particularly in 2011. We look forward to additional

Cardium results with production rates on two (1.5 net) wells in early May and

1213 net horizontal wells for remainder of 2010.

0

10

20 Volume (mln)

0

10

20

2006 2007 2008 20090

100

200VRO Relative to S&P/TSX Comp


0

100

200

(FY-Dec.) 2008A 2009A 2010E 2011E

CFPS $2.31 $0.69 $1.35 $2.0P/CFPS 4.7x 3.1

EPS $0.67 -$0.50 -$0.04 $0.3P/E na 19.2

CF/boe $32.82 $10.87 $18.03 $23.8EV/EBITDA 4.0x 10.9x 6.5x 4.4ROCE 9.0% -7.0% -1.0% 5.0%D/CF 1.4x 3.3x 1.9x 1.2

Quart erl y CFPS Q1 Q2 Q3 Q

2008A $0.59 $0.80 $0.50 $0.42009A $0.22 $0.15 $0.09 $0.22010E $0.32 $0.28 $0.35 $0.4Dividend $0.00 Yield 0.0%Book Value $4.56 Price/Book 1.4Shares O/S (mm) 43.2 Mkt. Cap ($mm) $27Float O/S (mm) 34.7 Float Cap ($mm) $21Wkly Vol (000s) 1,939 Wkly $ Vol (mm) $10.Net Debt ($mm) $110.4 Next Rep. Date May (E

Notes: All values in C$Major Shareholders: Management & Directors (13%)

First Call Mean Estimates: VERO ENERGY INC (C$) 2010E: $1.2011E: $2.01

Changes Annual EPS Annual CFPS Quarterly CFPS2010E-$0.06to-$0.04 2010E$1.33to$1.35 Q1/10E$0.33to$0.322011E$0.10to$0.33 2011E$1.67to$2.01 Q2/10E$0.29to$0.28

Q3/10E$0.34to$0.35Q4/10E $0.37to$0.40


6/24

This report w as prepared by an analyst(s) employed by BMO Nesbitt Burns Inc., and who i s (are) not registered as a research analyst(s) under

FINRA rules. For disclosure statements, including t he Analyst's Certification, please refer to pages 3 to 4.

Energy - Oil & Gas

ServicesIndustry Rating: Market Perform

Apr il 19, 2010Research CommentCalgary, Alberta

Michael Mazar, CFA(403) [email protected]: J ason A. Zhang

Q1/10 Preview: Too Good To Last?

First quarter earnings season for our Canadian and small-cap U.S. energy

services coverage universe begins this week, with Precision Drilling releasing

earnings on April 22.

Summary

Earnings season for our Canadian and small-cap U.S. energy services coverage universe

begins this week, with Precision Drilling

releasing earnings on April 22. We expect an

average increase in year-over-year earnings of

37% for Canadian companies, while the U.S.

companies earnings are anticipated to be

down roughly 8% from last year.

We continue to favour contract drillers over

pressure pumpers, particularly given the large

difference in valuations. We believe equitymarkets are incorrectly pricing in an

extrapolation of the strong pressure pumping

market conditions seen in Q1. Although the

pumpers could be a source of positive

earnings surprises this quarter, we believe

share price appreciation following these

surprises could provide an opportunity to

switch out of the pumpers and into drillers

with stronger balance sheets, long-term

contract coverage and high spec rig fleets.

Our top picks remain Black Diamond,

Computer Modelling Group and Cathedral

in Canada, and Helmerich & Payne and

CARBO Ceramics in the U.S.

Activity levels in Canada have seen a marked improvement over weak year-

ago levels. WCSB drilling utilization for the first quarter averaged 52%

versus Q1/09 utilization of 36%, but still below the five-year average of

roughly 63%. South of the border, U.S. rig counts have continued to climb at

a moderate pace, averaging 1,333 active rigs throughout Q1/10 compared to

1,102 during Q4/09. Much of this increase has been driven by the

horizontal/directional rig count, which jumped roughly 45% since the start of

the year. This has also spurred strong demand for pressure pumping in many

unconventional shale plays throughout North America.

While WTI crude prices have held steady and averaged US$78.80/bbl duringthe first quarter, NYMEX natural gas prices have continued to decline as

supply and demand fundamentals remain unfavourable for the commodity.

NYMEX natural gas prices are down 28% year to date and averaged just

US$5.02/Mcf during Q1/10.

In the current environment, we continue to believe that contract drillers offer

superior value to the pressure pumpers. The pumpers are more likely to see

very strong Q1 results act as a short-term catalyst and are likely a better

source of positive earnings surprises. However, we still think equity markets

are pricing in an extrapolation of the strong market conditions in Q1, which

we feel is overly optimistic given our bearish outlook for natural gas prices for

the balance of 2010. Accordingly, some exposure to fracturing in advance of

earnings season is warranted but material share price appreciation on the back

of strong quarterly results could be an opportunity to switch into a more

defensive stance by reducing pressure pumping holdings and adding land

drillers with strong balance sheets, solid long-term contract coverage, high-

spec rig fleets and attractive commodity and geographic diversification.


7/24

Please r cluding the Analyst's Certificatio

Diamond Offshore Drill ing(DO-NYSE)

Stock Rating: UnderperformIndustry Rating: Outperform

Apri l 19, 20

Oil Service

Alan Laws, CFBMO Capital Markets Co

[email protected]

Phillip Jungwirth, CF303-436-11

[email protected]

Rising Downtime Equals Higher Costs Securities InfoPrice (16-Apr) $87.21 Target Price $52-Wk High/Low $109/$68 Dividend $8Mkt Cap (mm) $12,124 Yield 9.Shs O/S (mm, BASIC) 139.0 Float O/S (mm) 13Options O/S (mm) na ADVol (30-day, 000s) 1,6

Selected Bond Iss Ind Prc Ratg Mdys/S&P YTW SpreDO 5.15% '14 108 Baa1 / A- 3.29% 76DO 4.875% '15 107 Baa1 / A- 3.44% 92Bond data from Bloomberg.

Price Performance

Event

Today Diamond released a fleet status report that included greater-than-expected downtime. Its fleet experienced approximately 664 days of downtimein 1Q as a result of surveys, maintenance, contract preparation, and

mobilization, and we expect this pattern to continue over the balance of 2010.

efer to pages 3 to 5 for Important Disclosures, in

ImpactAs a result of the greater downtime in 1Q and the remaining scheduled five-

year surveys in 2010 (two in 2Q, one in 3Q & two in 4Q), we expect reduced

utilization and cost guidance to trend upward on the upcoming earnings call.

We have reduced our 1Q10 and 2010 estimates accordingly. We recently

downgraded DO to UNDERPERFORMfromMARKET PERFORMbased on

expectations of continued investment in its older fleet (i.e., buying more rigs)

and the likely impact on its valuation supporting dividend (i.e., a reduced

payout). In addition, the 4/15/10 listing of Seadrill on the NY SE represents

stiff competition in the high dividend yield area providing options fo

investors. While we envision an eventual dividend cut by DO, SDRL is

likely to increase its dividend, making it even more attractive at margin fo

yield-focused investors. Moreover, we see any cut to DOs dividend

impacting its current stock price even if said cut is to fund the purchase o

value accretive, high specification deepwater rigs.

50

100

150

200

250

300

DIAMOND OFFSHORE DRI LLNG I NC ( DO)Price: High,Low,Close(US$) Relative to S&P 500

20

40

60

80

100

120

140

160

ForecastsWe have lowered our 1Q10 and 2010 estimate to $1.87 and $8.54 from $1.92

and $8.65. Our 2011 estimate was also lowered to $7.36 from $7.65.

Valuation

Our target price is now $75, down from $99 prior to our 4/15/10 downgrade.

Recommendation

Our opinion remainsUNDERPERFORM.

Changes Annual EPS Annual OperCF Quarterly EPS2010E$8.65to$8.54 2010E$11.69to$11.58 Q1/10E$1.92to$1.872011E$7.65to$7.36 2011E$10.84to$10.55 Q2/10E$1.91to$1.94

Q3/10E$2.36to$2.33Q4/10E $2.46to$2.40

2005 2006 2007 2008 20090

50

100

150Volume (mln)


0

50

100

150

Valuation/Financial Data

(FY-Dec.) 2008A 2009A 2010E 2011E

EPS GAAP $10.00 $9.89 $8.54 $7.36P/E 10.2x 11.8xFirst Call Cons. $8.57 $9.0

OperCF $11.49 $12.39 $11.58 $10.55P/OperCF 7.5x 8.3EBITDA ($mm) $2,198 $2,250 $2,087 $1,889EV/EBITDA 6.2x 6.8Rev. ($mm) $3,544 $3,631 $3,642 $3,639

Quarterly EPS 1Q 2Q 3Q 4Q

2009A $2.51 $2.79 $2.62 $1.982010E $1.87 $1.94 $2.33 $2.40

Balance Sheet Data (12/31/09)Net Debt ($mm) $722 TotalDebt/EBITDA 0.7x

Total Debt ($mm) $1,499 EBITDA/IntExp 41.7xNet Debt/Cap. 16.6% Price/Book 3.3x

Notes: All values in US$

Source: BMO Capital Markets estimates, Bloomberg, FactSet, GlobInsight, Reuters, and Thomson Financial.


8/24


9/24


Packaging Corp. of

America(PKG-NYSE)Stock Rating: OutperformIndustry Rating: Outperform

Apri l 20, 2010Research CommentMontreal, Quebec

Stephen AtkinsonBMO Nesbitt Burns Inc.(514) [email protected]: Joe Licursi, CMA

Price (19-Apr) $24.68 52-Week High $25.8Target Price $35.00 52-Week Low $12.7Q1/10 Resul ts in L ine

0.0

0.5

1.0

1.5

2.0

5

10

15

20

25

30

35

Packagi ng Corp. of Ameri ca ( PKG)Price: High,Low,Close(US$) Earnings/Share(US$)

Event

Packaging Corp. Q1/10 EPS were $0.12 compared to our forecast of $0.13 and the

First Call Mean of $0.11. The results excluded $9 million of alternative fuel taxcredit and $2.5 million for asset disposal in relation to the Counce, TN, and

Valdosta, GA, energy projects as well as the announced closure of the Ackerman,

MS, sawmill.


Impact

Neutral. Q2/09 EPS guidance is $0.30 compared to the Mean of $0.33.

Forecasts

The slight increase in our forecast reflects the sawmill closure. Reportedly, the

April 1 $60/tonne containerboard price increase to $600/ton is going through as well

as a 10% box plant increase. U.S. boxplant plus mill inventories are at near

historical lows at 2.083mm tons. The kraft linerboard price in China is $630/ton and

European producers have announced an increase to the equivalent of $620/ton.

Barring a global recession, we expect the $60/tonne price increase will be

sustainable. PKGs EPS sensitivity to a $60/tonne price increase is $0.90/share.

Our 2011 EPS forecast is $2.62 compared to the First Call Mean of $1.70.

Valuation

Our target price is $35 and represents 6x 2011E EV/EBITDA. Pro forma $75

million annual savings in energy projects to be completed in late 2011, the multiple

falls to 5.5x. Given the companys consistently superior cash flow generation, webelieve a higher trading multiple, EV/EBITDA multiple of 7-8x, is appropriate.

Recommendation

The relatively high virgin fiber content also ensures outperformance in a tightening

wastepaper market. Packaging Corp. is one of our preferred investments in the

sector. Our rating is Outperform.

0

20

40Volume (mln)

0

20

40

2005 2006 2007 2008 200950

100

150PKG Relative to S&P 500


50

100

150

(FY-Dec.) 2008A 2009A 2010E 2011E

EPS $1.36 $0.94 $1.59 $2.6P/E 15.5x 9.4

CFPS $2.82 $2.34 $2.99 $4.0P/CFPS 8.3x 6.2

EV/EBITDA 7.8x 8.6x 6.6x 4.4ROE 20% 12% 17% 24%Gross Margin 17% 16% 18% 23%FCF $11 $115 $38 $18

Quart erly EPS Q1 Q2 Q3 Q

2008A $0.31 $0.37 $0.38 $0.32009A $0.25 $0.28 $0.25 $0.12010E $0.12a $0.30 $0.58 $0.6Dividend $0.60 Yield 2.4%Book Value $8.83 Price/Book 2.8Shares O/S (mm) 102.9 Mkt. Cap (US$mm) $2,54

Float O/S (mm) 101.9 Float Cap (US$mm) $2,51Wkly Vol (000s) 5,171 Wkly $ Vol (USmm) $103.Net Debt ($mm) $477.9 Next Rep. Date J uly (E

Notes: All figures in US$Major Shareholders: Madison Dearborn (21%)First Call Mean Estimates: PACKAGING CORP OF AMERICA(US$) 2010E: $1.30; 2011E: $1.70

Changes Annual EPS Annual CFPS Quarterly EPS2010E$1.56to$1.59 2010E$2.99to$2.99 Q2/10E$0.28to$0.302011E$2.60to$2.62 2011E$4.03to$4.01 Q3/10E$0.57to$0.58

Q4/10E$0.58to$0.60


10/24


Terra Industries(TRA-NYSE)

Stock Rating: Not RatedIndustry Rating: Outperform

Apri l 19, 2010Research CommentToronto, Ontario

Edwin CheeBMO Nesbitt Burns Inc.(416) [email protected]: Harriet Li, CA / Bobby Kalsi

Price (16-Apr) na 52-Week High $46.9Target Price na 52-Week Low $23.6

Coverage Discontinued


-2

0

2

4

6

8

Terr a I ndust r i es I nc ( TRA)Price: High,Low,Close(US$) Earnings/Share(US$)

0

10

20

30

40

50

60

Event

We are discontinuing research coverage of Terra Industries, due to thesuccessful completion of CFs exchange offer. Terra Industries is now a wholly

owned subsidiary of CF Industries and the shares of Terra common stock have

ceased trading on the NY SE. Our final rating was Market Perform. Investors

should no longer rely on BMO Capital Markets Research for an investment

recommendation on Terra Industries.0

100

200Volume (mln)

0

100

200

2005 2006 2007 2008 20090

500

1000TRA Relative to S&P 500


0

500

100

(FY-Dec.) 2008A 2009A 2010E 2011E

EPS $6.13 $1.53 na nP/E na n

CFPS $8.11 $2.68 na nP/CFPS na n

Rev.($mm) $2,892 $1,581 na nEV($mm) $1,891 $2,271 na nEBITDA($mm) $941 $339 na nEV/EBITDA 2.0x 6.7x na n


2008A $0.97 $1.87 $1.64 $1.62009A $0.30 $0.81 $0.46 -$0.042010E na na na n

Dividend $0.40 Yield nBook Value $4.94 Price/Book n

Shares O/S (mm) 99.8 Mkt. Cap (US$mm) nFloat O/S (mm) 99.8 Float Cap (US$mm) nWkly Vol (000s) na Wkly $ Vol (USmm) nNet Debt ($mm) $235.3 Next Rep. Date n

Notes: All values in US$Major Shareholders: Widely heldFirst Call Mean Estimates: TERRA INDUSTRIES INCORPORAT(US$) 2010E: $2.97; 2011E: $3.28


11/24


Migao(MGO-TSX)

Stock Rating: OutperformIndustry Rating: Outperform


Joel Jackson, P.Eng.BMO Nesbitt Burns Inc.(416) 359-4250J oel.J [email protected]

Price (19-Apr) $7.13 52-Week High $9.0Target Price $9.00 52-Week Low $6.0

Holding Pattern

ed by BMO Nesbitt Burns Inc., and who is (are) not regist erethe Analyst's Certification, please refer to pages 9 to 11.

0.2

0.4

0.6

0.8

1.0

1.2

Mi gao Cor p. ( MGO)Price: High,Low,Close Earnings/Share

2

4

6

8

10

12

Event

Despite an apparent bottoming of potash prices, there could be some near-termpressure on MGO considering recent developments in the grain markets, and

the continuing drought in south-western China, including Yunnan province, a

key MGO market. We also believe MGO could be at risk to miss March

(FQ4/10) consensus EPS of $0.17 as we believe consensus over-estimates low-

grade SOP sales, which management has clarified tend to be made in the

Sept/Dec quarters, and not Mar/Jun. We also believe consensus incorporates a

6% tax rate, not the 19% we expect due to the phase-out of tax incentives.

Impact

Slightly Negative.

Forecasts

Our F2011 and F2012 EPS estimates fall to $0.67 and $0.86 from $0.74 and

$0.89. Our FQ4/10 low-grade SOP forecast drops from 25,000t to zero, and

our FQ1/11 volumes fall 510% to account for potential drought effects. We

now model steady 5% annual appreciation of the Chinese RMB as of July.

Valuation

Our $9.00 target is based on 13.4x F2011E (Mar) EPS and 8.1x F2011E

EV/EBITDA. At 10.6x F2011E P/E and 6.2x F2011 EV/EBITDA, MGO

continues to appear cheap, particularly considering its strong cash position.

Recommendation

We maintain our Outperform rating for MGO. Despite possible near-term

pressure, long-term performance rests, in our view, on MGOs ability to

commission the SQM JV and Shanghai SOP plant on time and announce

timely new greenfield plant growth initiatives in Southeast Asia or China.

0

5

10Volume (mln)

0

5

10

2006 2007 2008 20090

200

400MGO Relative to S&P/TSX Comp


0

200

400

(FY-Mar.) 2009A 2010E 2011E 2012E

EPS $0.97 $0.71 $0.67 $0.8P/E 10.0x 10.6x 8.3

CFPS -$0.08 $1.12 -$0.06 $0.5P/CFPS 6.4x na 12.3

Rev.($mm) $289 $249 $276 $34EV($mm) $277 $264 $299 $27EBITDA($mm) $52 $46 $48 $6EV/EBITDA 5.3x 5.7x 6.2x 4.4


2009A $0.15 $0.28 $0.27 $0.22010E $0.20a $0.20a $0.18a $0.12011E $0.14 $0.17 $0.18 $0.1Dividend $0.00 Yield 0.0%Book Value $5.56 Price/Book 1.3

Shares O/S (mm) 52.1 Mkt. Cap ($mm) $37Float O/S (mm) 33.9 Float Cap ($mm) $24Wkly Vol (000s) 969 Wkly $ Vol (mm) $7.Net Debt ($mm) -$72.8 Next Rep. Date J un (E

Notes: All values in C$; MGO transitioned from Sept to Mar year-ein 2009; Historical figures back-filled to match new year-end formatMajor Shareholders: Liu Guocai (CEO), 38%First Call Mean Estimates: MIGAO CORP (C$) 2010E: $0.76;2011E: $0.82; 2012E: $0.94

Changes Annual EPS Annual CFPS Quarterly EPS 2010E$0.75to$0.71 2010E$0.98to$1.12 Q4/10E$0.16to$0.13 Q1/11E$0.17to$0.14

2011E$0.74to$0.67 2011E-$0.12to-$0.06 Q2/11E$0.19to$0.172012E$0.89to$0.86 2012E$0.69to$0.58 Q4/11E$0.20to$0.18


12/24


Walmart(WMT-NYSE)

Stock Rating: Market Perform Industry Rating: Market Perform

Apri l 19, 20

Broadline Reta

Wayne Ho

BMO Capital Markets Co404-926-15

[email protected]

Comments Following Overseas Meeting WithManagement

Phillip Juhan Tammy Gonzalez Shannon Coy404-926-1591 404-926-1592 404-926-15

[email protected] [email protected] [email protected]

Securities InfoPrice (16-Apr) $54.11 Targ et Price 52-Wk High/Low $56/$47 Dividend $1Mkt Cap (mm) $203,400 Yield 2Shs O/S (mm, BASIC) 3,759 Float O/S (mm) 2,Options O/S (mm) na ADVol (30-day, 000s) 11,

Selected Bond Iss

Event


Our comments follow the Wal-Mart Stores, Inc. International (~25% o

consolidated sales) analyst field trip to visit Asda in Leeds, England.

ImpactNeutral. Despite recent reports to the contrary, after speaking with CFO To

Schoewe at the analyst meeting, we look for strong pricing tactics and

messaging in the US until traffic trends improve. In addition, we left the

meeting believing Asda will be challenged to materially affect Wal-Marts

International sales and operating profits over the next five years owing to

diminishing material growth opportunities. Moreover, one of the two fastest-

growth formats over the next five years, supermarkets, has the third lowest

ROI among the portfolio of four formats.

ForecastsThere was no new information learned at the meeting that would cause us to

change our FY2010 or FY2011 EPS estimates of $4.00 and $4.34,

respectively.

ValuationThe stock trades at 13.5x our 2010 estimate, or an 11% discount to the S&P

500. Our $58 price target assumes the stock is accorded a market multiple

over the next 12 months.

Recommendation

At this juncture, we are maintaining ourMARKET PERFORMrating.

Ind Prc Ratg Mdys/S&P YTW SprWMT 3.375% 10/01/08 na WR / NR

WMT 4.125% 07/01/10 101 Aa2 / AA 1.51% 13Bond data fromBloomberg.

Price Performance

40

45

50

55

60

65

70

60

80

10

12

14

16

18

WAL MART STORES I NC ( WMT)Price: High,Low, Close(US$) Relative to S&P 500

0

500

1000

2005 2006 2007 2008 2009

Volu me (mln )

Last Data P oint: April 16, 2010


0

50

10

(FY-Jan.) 2008A 2009A 2010E 2011

EP S GAAP $3.35 $3.66 $4.00 $4.3P/E 13.5x 12.5First Call Cons. $3.98 $4.3

FCF $2.50 $2.15 $2.44 nP/FCF 22.2x nEBITDA ($mm) $29,538 $31,107 $33,273 $35,06EV/EBITDA 7.1x 6.8Rev. ($mm) $401,218 $405,046 $429,069 $450,30EV/Rev 0.6x 0.5

Quarter ly EPS 1Q 2Q 3Q 4

2009A $0.77 $0.88 $0.84 $1.12010E $0.85 $0.98 $0.91 $1.2

Balance Sheet Data (01/29/10)Net Debt ($mm) $33,413 TotalDebt/EBITDA 1.2

Total Debt ($mm) $41,320 EBITDA/IntExp nNet Debt/Cap. 29.8% Price/Book 2.9

Notes: All values in US$.

Source: BMO Capital Markets estimates, Bloomberg, FactSet, GloInsight, Reuters, and Thomson Financial.


13/24


Hasbro(HAS-NYSE)

Stock Rating: Market Perform Industry Rating: Outperform

Apri l 19, 20

Toys & Juvenile Produc

Gerrick L. Johnso


[email protected]

Business Still Booming, But Were Still Cautious Securities InfoPric e (16-Apr ) $39.85 Target Price $3

52-Wk High/Low $41/$22 Dividend $1Mkt Cap (mm) $5,434 Yield 2Shs O/S (mm, BAS IC) 136.4 Float O/S (mm) 12Options O/S (mm) na ADVol (30-day, 000s) 1,

Price Performance

Event

Hasbro reported 1Q10 EPS of $0.26, excluding a one-time tax benefit. On a

GAAP basis, the company reported $0.40. We were the high estimate on theStreet at $0.20, with Street consensus at $0.16. The company reported $0.14

a year earlier.

80

10

12

14

16

18

20

22

HASBRO I NC (HAS)P rice: High,Low,Close(US$) R elative to S&P 500

15

20

25

30

35

40

45

ImpactWith yet another quarterly EPS beat in 1Q10, we think the bulls will

continue to be in charge on this stock, particularly with headlines that

include: EPS beat, share buyback, and guidance for growth in 2010.


0

50

100

ForecastsWe are leaving our EPS estimates unchanged. We anticipate the company

reporting EPS of $2.45 in 2010 (excluding a one-time tax gain) and $2.75 in2011.

ValuationWe are revising our price target to $35 from $34, which represents 13x ou

2011 PES estimate of $2.75.

RecommendationDespite strong performance, we remain cautious on shares of Hasbro as we

think expectations are high for both earnings in the core toy business as well

as performance of the new HUB television network. We maintain ou

MARKET PERFORMrating.

Changes Annual FCF Quarterly EPS Target 2010E$2.54to$2.27 Q2/10E$0.24to$0.23 $34.00to$35.00

2011E$2.30to$2.62 Q3/10E$0.96to$0.99Q4/10E$1.05to$1.03

2005 2006 2007 2008 2009

Volume (mln)

Last Data Point:April 16, 2010


0

50

10

(FY-Dec.) 2008A 2009A 2010E 2011E

EPS Pro Forma $2.00 $2.48 $2.45 $2.7P /E 16.3x 14.5First Call Cons. $2.52 $3.0

EPS GAAP $1.70 $2.48 $2.60 $2.7

FCF $2.07 -$1.67 $2.27 $2.6

P /FC F 17.6x 15.2EBITDA ($mm) $660 $770 $719 $76EV/EBITDA 8.2x 7.7Rev. ($mm) $4,022 $3,987 $3,885 $3,91EV/Rev 1.5x 1.5

Quarte rly EPS 1Q 2Q 3Q 4Q

2009A $0.14 $0.26 $0.99 $1.02010E $0.26A $0.23 $0.99 $1.0

Balance Sheet Data (12/31/09)

Net Debt ($mm) $489 TotalDebt/EBITDA 1.6Total Debt ($mm) $1,146 EBITDA/IntExp 59.9Net Debt/Cap. 17.8% Price/Book 3.4




14/24


International Business

Machines(IBM-NYSE)Stock Rating: OutperformIndustry Rating: Market Perform

Apri l 19, 20

Enterprise Hardware & Imagin

Keith Bachm


[email protected]

Jung Pak Corey Meeha213-228-2546 212-885-40

[email protected] [email protected]

Securiti es InfoPrice (19-Apr) $132.23 Target Price $1452-Wk High/Low $134/$98 Dividend $2Mkt Cap (mm) $171,767 Yield 1.Shs O/S (mm, BASIC) 1,299 Float O/S (mm) 1,2Options O/S (mm) na ADVol (30-day, 000s) 6,0

Price Performance

Better in Second Half

Event

IBM reported March-quarter earnings that were modestly above our and

consensus expectations $1.97 vs. our $1.89 and consensus of $1.93. FX

was about 5.0% help and we had projected +4.5% impact. Lower share count

and tax rate added about $0.02 to reported results vs. our estimates.

80

100

120

140

160

180

200

I NTERNATIONAL BUSINESS MACHS ( I BM)

P rice: High,Low,Close(US$) Relative to S&P 500

60

70

80

90

100

110

120

130

140

ImpactNeutral given that results were essentially in line with our/consensus

estimates and 2010 EPS estimates will likely change by approximately 2%.

0

200

400

0

200

400


ForecastsFor 2010, we are raising our estimates from $11.05 to $11.20. For 2011, we

are raising our estimates from $11.85 to $11.95.2005 2006 2007 2008 2009

Volume (mln)

Last Data Poi nt: April 16, 2010


(FY-Dec.) 2008A 2009A 2010E 2011EValuationGiven our estimate increases, we are raising our target price from $145 to

$147, or 12x-13x our 2011 EPS estimate.

EPS Pro Forma $8.89 $10.01 $11.20 $11.9P/E 11.8x 11.1First Call Cons. $11.12 $12.14

EPS GAAP $8.89 $10.01 $11.20 $11.9

FCF $10.80 $13.16 $13.24 $14.6P/FCF 10.0x 9.0xEBITDA ($mm) $21,390 $22,003 $22,570 $23,37EV/EBITDA 8.2x 7.9xRev. ($mm) $103,630 $95,756 $98,811 $101,794EV/Rev 1.9x 1.8

Quarterl y EPS 1Q 2Q 3Q 4Q

RecommendationWe remain OUTPERFORMrated on IBM. We believe that improved revenue

growth in 2H10 will drive estimates and the multiple higher, helped by 1)

improved services revenue growth, driven by improvement in macro-based

services demand; and 2) systems product cycles, which drag high margin

services and software business. Net of FX, we believe that IBMs revenuegrowth can improve from 0% this quarter to 3%+in 2H 2010, enough to help

push the stock to the low end of IBMs historical trading range.

2009A $1.70 $2.32 $2.40 $3.52010E $1.97A $2.59 $2.74 $3.9

Balance Sheet Data (31-Mar)

Net Debt ($mm) $12,342 TotalDebt/EBITDA 1.2Total Debt ($mm) $26,319 EBITDA/IntExp nNet Debt/Cap. 54.5% Price/Book 7.6



Changes Annual EPS Annual FCF Quarterly EPS Target 2010E$11.05to$11.20 2010E$12.68to$13.24 Q3/10E$2.70to$2.74 $145.00to$147.00

2011E$11.85to$11.95 2011E$13.31to$14.65 Q4/10E$3.87to$3.90


15/24

Page 1 April 19, 20

Enterprise Hardware &

Imaging

Industry Rating: Market Perform

Apri l 19, 20

Keith Bachma

BMO Capital Markets [email protected]

Jung Pak Corey Meeha213-228-2546 212-885-40


Summary

Given better unit shipments in the March Q, we

believe that STX and WDC will both report EPS

above our/consensus estimates. For the March Q,

we believe WDC could report approximately

$1.65 versus consensus of $1.55 and our $1.48.

We believe that STX could report approximately

$1.00 versus consensus of $0.94 and our $0.91.

March Q results are less important than J une Q

guidance, given recent pricing trends.

For the J une Q, we believe that WDC will guide in

the range of $1.20 to $1.30, compared with our

$1.22 and consensus of $1.36. For STX, we

believe that STX will guide in the range of $0.70

to $0.80 vs. our $0.72 and consensus of $0.81.

We remain MARKET PERFORMon both names.

Even with guidance potentially modestly lower

than current consensus estimates, we believe that

current sentiment is already too negative to

warrant a bearish stock view. Moreover, we may

return to our bullish view on drives during the

upcoming slow summer months. If PC unit growth

is 18%-20% or higher in CY2010, then we believe

that drives could face tightness in 2HCY10, as we

illustrate herein.

Looking for a Turn

1. Drive Stocks Neutral for Now

We have both STX and WDC as MARKET PERFORM rated stocks at

present. Further, we believe that supply will exceed demand for the balance

of the June Q, as we illustrate later in this document (section 4). Therefore,

we believe that pricing will be aggressive during the summer, which will

weigh on the drive stocks. However, we believe that drive tightness could

return late in 2HCY 10, as long as PC unit shipment growth is +18% to 20%

y/y in CY2010. Therefore, given these conditions, we might consider re-

establishing our bullish views on the drive industry during the next few

months.

We are not making changes to our estimates, ratings or price targets at this

time.

Refer to pages 5 to 6 for Important Disclosures, including Analyst's Certification.


16/24


Sensata Technologies(ST-NYSE)


Apri l 20, 20

Semiconducto

Ambr ish Sr ivastava, Ph


[email protected]

Emily Scudd415-591-21

[email protected]

Initiating With OUTPERFORM Securities InfoPrice (19-Apr) $19.07 Target Price 52-Wk High/Low $20/$17 Dividend Mkt Cap (mm) $3,264 Yield Shs O/S (mm, BASIC) 171.2 Float O/S (mm) 3Options O/S (mm) na ADVol (30-day, 000s) 1,1

Selected B ond Iss

Investment Thesis

Sensata, the former sensors and controls division of Texas Instruments, has a

differentiated and leading position in key applications within its end markets,such as automotive and industrials. We believe the company is well

positioned to benefit from a recovery in automotives and industrials, fro

continuing growth in emerging markets, and from growth of Sensata content

in markets such as sensors. Sensatas business is sticky, customer

relationships are long, design in times go into years, and visibility is driven

by multi-year contracts and sole source supplier status that the company has

in place with several major customers. The company is led by an experienced

management team with a deep bench. Sensata is de-levering its balance sheet

and has a strong operating model, which can enable the company to pay of

its debt. The company has a five-year median FCF-to-sales ratio (unlevered)

of 20%, which puts it in the middle of our coverage universe. Median-adjusted EBITDA margin over the same period is 27%, again, right under the

analog group in our coverage. We have Sensata generating $550 million in

FCF over the next two years, which we believe can be directed toward

paying off the $2.1 billion in net debt the company has on its balance sheet.


ForecastsWe are introducing revenue and pro forma EPS estimates of $1.42 billion

and $1.49 for 2010 and $1.63 billion and $1.84 for 2011, respectively.

Valuation

Our price target of $24 is based on a P/E multiple of 13xour pro forma 2011EPS estimate of $1.84. We believe the multiple is appropriately discounted

from both our analog companies and the industrial comps.

Recommendation

We rate ST sharesOUTPERFORM.

Ind Prc Ratg Mdys/S&P YTW SpreSensata 11.25% '14 106 Caa2 / CCC+ 2.07% 19

Sensata 9% '16 na Caa2 / CCC+ Bond data from Bloomberg.

Price Performance

99

10

10

10

10

10

10

10

SENSATA TECHNOLOGI ES HLDG BV (ST)P rice: High,Low,Close(US$) Relative to S&P 500

17.0

17.5

18.0

18.5

19.0

19.5

20.0

20.5

21.0

0

10

20

30

2005 2006 2007 2008 2009

Volume (mln)



0

10

20

30

(FY-Dec.) 2008A 2009A 2010E 2011E

EPS Pro Forma na na $1.49 $1.84P/E 12.8x 10.4First Call Cons.

EPS GAAP na na $0.06 $0.9

FCF na na $1.36 $1.8P/FCF 14.0x 10.2EBITDA ($mm) $317 $317 $408 $47EV/EBITDA 13.3x 11.4Rev. ($mm) $1,423 $1,135 $1,420 $1,63EV/Rev 3.8x 3.3

Quarte rl y EPS 1Q 2Q 3Q 4Q2009A na na na n2010E $0.41 $0.37 $0.35 $0.3

Balanc e Sheet Data (12/31/09)Net Debt ($mm) $2,152 TotalDebt/EBITDA 5.6

Total Debt ($mm) $2,301 EBITDA/IntExp nNet Debt/Cap. 80.1% Price/Book 7.1




17/24


AT&T(T-NYSE)



Peter Rhamey, CFABMO Nesbitt Burns Inc.(416) [email protected]: Kam Mangat, CFA


Q1/10 Preview: Wireless Postpaid to Soften butMargins Expected to Be Solid

1.0

1.5

2.0

2.5

3.0

AT&T I nc. ( T)Price: High,Low,Close(US$) Earnings/Share(US$)

20

25

30

35

40

45

Event

We have reviewed our Q1/10 estimates ahead of AT&T reporting Q1/10 results

on April 21. Our EPS estimate is $0.53 versus consensus of $0.54. Conference

call at 10:00am; dial-in 1-866-232-4457.

ed by BMO Nesbitt Bu rns Inc., and who is (are) not registerethe Analyst's Certification, please refer to pages 8 to 10.

Impact

Neutral.

Forecasts

Our annual estimates remain largely unchanged with revenue and EBITDA

expected to be in the 2% range for 2010 and 2011 for revenue and 1.5% and 4%

range for 2010 and 2011, respectively for EBITDA. We have revised

downwards our estimates for wireless postpaid net additions to reflect slower

growth in this segment. This was more than offset by higher anticipated device

sales going forward, which has a significant dilutive impact on blended ARPU

of over 200bps in terms of growth and 10bps benefit to blended churn.

Valuation

The stock trades at 5.4x 2010E EBITDA, a P/E of 12x 2010 EPS, and offers a

6.4% yield. Our $31 target price is based on a target EV/EBITDA multiple of

6.0x 2010E EBITDA, 14.1x 2010E EPS and yield of 5.4%. We value AT&T

similarly to Verizon in terms of target multiples.

Recommendation

We rate the stock Outperform, reflecting the companys strong strategic position

and potential to improve operational and financial performance in 2010. The

stock should prove defensive due to the recurring revenue nature of its business

model, strong cash flow generation and dividend yield.

0

1000

2000Volume (mln)

0

100

200

2005 2006 2007 2008 20090

100

200T Relative to S&P 500


0

100

200

(FY-Dec.) 2008A 2009A 2010E 2011E

EPS $2.32 $2.12 $2.20 $2.4P/E 12.0x 10.9

CFPS $6.84 $6.10 $6.25 $6.5P/CFPS 4.2x 4.0

Rev.($mm) $124,028 $123,018 $125,520 $127,63EV($mm) $262,689 $230,192 $227,297 $225,80EBITDA($mm) $44,384 $41,734 $42,300 $44,03EV/EBITDA 5.9x 5.5x 5.4x 5.1


2008A $0.61 $0.63 $0.55 $0.52009A $0.53 $0.54 $0.54 $0.52010E $0.53 $0.54 $0.57 $0.5

Dividend $1.68 Yield 6.4%Book Value $17.34 Price/Book 1.5

Shares O/S (mm) 5,901.0 Mkt. Cap (US$mm) $155,66Float O/S (mm) 5,901.0 Float Cap (US$mm) $155,66Wkly Vol (000s) 138,298 Wkly $ Vol (USmm) $3,563.Net Debt ($mm) $68,279.0 Next Rep. Date 21-Apr (E

Notes: All values in US$; Estimates exclude merger costsMajor Shareholders: Widely heldFirst Call Mean Estimates: AT&T INC (US$) 2010E: $2.19; 2011$2.37

Changes Annual CFPS Quarterly EPS2011E$6.53to$6.54 Q1/10E$0.52to$0.53

Q2/10E$0.55to$0.54Q3/10E$0.57to$0.57


18/24


Verizon Communications(VZ-NYSE)


Member of: Top 15 Income Stock Selections


Peter Rhamey, CFABMO Nesbitt Burns Inc.(416) [email protected]: Kam Mangat, CFA


Q1/10 Preview: Wireless Postpaid to Soften KeyFocus on Wireline Margins

2.3

2.4

2.4

2.5

2.5

2.6

20

25

30

35

40

45

50

Ver i zon Communi cat i ons ( VZ)Price: High,Low,Close(US$) Earnings/Share(US$)

Event

We have reviewed our Q1/10 estimates ahead of Verizon reporting Q1/10results on April 22. Our EPS estimate is $0.55 versus consensus of $0.56.

Conference call Thursday at 8:30am, dial in 888-790-6031.

ed by BMO Nesbitt Burns Inc., and who is (are) not regist erethe Analyst's Certification, please refer to pages 9 to 11.

Impact

Neutral.

Forecasts

Our annual EPS estimates remain unchanged while we have made slight

revisions to our revenue and EBITDA estimates with growth expected to

increase from just over 0.5% to 2.5% by 2011 and EBITDA growth expectedto improve from 1% to 6% in 2011. Growth is expected to be driven by

improved margins in wireline. For Q1/10, we have revised downwards our

postpaid net addition estimates to reflect slower growth in this segment. This

was more than offset by anticipated resale and device sales, which has a dilutive

impact on blended ARPU of 100150bps.

Valuation

Our $35 target price is based on a target EV/EBITDA multiple of 5.9x 2010E

EBITDA, 15.0x 2010E EPS and yield of 5.7%. We believe that with $3 billion

in expected Frontier proceeds, wireless inter-company loans of $5 billion and $2

billion in expected wireline capex reductions in 2011, dividend payments froVZW to VZ should remain modest into 2012 with a wireline margin recovery

essential beyond this period.

Recommendation

We rate Verizon Outperform.

0

500

1000Volume (mln)

0

500

100

2005 2006 2007 2008 200950

100

150VZ Relative to S&P 500


50

100

150

(FY-Dec.) 2008A 2009A 2010E 2011E

EPS $2.54 $2.40 $2.33 $2.6P/E 12.8x 11.4

CFPS $10.29 $11.99 $10.86 $11.4P/CFPS 2.7x 2.6

Prop. Rev.($mm) $79,979 $79,849 $80,402 $82,45Prop. EV($mm) $141,367 $155,248 $133,150 $130,07Prop. EBITDA($mm) $24,160 $24,654 $24,925 $26,40Prop. EV/EBITDA 5.9x 6.3x 5.3x 4.9


2008A $0.61 $0.67 $0.66 $0.62009A $0.63 $0.63 $0.60 $0.52010E $0.55 $0.58 $0.63 $0.5Dividend $1.90 Yield 6.4%Book Value $14.64 Price/Book 2.0

Shares O/S (mm) 2,841.0 Mkt. Cap (US$mm) $84,46Float O/S (mm) 2,841.0 Float Cap (US$mm) $84,46Wkly Vol (000s) 83,576 Wkly $ Vol (USmm) $2,537.Net Debt ($mm) $60,247.0 Next Rep. Date 22-Apr (E

Notes: All values in US$; *VZ Wireless Subs.; Verizon owns 55% oVerizon WirelessMajor Shareholders: Widely heldFirst Call Mean Estimates: VERIZON COMMUNICATION (US$)2010E: $2.34; 2011E: $2.51

Changes Annual CFPS Quarterly EPS2010E$10.97to$10.86 Q1/10E$0.49to$0.552011E$11.54to$11.44 Q2/10E$0.57to$0.58

Q3/10E$0.66to$0.63Q4/10E$0.61to$0.59


19/24


TiVo(TIVO-NASDAQ)

Stock Rating: Outperform (S)Industry Rating: Outperform

Apri l 19, 20

Digital Entertainme

Edward S. William


[email protected]

Thomas F. Andre212-885-41

[email protected]

Initiating Coverage of TiVo With OUTPERFORM (S) Securities InfoPrice (19-Apr) Intraday $17.10 Target Price $52-Wk High/Low $19/$6 Dividend Mkt Cap (mm) $1,987 Yield Shs O/S (mm, BASIC) 116.2 Float O/S (mm) 10Options O/S (mm) 0.1 ADVol (30-day, 000s) 7,9

Price Performance

Investment Thesis

We are initiating coverage of TiVo with an OUTPERFORM (S) rating and

12-month price target of $25. Despite the stock price increasing more than70% since March 4 (following recent legal victories over EchoStar), we

believe additional upside remains owing to the companys ability to protect

its technology via the US patent system and differentiate its products in the

DVR market. Although enforcing its patents through litigation is costly and

time-consuming, we believe TiVo will have an easier time securing licensing

agreements with MSO/DBSs, given recent favorable decisions in the

EchoStar case. 50

100

150

200

250

300

350

TI VO I NC ( TI VO)Price: High,Low,Close(US$) Relative to S&P 500

2

4

6

8

10

12

14

16

18

20


ForecastsOur EPS estimates are a loss of $0.56 for FY2011 and a loss of $0.40 fo

FY2012.

ValuationShares of TIVO trade at an EV/Sales multiple of 10.4x our FY2011 and 9.5x

our FY2012 estimates.

RecommendationWe are initiating coverage of TIVO with anOUTPERFORM (S) ratingand

$25 target price. We believe that TiVo is poised to resume growing its

subscribers as DISH exhausts its legal avenues and following TiVos recent

release of the Premiere box and the pending launch, later this year, of a new

HD enabled DIRECTV box. We have used a sum-of-the-parts valuation toderive our price target of $25.

2005 2006 2007 2008 20090

100

200

300Volume (mln)


0

100

200

300


(FY-Jan.) 2008A 2009A 2010A 2011E

EPS GAAP -$0.32 $1.01 -$0.23 -$0.5P/E nmFirst Call Cons. -$0.46

FCF -$0.21 $0.69 -$1.23 -$0.46P/FCF nmEBITDA ($mm) -$26 $97 -$17 -$57EV/EBITDA nmRev. ($mm) $231 $209 $190 $172EV/Rev 10.1x

Quarterly EPS 1Q 2Q 3Q 4Q

2009A $0.04 $0.03 $0.98 -$0.042010A -$0.04 -$0.03 -$0.06 -$0.09

Balance Sheet Data (01/29/10)Net Debt ($mm) -$245 TotalDebt/EBITDA nm

Total Debt ($mm) $0 EBITDA/IntExp nmNet Debt/Cap. nm Price/Book 9.6xDSO 22




20/24

Page 1

Entertainment

Industry Rating: Outperform

Apri l 20, 20

Jeffrey B. Logsdo

BMO Capital Markets [email protected]

Jeffrey Hoskins, CFA Kara Stevens213-228-2405 213-228-24


Summary

LGFs Kick-Ass was the top film over the

weekend with $19.8 million grossed.

Opening wide next weekend is CBS Films The

Back-Up Plan ($10-$15 million estimatedopening), TWXs The Losers ($10-$15 million

estimated opening), and DISs Oceans ($10

million estimated opening).

The first-quarter calendar box office finished up

8.9% over the prior year. Year to date the box

office has gained 9.5%.

We expect the calendar 2010 domestic box

office to be up mid-single digits at this point after

the 10% gain in 2009.

We invite you to participate in our 5th AnnualMovie Box Office Contest. Click here for details:

http://www.bmocm.com/conferences/moviecont

est2010/.

Healthy Weekend, Domestic Box Office Up 10.4%

The third weekend of 2Q10 was led by the opening of LGFs Kick-Ass,

which grossed $19.8 million at the domestic box office. Following closebehind was DWAsHow to Train Your Dragon, which earned $19.6 million,

bringing its domestic total to $158.6 million. Overall the weekend was up

10.4% year over year. In its second weekend, NWSAsDate Night declined

just 33.7% over its opening, adding $16.7 million. Also opening over

weekend three of 2Q10 was SNEs Death at a Funeral with $16.2 million.

Continuing to play well TWXsClash of the Titans added $15.4 million and

now is at $132.6 million in total domestic cumulative box office gross to

date.

The first-quarter calendar box office finished up 8.9% over the same period

last year. Y ear to date the box office has gained 9.5% over 2009 with the

second quarter up 12.6% quarter to date.

Opening wide next weekend is CBS FilmsThe Back-Up Plan ($10-$15

million estimated opening), TWXsThe Losers ($10-$15 million estimated

opening), and DISsOceans($10 million estimated opening).

April 20, 20

Refer to pages 26 to 27 for Important Disclosures, including Analyst's Certification.

19-Apr EPS P/E Mkt CapEntertainment Rating Price Target 2009 2010E 2011E 2009 2010E 2011E Div Yld Book ($mm)Blockbuster (BBI) Market Perform(S) $0.56 $0 -$0.44 -$0.76 -$0.76 nm nm nm $0.00 0.0% -$0.16 109Carmike Cinemas (CKEC) Market Perform $17.00 $15 -$1.22 $0.76 $0.97 nm 22.4 17.5 $0.00 0.0% $0.88 214Cinemark Holdings (CNK) Outperform $18.88 $22 $0.87 $1.13 $1.25 21.7 16.7 15.1 $0.72 3.8% $8.28 2,097Cineplex Galaxy Income Fund (CGX.UN) Outperform $20.86 $26 $2.14 $2.55 $2.75 9.7 8.2 7.6 $1.26 6.0% $10.95 1,187DreamWorks Animation (DWA) Outperform $41.57 $51 $1.73 $2.70 $3.00 24.0 15.4 13.9 $0.00 0.0% $12.71 3,650Lions Gate Entertainment (LGF) Outperform $6.80 $11 -$1.40 -$0.38 -$0.19 nm nm nm $0.00 0.0% $0.61 800News Corp (NWSA) Outperform $15.78 $18 $0.65 $1.00 $1.09 24.3 15.8 14.5 $0.12 0.8% $9.18 41,375Regal Entertainment Group (RGC) Outperform $17.49 $20 $0.78 $0.88 $0.94 22.4 19.9 18.6 $0.72 4.1% -$1.60 2,695Time Warner (TWX) Outperform $32.71 $35 $1.83 $2.15 $2.40 17.9 15.2 13.6 $0.75 2.3% $30.86 38,107Viacom (VIA.B) Market Perform $34.80 $36 $2.23 $2.82 $3.07 15.6 12.3 11.3 $0.00 0.0% $14.33 21,207Walt Disney (DIS) Outperform $36.17 $38 $1.82 $2.05 $2.31 19.9 17.6 15.7 $0.35 1.0% $18.55 69,663

Source: BMO Capital Markets estimates and company reports.
http://www.bmocm.com/conferences/moviecontest2010/http://www.bmocm.com/conferences/moviecontest2010/http://www.bmocm.com/conferences/moviecontest2010/http://www.bmocm.com/conferences/moviecontest2010/


21/24


Eli Lil ly(LLY-NYSE)


Apri l 19, 20

Large-Cap Pharmaceutica

Robert Hazl


[email protected]

James Tumbri212-885-41

[email protected]

A Decent 1Q, but the Healthcare Bi ll Pinches Securities InfoPrice (19-Apr) $36.58 Target Price 52-Wk High/Low $38/$32 Dividend $1Mkt Cap (mm) $42,182 Yield 5.Shs O/S (mm, BASIC) 1,153 Float O/S (mm) 1,Options O/S (mm) na ADVol (30-day, 000s) 6,6

Selected B ond Iss

Event

Lilly reported adjusted 1Q10 EPS of $1.18 (-2%), well above our $1.08

estimate and consensus of $1.10. (GAAP EPS of $1.13 included in-process

R&D and restructuring charges.) A better-than-expected operating margin,driven by restructuring efforts and the beneficial effectof foreign exchange

on gross margin, more than overcame lower-than-expectedrevenue ($5.49B

vs. $5.67B est.) which was negatively affected by higher rebating attributable

to healthcare bill passage. Higher-than-expected other income offset a highe

tax rate from an $85mm charge for retiree health benefits.


ImpactPassage of a US healthcare bill results in Lillys revenue being affected by

increased rebating in Medicaid (affecting Zyprexa more), discounting fo

patients in Part D, and an annual fee on branded pharmaceuticals, among

other effects. However, investor interest in LLY is likely to be more focusedon progress with its robust pipeline, rather than on near-term EPS.

ForecastsWe are lowering 2010 and 2011 EPS estimates to $4.54 and $4.28, down

from our $4.76 and $4.56, respectively, owing to the healthcare bill.

Legislation aside, we expect strong growth for Alimta to continue despite

Tarcevas approval for maintenance in NSCLC and are raising estimates fo

base EPS estimates, as Lillys efficiency measures begin to take hold.

ValuationWe value LLY shares at roughly 9.5x our 2010 EPS estimate of $4.54,

giving us a 12-month price target of approximately $43 per share.

RecommendationLillys significant mid- to late-stage pipeline should provide material

opportunity for solid long-term growth, making LLY shares' relatively low

8x PE multiple and robust 5.4% dividend attractive.

Changes Annual EPS Annual FCF Quarterly EPS2010E$4.76to$4.54 2010E$5.15to$4.88 Q2/10E$1.19to$1.10 Q4/10E $1.29 to $1.142011E 4.56 to 4.28 2011E 4.93 to 4.64 Q3/10E 1.21 to 1.13

Ind Prc Ratg Mdys/S&P YTW SpreLLY 3.55% '12 104 A1 / AA 1.12% 1

LLY 6.0% '12 109 A1 / AA 1.04% 4Bond data from Bloomberg.

Price Performance

50

60

70

80

90

10

11

LI LLY ELI & CO ( LLY)

Price: High,Low,Close(US$) Relat ive to S&P 500

25

30

35

40

45

50

55

60

65

0

100

200

300

2005 2006 2007 2008 2009

Volume (mln)



0

10

20

30

(FY-Dec.) 2008A 2009A 2010E 2011

EPS Pro Forma $4.02 $4.42 $4.54 $4.2P/E 8.1x 8.5First Call Cons. $4.73 $4.7

EPS GAAP -$1.89 $3.94 $4.50 $4.2

FCF -$1.72 $4.27 $4.88 $4.6P/FCF 7.5x 7.9EBITDA ($mm) $5,596 $6,370 $6,582 $6,08EV/EBITDA 6.7x 7.3Rev. ($mm) $20,342 $21,836 $22,610 $22,47EV/Rev 2.0x 2.0

Quarterl y EPS 1Q 2Q 3Q 4Q2009A $1.20 $1.12 $1.20 $0.92010E $1.18A $1.10 $1.13 $1.1

Balanc e Sheet Data (12/31/09)Net Debt ($mm) $2,165 TotalDebt/EBITDA 1.0Total Debt ($mm) $6,662 EBITDA/IntExp nNet Debt/Cap. 13.4% Price/Book 4.2




22/24


Amylin Pharmaceuticals(AMLN-OTC)

Stock Rating: UnderperformIndustry Rating: Market Perform

Apri l 20, 20

Biotechnolog

Jason Zhang, Ph.


[email protected]

Alex Arfa212-885-40

[email protected]

Byetta Weaker Than Expected; Bydureon 4 or 9Months Away

Securities InfoPrice (19-Apr) $21.14 Target Price 52-Wk High/Low $24/$10 Dividend Mkt Cap (mm) $3,022 Yield Shs O/S (mm, BASIC) 143.0 Float O/S (mm) 13Options O/S (mm) na ADVol (30-day, 000s) 5,

Selected B ond Iss

Event

Amylin reported disappointing 1Q10 revenues of $174 million, below Street

consensus of $188 million and our $183 million estimate, mostly owing toweak Byetta sales of $150 million (~8% lower sequentially).


ImpactThe weak Byetta performance is consistent with the competitive impact o

Victoza and recent prescription volume decline; however, the extent of the

impact on actual sales is surprising. The most recent weekly new prescription

data suggests that following an initial surge after Victozas launch, the GLP-

1 class is fairly flat and that more of Victozas NRx volume is coming fro

share gain from Byetta as opposed to market growth. Amylin expects to

respond to the FDAs questions about the Bydureon application this week.

Depending on whether the FDA classifies the response as a Class I or ClassII, Bydureon could be 4 to 9 months away from launch. We believe given the

complexity of the REMS programs, label negotiations, other potential

manufacturing factors, the response will likely be a Class II, which pushes

Bydureons launch date to late 2010. In our view, this delay will lead to

additional market share loss and most likely volume decline for Byetta, and a

better established competitor in Victoza by the time Bydureon is launched.

Forecasts

Bydureon launch in late 2010; peak WW sales of $1.47 billion.

Valuation

Price target of $12 using our portfolio valuation model.

RecommendationBased on modest expectations for growth of the GLP-1 class and Bydureons

potential, we maintain ourUNDERPERFORMrating on AMLN shares.

Changes Annual EPS Annual FCF Quarterly EPS2010E-$0.60to-$0.59 2010E$0.34to-$0.13 Q2/10E-$0.18to-$0.252011E-$0.41to-$0.49 2011E$0.44to$0.30 Q3/10E-$0.10to-$0.19

Q4/10E-$0.10to$0.11

Ind Prc Ratg Mdys/S&P YTW SpreAmylin Pharm 2.5% '11 103 na / na -0.29% -6

Amylin Pharm 3.0% '14 89 na / na 6.00% 44Bond data from Bloomberg.

Price Performance

50

10

15

20

25

30

AMYLI N PHARMACEUTI CALS I NC ( AMLN)

P rice: High,Low,Close(US$) Relative to S&P 500

0

10

20

30

40

50

0

100

200

2005 2006 2007 2008 2009

Volume (mln)



0

10

20

(FY-Dec.) 2008A 2009A 2010E 2011

EPS GAAP -$2.35 -$1.32 -$0.59 -$0.4P/E nm nmFirst Call Cons. -$0.92 -$0.5

FCF -$2.30 -$0.94 -$0.13 $0.3P/FCF nm 70.5EBITDA ($mm) -$187 -$127 -$2 $EV/EBITDA nm 386.5Rev. ($mm) $770 $800 $768 $83EV/Rev 4.0x 3.7

Quarterl y EPS 1Q 2Q 3Q 4Q

2009A -$0.34 -$0.44 -$0.19 -$0.32010E -$0.27A -$0.25 -$0.19 $0.1

Balanc e Sheet Data (12/31/09)Net Debt ($mm) $70 TotalDebt/EBITDA nm

Total Debt ($mm) $738 EBITDA/IntExp nNet Debt/Cap. 6.0% Price/Book 7.1




23/24

Important DisclosuresAnalyst's CertificationAs to each company covered in this report, the analyst hereby certifies that the views expressed in this report accurately reflect my personal views abouthe subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specificrecommendations or views expressed in this report.

Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and theiaffiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generatingnew ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.

Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Ltd. are not registered as research analysts with FINRA. These analystmay not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Company Specific DisclosuresFor Important Disclosures on the stocks discussed in this report, please go http://researchglobal.bmocapitalmarkets.com/Company_Disclosure_Public.asp.

Distribution of Ratings (Dec. 31, 2009)Rating

Category BMO RatingBMOCM USUniverse*

BMOCM USIB Clients**

BMOCM USIB Clients***

BMOCMUniverse****

BMOCMIB Clients*****

First CallUniverse

Buy Outperform 32.2% 12.3% 38.3% 36.1% 47.9% 50%Hold Market Perform 62.6% 10.2% 61.7% 56.9% 48.9% 43%Sell Underperform 5.3% 0% 0% 6.9% 3.2% 7%

* Reflects rating distribution of all companies covered by BMO Capital Markets Corp. equity research analysts.** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking services a

percentage within ratings category.*** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking

services as percentage of Investment Banking clients.**** Reflects rating distribution of all companies covered by BMO Capital Markets equity research analysts.***** Reflects rating distribution of all companies from which BMO Capital Markets has received compensation for Investment Banking services a

percentage of Investment Banking clients.

Ratings and Sector K eyWe use the following ratings system definitions:OP =Outperform - Forecast to outperform the market;Mkt =Market Perform - Forecast to perform roughly in line with the market;Und =Underperform - Forecast to underperform the market;(S) =speculative investment;NR =No rating at this time;R =Restricted Dissemination of research is currently restricted.

Market performance is measured by a benchmark index such as the S&P/TSX Composite Index, S&P 500, Nasdaq Composite, as appropriate for eachcompany. BMO Capital Markets eight Top 15 lists guide investors to our best ideas according to different objectives (Canadian large, small, growth,value, income, quantitative; and US large, US small) have replaced the Top Pick rating.

Other Important DisclosuresFor Other Important Disclosures on the stocks discussed in this report, please go to http://researchglobal.bmocapitalmarkets.com/Company_Disclosure_Public.asp or write to Editorial Department, BMO Capital Markets, 3 Times Square, New York, NY 10036 or Editorial Department, BMO CapitaMarkets, 1 First Canadian Place, Toronto, Ontario, M5X 1H3.

Prior BMO Capital Markets Ratings Systemshttp://researchglobal.bmocapitalmarkets.com/documents/2009/prior_rating_systems.pdf

Dissemination of ResearchOur research publications are available via our web site http://bmocapitalmarkets.com/research/. Institutional clients may also receive our research viaFIRST CALL, FIRST CALL Research Direct, Reuters, Bloomberg, FactSet, Capital IQ, and TheMarkets.com. All of our research is made widely

available at the same time to all BMO Capital Markets client groups entitled to our research. Additional dissemination may occur via email or regulamail. Please contact your investment advisor or institutional salesperson for more information.

Conflict StatementA general description of how BMO Financial Group identifies and manages conflicts of interest is contained in our public facing policy for managingconflicts of interest in connection with investment research which is available at http://researchglobal.bmocapitalmarkets.com/Conflict_Statement_Public.asp.

General DisclaimerBMO Capital Markets is a trade name used by the BMO Investment Banking Group, which includes the wholesale arm of Bank of Montreal and itssubsidiaries BMO Nesbitt Burns Inc. and BMO Nesbitt Burns Lte./Ltd., BMO Capital Markets Ltd. in the U.K. and BMO Capital Markets Corp. in thU.S. BMO Nesbitt Burns Inc., BMO Capital Markets Ltd. and BMO Capital Markets Corp are affiliates. Bank of Montreal or its subsidiaries (BMO


24/24

BMO Capital Markets

Financial Group) has lending arrangements with, or provide other remunerated services to, many issuers covered by BMO Capital Markets. Theopinions, estimates and projections contained in this report are those of BMO Capital Markets as of the date of this report and are subject to changewithout notice. BMO Capital Markets endeavours to ensure that the contents have been compiled or derived from sources that we believe are reliableand contain information and opinions that are accurate and complete. However, BMO Capital Markets makes no representation or warranty, express oimplied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arisingfrom any use of, or reliance on, this report or its contents. Information may be available to BMO Capital Markets or its affiliates that is not reflected inthis report. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual clientobjectives, should not be construed as advice designed to meet the particular investment needs of any investor. This material is for information purposesonly and is not an offer to sell or the solicitation of an offer to buy any security. BMO Capital Markets or its affiliates will buy from or sell to customersthe securities of issuers mentioned in this report on a principal basis. BMO Capital Markets or its affiliates, officers, directors or employees have a longor short position in many of the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. Thereader should assume that BMO Capital Markets or its affiliates may have a conflict of interest and should not rely solely on this report in evaluatingwhether or not to buy or sell securities of issuers discussed herein.

Additional Matters

To Canadian Residents: BMO Nesbitt Burns Inc. and BMO Nesbitt Burns Ltee/Ltd., affiliates of BMO Capital Markets Corp., furnish this report toCanadian residents and accept responsibility for the contents herein subject to the terms set out above. Any Canadian person wishing to effectransactions in any of the securities included in this report should do so through BMO Nesbitt Burns Inc. and/or BMO Nesbitt Burns Ltee/Ltd.

To U.S. Residents: BMO Capital Markets Corp. and/or BMO Nesbitt Burns Securities Ltd., affiliates of BMO NB, furnish this report to U.S. residentand accept responsibility for the contents herein, except to the extent that it refers to securities of Bank of Montreal. Any U.S. person wishing to effectransactions in any security discussed herein should do so through BMO Capital Markets Corp. and/or BMO Nesbitt Burns Securities Ltd.

To U.K. Residents: In the UK this document is published by BMO Capital Markets Limited which is authorised and regulated by the FinanciaServices Authority. The contents hereof are intended solely for the use of, and may only be issued or passed on to, (I ) persons who have professiona

experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Orde2005 (the Order) or (I I) high net worth entities falling within Article 49(2)(a) to (d) of the Order (all such persons together referred to as relevanpersons). The contents hereof are not intended for the use of and may not be issued or passed on to, retail clients.

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUESTBMO Financial Group (NYSE, TSX: BMO) is an integrated financial services provider offering a range of retail banking, wealth management, and investment ancorporate banking products. BMO serves Canadian retail clients through BMO Bank of Montreal and BMO Nesbitt Burns. In the United States, retail clients a

served through Harris N.A. Investment and corporate banking services are provided in Canada and the US through BMO Capital Markets.BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, Harris N.A. and BMIreland Plc, and the institutional broker dealer businesses of BMO Capital Markets Corp. (Member SIPC), BMO Nesbitt Burns Trading Corp. and BMCapital Markets GKST Inc. (Member SIPC) in the U.S., BMO Nesbitt Burns Inc. (Member CIPF) in Canada, Europe and Asia, BMO Nesbitt Burns SecuritieLimited (U.S. registered and member of FINRA), and BMO Nesbitt Burns Lte/Ltd. (Member CIPF) in Canada, and BMO Capital Markets Limited in Europand Australia. Nesbitt Burns is a registered trademark of BMO Nesbitt Burns Corporation Limited, used under license. BMO Capital Markets is trademark of Bank of Montreal, used under license. "BMO (M-Bar roundel symbol)" is a registered trademark of Bank of Montreal, used under license.

Registered trademark of Bank of Montreal in the United States, Canada and elsewhere.TM Trademark Bank of Montreal

COPYRIGHT 2010 BMO CAPITAL MARKETS CORP.

FinancialGroupA member ofBMO

bmo_research highlights apr 20

Documents