Equity Research Price Objectives and Risk Factors for Norfolk Southern, SVB Financial, Texas Instruments, and TripAdvisor

Norfolk Southern (NSC) Our $122 price objective is based on a 19.5x multiple on our 2017 EPS estimate of $6.25. We move above the top of its one-standard deviation historical trading range of 12x-16x given the new management team's move to improve margins, cut costs, and raise its ROIC, and as EPS inflects off a volume deflated 19% decline in 2015. Risks to our price objective and estimates are the company's ability to derive continued operational benefits, a return to significant pricing competition among the rails, slower than expected economic growth, a deterioration to improving service metrics, a heavily unionized employee base, inability to exercise pricing power due to regulatory changes or legal challenges from customers, external factors (such as weather) impacting operations, and the STB installing mandatory reciprocal switching (or open access) to the rail network without proper pricing. SVB Financial Group (SIVB) We use a three-factor valuation framework (P/TBV, P/E, DCF) to arrive at our $190 price objective and assign a 2.3x multiple to our 2017e TBV and apply a 21x P/E to 17E EPS. Our valuation multiples are both in line with high growth peers due to SIVB's high profitability and EPS growth profile. Our DCF assumes a two-stage cost of capital of 9.5% and a terminal growth rate of 6%. Downside risks are a longer than expected low rate environment and a slowdown in the technology sector and related IPO activity. Upside risks are sooner than expected rate hike, or better than expected pickup in the tech sector. Texas Instruments Inc. (TXN) Our $82 PO on TXN is based on14x FY17E EV/EBITDA, in line with high quality diversified and analog peers trading at 14x-15x, given TXN's high quality business model and strong FCF generation. Risks to our price objective: 1} Lumpy telco capex, especially in wireless deployments, 2) Volatile market share as design cycle times are very long, 3} Increased R&D spending pressure to maintain an edge versus the competition, 4) Inventory cycles and potential double ordering by customers that can often create mismatches between real supply and demand, 5) Exposure to several mature markets such as PC and other consumer electronics could limit its growth rate. TripAdvisor (TRIP) Our price objective of $41 is based on 21x our 2018 non-GAAP EPS estimate. This multiple represents a premium to online travel/vertical media comps and in our view adequately compensates TripAdvisor for improving margins and growth off a trough point in FY16 into FY17 when the negative impacts of its IB transition peak. Downside risks to our price objective are: 1) increasing competition (e.g. Yelp), 2} macro- economic factors (e.g. recession in Europe) impacting the travel industry, 3} challenges to the credibility of online reviews, 4) Instant Book transition puts pressure on revenue growth, and 5) mobile monetization headwinds. Upside risks to our price objective are: 1) improved mobile monetization 2} major OTA sign on for instant booking 3) high non-hotel shopper dollar capture and 4) improved global macro environment. Analyst Certification We, Derek Harris, Andrew Obin, Brian Chin, Doug Leggate, Ebrahim H. Poonawala, Ken Hoexter, Kevin Fischbeck, CFA, Nat Schindler, Ronald J. Epstein, Shaun C. Kelley and Vivek Arya, hereby certify that the views each of us has expressed in this research report Bankof America <> Merrill Lynch Top 10 US Ideas Quarterly | 03 January 2017. 17 HOUSE_OVERSIGHT_014638