Case File
efta-01476303DOJ Data Set 10OtherEFTA01476303
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Deutsche Bank
Markets Research
North America
United States
Periodical
US Equity Insights
2016 S&P EPS growth to surge to 5%!
Falling standards of excellence this cycle: Is there an objective passing
grade?
We reduce 2016E S&P EPS from $128 to $125. We're unsure of the tone of
language appropriate to describe this reduction. Slashing or even cutting is
too
harsh as our new estimate is merely 2.5% lower. This trimming shouldn't
surprise investors given recent commodity and currency markets. So is $125
good S&P EPS in 2016? Is it bullish or bearish? It's only 5% growth,
subnormal
mid-cycle real EPS growth, but 10x better than 2015. Thus, S&P EPS growth is
set to surge in 2016! But is there an objectively healthy S&P EPS growth
rate?
In this note we present our new 2016E S&P EPS and we explain why a healthy
S&P EPS growth rate is the nominal cost of equity less the dividend yield.
2016 S&P EPS cut from $128 to $125 on stronger dollar, lower oil assumptions
We have long cautioned that every 10% appreciation in the dollar vs. mature
currencies drags on S&P EPS growth by 2.5%. Every dime the Euro declines
vs. USD hits S&P EPS by $1. Every $5/bbl oil price decline hits S&P EPS by
$1,
net of small benefits outside of Energy, Industrial Capital Goods &
Materials;
which all suffer. Airlines, Consumer Staples & Discretionary firms benefit
from
lower oil prices, but most of the cost savings is passed forward to
customers.
We lower our average 2016 Euro assumption from about $1.10 to $1.05. We
raise our 2016 avg. DXY assumption from about 95 to 100. We lower our 2016
avg. oil price assumption from $60/bbl to $55/bbl and natural gas to $2.75.
We
also tempered our growth assumptions at US Retailers, Housing and Banks.
2015 did not have healthy underlying revenue or EPS growth ex oil and dollar
S&P sales and operating EPS growth was broadly weak in 2015. Weakness
extended beyond commodity producers and FX drags at multinationals. A
surge in airline profits masked a significant Industrial Cap Goods profit
decline.
Revenue was flat at Financials with EPS growth from less litigation than
2014.
No growth at Consumer Staples despite lower input costs. Good growth at
Retailers, but disappointing given the macro tailwinds owing to fierce price
competition. Strong at auto, but home builders disappointed. The strongest
growth was at Health Care and consumer oriented Tech firms. Corporate tech
spending on equip. and software remains very sluggish and chip makers were
flattish on earnings given slow PC, handset and weak industrial end markets.
Ex. Energy, Financials, HC and AAPL, AMZN & GOOG 2015 S&P EPS growth is
EFTA01476303
-2.5%; this is the underlying trend with —4% FX drag that should fall to
—1.5%.
Stronger revenue growth is key to achieving healthy S&P EPS growth in 2016
Strong revenue growth at Health Care, better capex on productivity enhancers
like tech equip/software, slower but still strong revenue growth at consumer
oriented big cap Tech are key to our 4% S&P sales growth, 1% share shrink
and flat net margin estimates for 2016. Some cyclically risky sectors like
Auto
Airlines, Chemicals & Semiconductors must avoid losing any earnings power.
Margin expansion is possible, but upside counterbalanced by downside risk
Fierce price competition at Retailers, more global competition at
Industrials and the
political threats at Health Care pose some sales risk, but mostly margin
risk. There
is also tax rate risk. Many are concerned about wage pressure on margins,
but this
is not a major risk for S&P firms. However, a tighter than expected labor
market
could lead to more Fed hikes than expected and thus EPS risks via dollar,
oil or PE
risk via credit market or a Tsy yield jump. Fed hikes are a small boost to
S&P EPS.
5% delineates healthy from unhealthy S&P EPS growth and supports an 18 PE
Our 1 year target of 18x trailing S&P EPS uses a 5.5% real and 7.5% nominal
CoE.
EPS is retained, so real EPS g must = real CoE - div yld to justify a PE = 1/-
real CoE.
Date
20 November 2015
David Bianco
Strategist
(+1) 212 250-8169
[email protected]
Winnie Nip
Strategist
(+1) 415 617-3297
[email protected]
S&P 500 Key Forecasts
Price
Ju Wang
Strategist
(+1) 212 250-7911
[email protected]
2089.17
Next 5%+ move Balanced
Risk
2014
Year-end Target 2058.90
EPS
Target P/E
Current P/E
EFTA01476304
DPS
$118
17.4x
17.7x
$38.30
Related recent research
S&P should finish the year in
black, but more red ahead for
Energy
Amazing margins, but mind the
GAAP
A structural slowing of
Industrials: Investing around this
late cycle risk
Don't pull the plug on Health
Care
US Equity Strategy Baskets
High Foreign Cash (Repatriation
Beneficiaries)
Big-Cap Reasonable PE Tech
Challenged Industrial Capital
Goods
US Domestic Strength
2015E
20502100
$119
17.4x
17.6x
$41
2016E
22502300
$125
18.2x
16.7x
$44
Date
16
Nov 2015
8 Nov 2015
1 Nov 2015
23 Oct 2015
Bloomberg
Ticker
DBUSHIFC
DBUSBRTE
DBUSCICG
DBUSDMST
Deutsche Bank Securities Inc.
Deutsche Bank does and seeks to do business with companies covered in its
EFTA01476305
research reports. Thus, investors should
be aware that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should
consider this report as only a single factor in making their investment
decision. DISCLOSURES AND ANALYST
CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015.
EFTA01476306
20 November 2015
US Equity Insights
2016E S&P EPS cut from $128 to $125 mostly on stronger
dollar and lower oil price assumptions
We have long cautioned that every 10% appreciation in the dollar vs. mature
currencies drags on S&P EPS growth by 2.5%. Every dime the Euro declines
vs. USD hits S&P EPS by $1. Every $5/bbl oil price decline hits S&P EPS by
$1,
net of small benefits outside of Energy, Industrial Capital Goods &
Materials;
which all suffer. Airlines, Consumer Staples & Discretionary firms benefit
from
lower oil prices, but most of the cost savings is passed forward to
customers.
We lower our average 2016 Euro assumption from about $1.10 to $1.05. We
raise our 2016 avg. DXY assumption from about 95 to 100. We lower our 2016
avg. oil price assumption from $60/bbl to $55/bbl and natural gas to $2.75.
We
also tempered our growth assumptions at US Retailers, Housing and Banks.
Figure 1: DXY & EUR/USD
2015YTD avg: 96.0
100
2013 & 2014 EUR avg: 1.33
2012 EUR avg: 1.29
75
80
85
90
95
2015YTD EUR avg:
1.11
2012 avg: 80.6
2013 avg: 80.4
2014 avg: 82.6
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45
DXY (lhs)
EUR/USD (rhs)
Figure 2: Oil prices (1st month futures)
105
115
125
EFTA01476307
35
45
55
65
75
85
95
WTI
Brent
105
115
125
35
45
55
65
75
85
95
Figure 3: WTI now expected to settle at —$50 at 2016
end and stay under $55 even by 2018 end
WTI futures prices over time
$35
$40
$45
$50
$55
$60
$65
$70
$75
$35
$40
$45
$50
$55
$60
$65
$70
$75
$40
$45
$50
$55
$60
$65
$70
$75
$80
Figure 4: Brent now expected to settle at —$50 at 2016
EFTA01476308
end and stay under $60 even by 2018 end
Brent futures prices over time
$40
$45
$50
$55
$60
$65
$70
$75
$80
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Figure 5: Weak oil prices: Industry impact spectrum
Detriment
Benefit
Energy
Industrial Cap Gds
Machinery
Materials
Metals & Mining, mixed for Chems
Utilities
MLPs
Rails
Based on observed EPS history and DB estimates, oil prices have no material
influence on Health Care or Telecom
Tech
Financials
REITs
Cons. Disc.
Retailers
Cons. Staples
Transports
Packaged Food Airlines/Trucking
Page 2
Deutsche Bank Securities Inc.
Front Month Futures ($/barrel)
Jan-13
Mar-13
May-13
Jul-13
Sep-13
EFTA01476309
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
EFTA01476310
US Equity Insights
20 November 2015
Deutsche Bank Securities Inc.
Page 3
Figure 6: S&P 2016 EPS scenarios
Poor global growth (China —5%)
A continued profit recession,
Foreign
Cons Disc
Cons Staples
Energy
Financials
Health Care
Industrials
Tech
Materials
Telecom
Utilities
S&P 500
per share
Avg oil price
Euro
Avg FF rate
US UE yr end
US GDP
Global GDP
Sales % Profits %
27%
28%
41%
18%
20%
36%
59%
49%
1%
6%
31%
FX A possible upside scenario
2015
2016
25%
28%
20%
15%
20%
35%
37%
40%
0%
EFTA01476311
6%
25%
115.5
85.5
45
218
154.5
115
225
30.3
33.5
33.4
1055 7
$119
$47
89
y/y 2016 EPS
128 10.8% 14.39
4.1% 10.01
6.75
60 33.3%
234
168
120
242
34.5
1142
$128
$60
1.10 1.10-1.15
0.2% 0.75%
5.0%
4.7%
2.5% 2.5-3%
3%
3.5%
34 12.2%
32.5 -3.0%
3.3%
7.3% 26.31
8.7% 18.89
4.3% 13.49
7.6% 27.21
3.82
3.65
3.88
8.2% 128.39
DB's base case for 2016 S&P EPS
2016
125
87.5
EFTA01476312
2015
115.5
85.5
45
218
154.5
115
225
30.3
33.5
33.4
1055.7
$119
$47
1.05
2.3%
52 15.6%
230
165
117
239
32.5
32.5
34.5
1115
$125
$55
1.05
0.2% 0.50%
5.0%
2.5% -2.5%
3% -3.0%
4.7%
y/y 2016 EPS
8.2% 14.05
9.84
5.85
5.5% 25.86
6.8% 18.55
1.7% 13.15
6.2% 26.87
7.3%
-3.0%
3.3%
but decent US and global GDP growth
y/y 2016 EPS
2015
115.5
85.5
45
218
EFTA01476313
3.65
3.65
3.88
5.6% 125.35
154.5
115
225
30.3
33.5
33.4
2016
125
85.5
230
161
232
34.5
1055 7 1064.5
$119
$47
1.05
$40
0.90
0.2% 0.50%
5.0%
4.7%
2.5% -2.5%
3% -3.0%
8.2% 14.05
0.0%
30 -33.3%
5.5% 25.86
4.2% 18.10
105 -8.7% 11.80
3.1% 26.08
3.26
3.65
3.88
0.8% 119.68
$120
29 -4.3%
32.5 -3.0%
3.3%
9.61
3.37
yet 2%+ US growth with low credit costs
Tight US labor mkt, Fed hikes >1% in 2016 Global recession and flat US GDP
y/y 2016 EPS
2015
115.5
85.5
EFTA01476314
45
218
154.5
115
225
30.3
33.5
33.4
1055.7
$119
$47
1.05
0.2%
5.0%
2016
122
85
233
160
225
5.6% 13 72
-0.6%
30 -33.3%
9.56
3.37
6.7% 26.16
3.6% 17.99
100 -13.0% 11.24
0.0% 25.30
2.92
3.60
3.82
26 -14.2%
-4.5%
1.8%
32
34
1046.7
$118
$40
0.90
1.2%
4.4%
2.5% 2.25%
3%
2.5%
-0.9% 117.68
2015
115.5
85.5
45
EFTA01476315
218
154.5
115
225
30.3
33.5
33.4
1055.7
$119
$47
1.05
2016
y/y 2016 EPS
110 -4.8% 12.37
83 -2.9%
20 -55.6%
210 -3.7% 23.61
2.3% 17.76
158
90 -21.7% 10.12
210 -6.7% 23.61
23 -24.1%
30 -10.4%
32.5 -2.7%
966.5 -8.4% 108.66
$109
$35
0.85
0.2% 0.25%
5.0%
2.5%
3%
6.5%
0.5%
1.5%
2.59
3.37
3.65
9.33
2.25
Figure 7: S&P annual EPS rule-of-thumb sensitivities
Rules of thumb sensitivities
Oil prices: Every $5/bbl decline in oil prices reduces S&P net income by
roughly $7.5bn or nearly $1 EPS
Dollar FX rates: Every 10% appreciation in the dollar vs. mature currencies
(DXY) tends to reduce S&P net income by $20bn or —$2.50 of EPS
FF rate: Every 25bp on the FF rate, if it similarly moves net interest
margins at banks is —$0.50 to S&P
US GDP: S&P EPS is most sensitive to US investment spending on equipment and
software and exports
Global GDP: S&P EPS tends to be more sensitive to global GDP than US GDP
EFTA01476316
EFTA01476317
US Equity Insights
20 November 2015
Page 4
Deutsche Bank Securities Inc.
Figure 8: S&P 500 Advised Sector and Industry Allocation (2014/15 PE based
on DB US Equity Strategy top down sector and industry EPS estimates)
Market
Advised
Weight (%) Weight (%)
Sector
2015 2016
PE
PE
Biotechnology
Health Care Equipment & Supplies
14.5% 18.0% Health Care
17.0 15.9 Health Care Technology
Life Sciences Tools & Services
Pharmaceuticals
Technology Hardware, Storage & Peripherals
Internet Software & Services
IT Services
21.0%
Overweight
16.4%
17.2%
Financials
21.0%
Information
Technology
17.5
16.5 Semiconductors
Software
Communications Equipment
Electronic Equipment
Banks
Capital Markets
14.0 13.2 Consumer Finance
Electric Utilities
Gas Utilities
2.9%
2.3%
3.4%
2.6%
Utilities
15.7
15.2
Independent Power Producers
Multi-Utilities
Telecom 12.6 13.0 Telecommunication Services
Overweight
EFTA01476318
2015 2016
PE
PE
15.1 13.5
21.8 20.4
27.2 23.6
19.5 18.8
17.1 16.3
12.2 11.5
29.8 26.6
19.0 17.9
16.6 16.1
21.4 20.2
12.2 11.7
17.5 16.3
12.1 11.5 Diversified Financial Services
15.0 13.9 Insurance
11.7 11.2 REITs
Real Estate Mgmt. & Development
Thrifts & Mortgage Finance
15.0 14.7
21.2 19.8
10.8 9.8
17.1 16.5
12.6 13.0
Auto Components
Automobiles
Distributors
Equalweight
13.0%
13.2%
Consumer
Discretionary
21.1 19.5
Household Durables
Leisure Products
Multiline Retail
Specialty Retail
Internet & Catalog Retail
Media
Food & Staples Retailing
9.6%
8.5%
Consumer
Staples
20.6
20.1
Airlines
Underweight
10.3%
8.5%
EFTA01476319
Industrials
16.8
16.5
7.3
8.3 Building Products
Air Freight & Logistics
Commercial Services & Supplies
Industrial Conglomerates
Professional Services
Road & Rail
Chemicals
3.0%
2.6%
Materials
17.9
16.7
24.2
18.8
19.6
23.0
20.1
15.9
17.3
13.7
8.6
19.5
16.6
21.2
14.5
21.1
80.7
18.9
18.1
12.7 Diversified Consumer Services
8.2 Hotels, Restaurants & Leisure
18.2 Textiles, Apparel & Luxury Goods
14.7
20.0
13.6
19.4
64.6
17.8
17.5 Beverages
Food Products
Household Products
Personal Products
Tobacco
22.6 Aerospace & Defense
17.6 Construction & Engineering
18.7 Electrical Equipment
21.8 Machinery
EFTA01476320
18.3 Trading Companies & Distributors
15.0
16.5 Construction Materials
Containers & Packaging
Metals & Mining
Paper & Forest Products
7.0%
5.0%
Energy
28.5
Aggregate PE of DB Industry allocations
S&P 500 Index
24.6
Overweight
15.6
2081.24
14.9
Equalweight
2015 & 2016 DB Strategy EPS
Bottom-up Cons. EPS
18.5
17.4
Energy Equipment & Services
Oil, Gas & Consumable Fuels
Underweight
119.0 125.0 2015 & 2016 DB Strategy PE
118.8 128.5 Bottom-up Cons. PE
23.1 22.9
21.3 20.4
20.6 20.0
27.7 24.2
20.3 20.6
17.7 16.7
13.7 13.7
16.3 16.3
15.5 16.0
16.7 15.9
45.6 38.0
16.1 15.4
28.3 18.5
11.0 11.0
20.9 29.9
30.6 23.8
21.3
20.0
17.5 16.6
17.5 16.2
18.3 16.7
25.0 22.8
23.6 21.5
EFTA01476321
20.9
12.3
18.8
17.4
33.2
19.3
11.7
18.0
16.1
11.7
Equalweight
2015 2016
PE
PE
Underweight
Health Care Providers & Services
2015 2016
PE
PE
16.0 15.2
EFTA01476322
US Equity Insights
20 November 2015
Deutsche Bank Securities Inc.
Page 5
Figure 9: S&P EPS Model by sector — 2016 S&P EPS cut from $128 to $125 on
stronger dollar, lower oil assumptions
EPS
Bottom-up
2005A
S&P 500 EPS (historical index)
S&P 500 EPS (current constituents)
Sector ($ bn)
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
S&P 500 ($ bn)
S&P ex. Financials ($bn)
S&P ex. Energy ($bn)
S&P ex. Tech ($bn)
Energy & Financials ($bn)
S&P ex. Energy and Financials ($bn)
Key Macro Forecast
Global GDP growth (real, DB est.)
US GDP growth (real, DB est.)
US Bus. FI (Equip + IPP, DB est.)
US Unemployment Rate (year-end, DB est.)
US 10yr Treasury Yield (year-end, Our est.)
Bank Litigation (post-tax, $bn)
Loan Loss Provisioning (% of loans, Our est.)
US$/Euro (average/year-end, Our est.)
US$/Euro (year-end, DB est.)
Avg Oil Price (WTI/Brent, $/bbl)
Avg Natural Gas Price (Henry Hub $/mmbtu)
$76.28
$79.53
51.6
94.0
133.8
68.6
63.2
83.6
17.4
13.9
21.4
EFTA01476323
603.1
469.3
509.1
519.5
227.8
375.3
2006A
$88.18
$91.14
53.9
57.0
2007A
2008A
2009A
2010A
$85.12 $65.47 $60.80 $85.28
$93.81 $71.79 $64.23 $88.54
2007 - 14 shown below is agg. net income, 2014 y/y is EPS growth:
55.6
52.5
61.1
114.3
173.1
73.0
71.0
97.6
21.2
18.0
23.4
702.6
529.4
588.3
605.0
287.5
415.1
118.7
143.8
81.8
83.9
121.4
24.8
26.4
25.9
740.2
596.5
621.6
618.8
262.4
477.8
40.9
66.8
EFTA01476324
141.5
-19.9
86.7
75.3
122.1
21.0
27.0
26.9
588.2
608.1
446.7
466.1
121.6
466.6
48.6
68.9
59.0
56.6
88.3
51.7
105.6
13.2
21.8
26.6
540.3
483.7
481.3
434.7
115.6
424.7
74.1
73.6
94.5
129.0
101.3
73.8
151.4
24.9
23.2
28.2
773.9
644.9
679.4
622.5
223.5
550.4
2011A
2012A
2013A
2014A
Y/Y
EFTA01476325
$97.82 $103.75 $110.39 $118.82 7.6%
$99.73 $105.09 $111.63 $117.75 5.5% $118.84 0.9% $128.55 8.2%
84.0
78.0
129.7
132.5
109.6
88.2
175.2
31.7
22.4
29.5
880.7
748.2
751.0
705.4
262.1
618.5
90.4
78.7
122.1
162.6
112.5
94.3
185.7
29.2
23.9
29.8
929.1
766.6
807.0
743.5
284.6
644.5
99.5
84.2
113.9
189.1
117.9
102.5
193.1
30.5
25.1
30.4
986.2
797.1
872.3
793.1
303.0
683.2
102.9
$119
EFTA01476326
86.2
112.3
189.9
136.3
113.4
209.8
32.7
30.7
33.2
1047.4
857.5
935.1
837.6
302.2
745.2
4.7% 5.2% 5.3% 2.7% -0.4% 5.2% 3.9% 3.2% 2.8% 3.4%
3.4% 2.7% 1.8% -0.3% -2.8% 2.5% 1.9% 2.8% 1.9% 2.6%
8.4% 7.1% 3.8% -3.1% -14.1% 9.4% 9.2% 5.9% 4.1% -5.5%
4.9% 4.4% 5.0% 7.3% 9.9% 9.5% 8.6% 7.8% 7.0% 5.7%
4.4% 4.7% 3.9% 2.5% 3.8% 3.3% 1.9% 1.8% 3.0% 2.2%
8.9
5.7
8.4
14.3
23.3
0.8% 0.7% 1.3% 3.0% 4.2% 2.6% 1.2% 0.8% 0.4% 0.4%
1.25/1.18 1.26/1.32 1.37/1.46 1.47/1.40 1.39/1.32 1.33/1.29 1.39/1.30
1.28/1.32 1.33/1.38 1.33/1.21
56/54
8.67
Based on current constituents in the index unless specified
66/65
6.74
72/72
6.96
100/97
8.88
61/61
3.95
79/79
4.40
95/111
3.99
94/111
2.75
98/108
3.73
93/99
4.26
3.4% 115.5
EFTA01476327
2.4% 85.1
-1.5% 46.8
0.4% 216.8
15.6% 155.0
10.7% 116.3
8.6% 224.1
7.4% 30.6
22.1% 33.7
9.2% 33.2
6.2% 1057.1
7.6% 840.3
7.2% 1010.3
5.6% 833.0
-0.3% 263.6
9.1% 793.5
-1.3% 91.0
-58.4% 46.8
14.2% 235.5
13.7% 168.9
2.6% 121.5
6.8% 243.3
-6.5% 34.3
9.8% 34.9
-0.1% 34.4
0.9% 1143.4
-2.0% 907.9
8.0% 1096.6
-0.6% 900.1
-12.8% 282.3
6.5% 861.1
15.0% 115.5
6.9% 85.5
0.1% 45.0
8.6% 218.0
9.0% 154.5
4.4% 115.0
8.6% 225.0
12.0% 30.3
3.4% 33.5
3.7% 33.5
8.2% 1055.7
8.0% 837.7
8.5% 1010.7
8.1% 830.7
7.1% 263.0
8.5% 792.7
3.1%
2.1%
-4%
4.8%
2.25%
EFTA01476328
4 5
0.6%
-$1.10
1.05
-$50
-2.50
1.1% $125
All 2015/16 estimates are aggregate earnings representative of EPS
12.3% 132.8
12.2% 125.0
-0.8% 87.5
-59.9% 52.0
14.8% 230.0
13.4% 165.0
1.4% 117.0
7.3% 239.0
-7.5% 32.5
9.1% 32.5
0.7% 34.5
5.0% $122
8.3% 115.5
2.3% 85.5
15.6% 80.0
5.5% 218.0
6.8% 151.5
1.7% 112.2
6.2% 225.0
7.3% 31.4
-3.0% 33.5
3.1% 33.5
1.1% 1114.9 5.0% 1086.0
-2.3% 884.9
5.6% 868.0
8.1% 1062.9 5.2% 1006.0
-0.8% 875.9
-13.0% 282.0
6.4% 832.9
5.4% 861.0
7.2% 298.0
5.1% 788.0
3.5%
2.7%
-4%
4.5%
2.75%
2
0.5%
-$1.05
0.90
-$55
-2.75
EFTA01476329
<3%
0.75%
$1.10-1.15
-$65
- 3.00
103%
100%
100%
178%
100%
98%
98%
100%
104%
100%
100%
103%
104%
100%
104%
113%
99%
2015E
Y/Y
2016E
Y/Y
2015E
DB US Equity Strategy
Y/Y
2016E
Normalized 2015
Y/Y
($) % of 2015
EFTA01476330
US Equity Insights
20 November 2015
Page 6
Deutsche Bank Securities Inc.
Figure 10: S&P EPS Model by industry (1 of 2)
2005A
2006A
CONSUMER DISCRETIONARY ($bn)
Auto Components
Automobiles
Distributors
Diversified Consumer Services
Hotels, Restaurants & Leisure
Household Durables
Internet & Catalog Retail
Leisure Products
Media
Multiline Retail
Specialty Retail
Textiles, Apparel & Luxury Goods
CONSUMER STAPLES ($bn)
Beverages
Food & Staples Retailing
Food Products
Household Products
Personal Products
Tobacco
ENERGY ($bn)
Energy Equipment & Services
Oil, Gas & Consumable Fuels
FINANCIALS ($bn)
Capital Markets
Banks
Consumer Finance
Diversified Financial Services
Insurance
Real Estate Investment Trusts (REITs)
Real Estate Management & Development
Thrifts & Mortgage Finance
HEALTHCARE ($bn)
Biotechnology
Health Care Equipment & Supplies
Health Care Providers & Services
Health Care Technology
Life Sciences Tools & Services
Pharmaceuticals
53.9
2007A
52.5
1,423
3,454
EFTA01476331
434
567
7,420
5,352
692
700
13,078
5,131
15,042
2,269
51.6
10,386
10,759
7,801
10,956
251
11,485
94.0
6,038
133.8
15,673
69,061
5,600
3,165
1,533
(1,711)
472
428
8,153
3,788
577
746
5,931
2,817
57.0
1,939
519
502
427
9,029
(2,025)
909
859
5,528
2008A 2009A 2010A
40.9
1,354
(6,288)
472
494
9,208
EFTA01476332
(2,460)
1,158
655
4,344
3,393
66.8
48.6
332
396
501
74.1
2011A
2007 -
55.6
2,354
2014 shown below is aggregate net income, 2014 y/y is EPS growth:
69 12,291
471
438
8,480 10,326
(263)
1,549
831
5,023
3,383
68.9
1,384
2,123
1,016
15,151 16,986 16,265 15,425 18,574
6,196
16,045 14,639 12,310 12,847 14,779
3,236
61.1
4,099
73.6
11,407 13,256 14,398 14,586 16,411
11,879 13,960 15,323 15,742 16,462
8,266
8,625
268
8,928 10,298 11,651
13,058 14,777 16,354 16,955 16,521
256
222
118.7
143.8
141.5
243
59.0
12,135 10,242 11,529 11,062 12,137
114.3
EFTA01476333
94.5
10,634 14,712 19,272 12,769 12,051
173.1
(19.9)
129.0
22,636 20,810 10,948 17,073 20,564
78,646 54,072 (17,914)
6,707
2,288
6,320
3,082
30,279
9,386
198
398
69.1
5,062
13,260
12,599
76
1,179
36,969
428
480
3,216
394
8,867
179
609
87.7
8,010
159
2,326
388 51,586
7,189
8,806 13,138
51,613 47,404 (26,200) 20,581 26,359
10,526 11,160
299
422
6,688
94
611
73.7
6,259
82.6
7,046
127
89.4
9,220
178
EFTA01476334
102.5
9,949
13,706 15,061 17,284 18,656 20,079
14,952 16,835 15,183 15,859 17,985
98
1,458
2007 - 2014 shown below is aggregate net income, 2014 y/y is EPS growth
2,326
2,500
2,103
2,756
37,226 41,208 44,533 43,409 51,559
220
9,293
206
644
382
84.0
3,566
12,310
559
393
11,867
1,986
2,343
1,096
22,014
6,987
16,018
4,887
78.0
17,613
17,336
12,715
15,795
485
14,025
129.7
14,886
132.3
15,695
55,025
9,910
2012A
90.4
3,782
10,832
642
415
12,003
EFTA01476335
3,597
2,042
1,209
25,579
7,302
17,370
5,671
78.7
17,300
19,249
10,963
16,064
572
14,531
122.1
16,874
87,976 103,680 103,941 122,236 46,261 82,431 114,789
56.6
11,536
27,881
12,463
288
(502)
110.9
11,009
21,631
20,796
283
3,278
53,915
162.6
18,152
67,599
10,824
13,752
36,495
14,899
344
500
114.1
12,292
22,952
22,813
366
3,544
52,089
2013A
99.5
4,616
11,678
646
105,211
EFTA01476336
452
12,536
5,643
2,980
1,225
27,898
6,680
18,721
6,379
84.2
18,055
20,396
13,666
16,617
674
14,794
113.9
17,681
96,265
188.8
23,804
76,558
12,217
15,412
43,545
16,466
409
415
119.5
14,114
18,523
24,935
433
3,619
57,897
2014A
Y/Y
102.9 3%
5,156 12%
705 9%
474 5%
2015E
Y/Y
2016E
Y/Y
2015E
115.5 12.3% 132.8 15.0%
5,384 4.4%
702 -0.4%
545 14.8%
755 7.5%
115.5
EFTA01476337
639 17.3%
Y/Y
6,255 16.2% 5,400 4.7%
700 -0.7%
550 16.0%
2016E
12.2% 125.0
Y/Y
5,800 7.4%
750 7.1%
600 9.1%
Normalized 2015
($) % of 2015
8.3% 115.5
100%
5,400 100%
9,867 -16% 14,184 43.7% 16,329 15.1% 14,000 41.9% 14,700 5.0% 14,000 100%
700 100%
550 100%
12,652 1%
4,350 -23%
3,391 14%
865 -29%
30,273 9%
7,300 9%
20,781 11%
7,048 10%
86.2 2%
18,510 3%
21,253 4%
14,968 10%
16,534 0%
685 2%
112.3 -1%
20,584 16%
189.9 0%
26,314 11%
12,199 0%
17,166 11%
21,969 33%
484 18%
412 -1%
13,627 7.7% 15,730 15.4% 13,700 8.3% 15,000 9.5% 13,700 100%
4,800 100%
4,850 11.5%
4,415 30.2%
815 -5.8%
7,589 4.0%
5,580 15.1% 4,800 10%
800 -7.5%
5,400 12.5%
EFTA01476338
6,654 50.7% 4,800 41.6% 6,000 25.0%
927 13.8%
850 6.3%
8,328 9.7%
91.0 6.9%
7,500 2.7%
8,000 6.7%
7,900 9.7%
87.5 2.3%
4,800 100%
800 100%
32,747 8.2% 37,026 13.1% 33,000 9.0% 35,000 6.1% 33,000 100%
7,500 100%
23,331 12.3% 26,469 13.4% 23,000 10.7% 25,000 8.7% 23,000 100%
7,200 100%
100%
7,316 3.8%
85.1 -1.3%
8,152 11.4% 7,200 2.2%
85.5 -0.8%
85.5
18,361 -0.8% 19,513 6.3% 18,300 -1.1% 18,500 1.1% 18,300 100%
22,173 4.3% 23,256 4.9% 22,500 5.9% 23,300 3.6% 22,500 100%
14,029 -6.3% 15,722 12.1% 14,000 -6.5% 14,600 4.3% 14,000 100%
15,844 -4.2% 16,575 4.6% 16,000 -3.2% 16,500 3.1% 16,000 100%
700 100%
683 -0.3%
46.8 -58.4%
779 14.2%
46.8 0.1%
700 2.3%
800 14.3%
14,274 -4% 14,031 -1.7% 15,147 8.0% 14,000 -1.9% 13,800 -1.4% 14,000 100%
45.0 -59.9% 52.00 15.6%
80.0
216.8 14.2% 235.5 8.6%
218.0
178%
10,696 -48.0% 6,890 -35.6% 10,000 -51.4% 7,000 -30% 15,000 150%
91,707 -5% 36,065 -60.7% 39,930 10.7% 35,000 -61.8% 45,000 28.6% 65,000 186%
218.0 14.8% 230.0 5.5%
100%
27,020 2.7% 30,868 14.2% 27,300 3.7% 29,500 8.1% 27,300 100%
68,385 -11% 92,332 35.0% 98,156 6.3% 93,200 36.3% 98,000 5.2% 93,200 100%
11,887 -2.6% 12,637 6.3% 12,000 -1.6% 12,500 4.2% 12,000 100%
18,040 5.1% 21,396 18.6% 18,000 4.9% 19,500 8.3% 18,000 100%
42,951 -1% 43,172 0.5% 46,390 7.5% 43,100 0.3% 45,000 4.4% 43,100 100%
23,460 6.8% 25,009 6.6% 23,500 7.0% 24,500 4.3% 23,500 100%
600 100%
300 100%
98%
EFTA01476339
586 21.0%
295 -28.4%
138.1 16%
26,719 89%
20,386 10%
26,541 6%
504 16%
4,464 23%
59,445 3%
667 14.0%
346 17.4%
155.0 12.3% 168.9 9.0%
600 23.9%
300 -27.2%
650 8.3%
350 16.7%
154.5 11.9% 165.0 6.8%
151.5
37,528 40.5% 40,218 7.2% 38,500 44.1% 43,000 11.7% 38,500 100%
19,364 -5.0% 21,291 10.0% 17,500 -14.2% 18,700 6.9% 17,500 100%
29,977 12.9% 33,541 11.9% 30,000 13.0% 31,500 5.0% 27,000
90%
632 25.5%
4,316 -3.3%
718 13.6%
650 29.0%
4,801 11.2% 4,350 -2.5%
750 15.4%
4,500 3.4%
650 100%
4,350 100%
63,174 6.3% 68,332 8.2% 63,500 6.8% 66,500 4.7% 63,500 100%
EFTA01476340
US Equity Insights
20 November 2015
Deutsche Bank Securities Inc.
Page 7
Figure 11: S&P EPS Model by industry (2 of 2)
2005A
2006A
INDUSTRIALS ($bn)
Aerospace & Defense
Air Freight & Logistics
Airlines
Building Products
Commercial Services & Supplies
Construction & Engineering
Electrical Equipment
Industrial Conglomerates
Machinery
Professional Services
Road & Rail
Trading Companies & Distributors
INFORMATION TECHNOLOGY ($bn)
Communications Equipment
Technology Hardware, Storage & Peripherals
IT Services
Software
MATERIALS ($bn)
Chemicals
Metals & Mining
Paper & Forest Products
TELECOMMUNICATION SERVICES ($bn)
UTILITIES ($bn)
Electric Utilities
Gas Utilities
Multi-Utilities
71.0
2007A
83.9
13,997
4,924
(2,963)
958
5,897
414
3,025
22,232
10,111
713
3,215
663
83.6
11,360
EFTA01476341
17,783
Electronic Equipment, Instruments & Components 1,454
Internet Software & Services
3,551
14,226
Semiconductors & Semiconductor Equipment 15,276
19,948
17.4
Construction Materials
Containers & Packaging
11,063
526
1,070
4,204
516
13.9
21.4
12,373
194
772
Independent Power and Renewable Electricity Producers
8,057
2008A 2009A 2010A
75.3
51.7
73.8
2011A
2007 - 2014 shown below is aggregate net income, 2014 y/y is EPS growth:
63.2
16,143 21,089 21,283 17,753 20,532
5,553
(3,940)
882
5,114
546
3,631
797
5,754
1,464
659
3,296
844
4,029
4,721
(2,835)
109
3,580
1,242
4,111
857
3,452
EFTA01476342
(3,356)
25
3,277
1,176
2,687
4,752
2,591
56
3,612
867
3,835
24,932 27,201 22,830 15,318 17,891
11,980 12,641 12,380
882
6,747 11,764
(90)
4,616
790
97.6
5,085
908
121.4
6,060
928
122.1
4,215
495
105.6
151.4
13,448 13,708 13,448 12,992 15,777
26,262 38,703 38,380 21,589 34,033
1,961
5,162
3,616
7,128
13,172 14,879
24.8
3,808
8,466
9,832
21.0
3,000
4,828
9,197 11,789
16,461 18,598 21,833 23,225 27,369
8,163 23,992
21,096 24,800 26,316 27,394 33,620
21.2
13.2
12,009 13,313 12,173
716
EFTA01476343
709
1,081
6,786
630
18.0
23.4
1,093
8,406
2007 - 2014 shown below is aggregate net income, 2014 y/y is EPS growth
1,516
8,338
950
26.4
25.9
211
1,260
9,176
360
1,559
6,108
843
27.0
26.9
208
1,959
9,449
1,328
2,995
371
21.8
26.6
223
1,670
24.9
8,405 15,424
102
(6)
1,438
7,168
878
23.2
28.2
13,646 15,204 15,261 14,857 16,442
213
1,178
9,888 10,358
238
920
6,264
728
EFTA01476344
88.2
23,118
5,745
1,563
7
3,650
1,062
4,848
20,687
17,511
1,324
7,648
1,060
175.2
17,039
47,528
4,530
13,955
30,354
23,937
37,905
31.7
20,512
(26)
1,297
8,540
1,332
22.4
29.5
17,508
236
1,138
10,605
2012A
94.3
23,181
5,984
2,400
112
3,396
1,366
5,051
22,656
18,886
1,557
8,280
1,427
185.7
18,963
57,598
3,754
EFTA01476345
16,068
31,272
19,351
38,660
29.2
20,796
46
1,296
5,858
1,155
23.9
29.8
17,984
290
986
10,544
2013A
102.5
26,449
5,992
5,724
474
3,645
1,390
5,821
23,844
16,710
1,744
9,002
1,689
193.1
21,367
53,981
3,780
19,854
35,794
20,165
38,190
30.5
22,693
128
1,444
4,819
1,401
25.1
30.4
18,830
304
555
10,741
2014A
EFTA01476346
Y/Y
113.4 11%
29,332 11%
6,361 6%
10,010 75%
599 26%
3,839 5%
1,525 10%
6,174 6%
24,285 2%
17,199 3%
2,006 15%
10,146 13%
1,963 16%
209.8 9%
21,413 0%
58,701 9%
4,304 14%
24,308 22%
36,653 2%
27,382 36%
32.7 7%
24,473 8%
333 160%
2,193 52%
4,469 -7%
1,280 -9%
30.7 22%
33.2 9%
19,691 5%
563 85%
1,085 96%
11,879 11%
2015E
Y/Y
116.3 2.6%
7,413 16.5%
4,013 4.5%
2016E
Y/Y
121.5 4.4%
2015E
Y/Y
115.0 1.4%
2016E
Y/Y
117.0 1.7%
8,258 11.4% 7,300 14.8% 7,800
845 23.4%
4,289 6.9%
5,757 0.6%
6.8%
EFTA01476347
700 16.9%
4,000 4.2%
750 7.1%
4,200 5.0%
Normalized 2015
($) % of 2015
112.2
17,091 70.7% 14,805 -13.4% 17,000 69.8% 15,000 -12% 15,300
684 14.3%
1,296 -15.0% 1,394 7.6%
5,723 -7.3%
1,300 -14.7% 1,300 0.0%
5,500 -10.9% 5,500 0.0%
2,410 11.6% 2,100 4.7%
2,300 9.5%
2,000 5.3%
239.0 6.2%
98%
29,413 0.3% 31,789 8.1% 29,300 -0.1% 31,000 5.8% 29,300 100%
7,300 100%
90%
700 100%
4,000 100%
1,235
5,225
95%
95%
21,279 -12.4% 24,367 14.5% 21,000 -13.5% 22,100 5.2% 21,000 100%
95%
15,350 -10.7% 14,752 -3.9% 15,000 -12.8% 14,500 -3.3% 14,250
2,160 7.7%
9,834 -3.1% 10,675 8.5%
2,088 6.3%
224.1 6.8%
2,171 4.0%
243.3 8.6%
9,900 -2.4% 10,500 6.1%
1,900 -3.2%
225.0 7.3%
225.0
2,100 100%
9,900 100%
1,900 100%
100%
21,374 -0.2% 22,026 3.1% 21,600 0.9% 22,500 4.2% 21,600 100%
70,219 19.6% 75,362 7.3% 70,800 20.6% 75,000 5.9% 70,800 100%
4,100 100%
4,179 -2.9%
4,510 7.9%
4,100 -4.7%
4,400 7.3%
EFTA01476348
25,112 3.3% 29,979 19.4% 25,500 4.9% 28,600 12.2% 25,500 100%
38,022 3.7% 41,148 8.2% 38,000 3.7% 40,300 6.1% 38,000 100%
27,838 1.7% 29,248 5.1% 27,500 0.4% 28,500 3.6% 27,500 100%
36,992 -3% 37,325 0.9% 41,026 9.9% 37,500 1.4% 39,700 5.9% 37,500
30.3 -7.5%
30.6 -6.5%
532 59.8%
2,151 -1.9%
1,554 21.4%
33.7 9.8%
33.2 -0.1%
34.3 12.0%
864 62.3%
2,343 9.0%
500 50.1%
2,200 0.3%
32.5 7.3%
600 20.0%
2,300 4.5%
32.5 -3.0%
34.5 3.1%
375 7.1%
31.4
104%
24,522 0.2% 26,357 7.5% 24,500 0.1% 25,700 4.9% 24,500 100%
500 100%
1,857 -58.4% 3,054 64.4% 1,500 -66.4% 2,300 53.3%
1,665 7.2%
34.9 3.4%
34.4 3.7%
1,600 25.0% 1,600 0.0%
33.5 9.1%
33.5 0.7%
356 -36.7%
979 -9.8%
365 2.5%
1,033 5.6%
1,000
350 -37.8%
-8%
1,100 10.0%
2,200 100%
2,625 175%
1,600 100%
100%
100%
33.5
33.5
19,889 1.0% 20,402 2.6% 20,000 1.6% 20,500 2.5% 20,000 100%
350 100%
1,000 100%
100%
EFTA01476349
11,968 0.8% 12,615 5.4% 12,100 1.9% 12,500 3.3% 12,100 100%
EFTA01476350
US Equity Insights
20 November 2015
Page 8
Deutsche Bank Securities Inc.
Figure 12: S&P DPS Model by sector
2005
S&P 500 DPS (historical index)
S&P 500 DPS (current constituents)
Sector ($ billions)
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
S&P 500
S&P 500 ex. Financials
Financials and Tech
S&P 500 ex. Financials and Tech
S&P 500 Banks
DB US Equity Strategy
Dividends
2006
2007
2008
2009
2010
2011
2012
2013
Payout Ratio (%)
2014 2007 2008 2009 2010 2011 2012 2013 2014 2015
$22.21 $24.89 $27.73 $28.38 $22.41 $22.73 $26.43 $31.24 $34.99 $39.44 33%
43% 37% 27% 27% 30% 32% 33%
$23.24 $26.02 $29.40 $28.31 $22.48 $23.86 $27.13 $31.44 $35.78 $38.31 31%
39% 35% 27% 27% 30% 32% 33% $41
9.9
21.6
15.9
48.0
19.7
22.7
10.3
6.5
10.1
11.6
EFTA01476351
12.2
24.5
18.5
54.2
22.0
25.4
12.2
7.8
11.3
12.5
66.5
35.3
13.4
33.1
20.6
61.2
24.1
28.0
14.9
7.8
15.9
13.0
76.1
38.8
13.9
30.8
22.3
54.5
26.0
29.5
16.6
8.1
16.9
13.5
71.1
32.9
12.8
29.9
22.6
20.4
24.1
24.0
17.6
6.1
17.7
14.2
38.0
16.1
32.5
24.4
20.7
EFTA01476352
30.0
23.7
20.4
7.3
18.7
15.1
41.1
19.0
35.4
27.7
29.9
30.1
27.4
25.1
9.1
20.1
16.2
55.1
13.4
22.5
37.7
31.4
36.7
37.4
30.5
33.5
10.4
20.1
18.1
70.3
13.3
26.4
41.2
35.8
44.6
36.3
33.6
48.0
12.5
19.1
19.1
7%
$44 7% 34% 35%
31.5 26% 34% 26% 22% 23% 25% 27% 31% 34.6 10% 38.1 10% 30% 31%
44.0 54% 46% 43% 44% 45% 48% 49% 51% 45.3 3% 47.3 4% 53% 54%
34.6 17% 16% 38% 26% 21% 26% 31% 31% 29.3
-15% 23.4 -20% 65% 45%
51.9 43% -274% 36% 16% 23% 23% 24% 27% 58.9 13% 66.7 13% 27% 29%
37.7 29% 30% 27% 30% 27% 33% 31% 28% 44.8 19% 49.5 10% 29% 30%
37.9 33% 39% 46% 32% 31% 32% 33% 33% 39.1 3% 40.9 5% 34% 35%
50.3 12% 14% 17% 13% 14% 18% 25% 24% 60.8 21% 69.3 14% 27% 29%
EFTA01476353
12.1 32% 39% 47% 29% 29% 36% 41% 37% 11.8
-3% 12.0 2% 39% 37%
21.5 60% 63% 81% 81% 90% 84% 76% 70% 23.5
19.6 50% 50% 53% 53% 55% 61% 63% 59% 20.7
9% 23.7 1%
6% 21.7 5%
70% 73%
62% 63%
176.3 200.7 232.1 232.2 189.4 208.9 239.9 278.4 316.6 341.2 31% 39% 35% 27%
27% 30% 32% 33% 368.7 8% 392.7 6% 34% 35%
128.3 146.5 170.9 177.7 169.0 188.2 210.0 241.6 272.0 289.3 28% 38% 39% 30%
30% 32% 34% 35% 309.9 7% 326.0 5% 37% 37%
58.3
92.6 102.3 29% 70% 23% 15% 18% 20% 24% 26% 119.6 17% 136.0 14% 27% 29%
118.0 134.3 156.0 161.1 151.4 167.8 184.9 208.1 224.0 239.0 31% 47% 46% 36%
35% 37% 37% 38% 249.1 4% 256.7 3% 41% 40%
19.0 72% NM NM 7% 24% 20% 21% 28% 23.3 22% 27.4 18% 25% 28%
31.7
5.3
3.7
16.2
Dividends
Y/Y
2016
Y/Y
Payout (%)
2015 2016
Figure 13: S&P fair valuation by sector — we still see 5% downside to Energy
Market
Value
($bn)
Consumer Discretionary
Consumer Staples
Energy
Financials
Banks
Health Care
Industrials
Information Technology
Materials
Telecom
Utilities
S&P 500 ($ bn)
S&P 500 Index ($/sh)
2,433
1,762
1,281
3,044
1,127
2,628
1,930
3,939
543
423
EFTA01476354
526
18,508
2081.24
17.5
Current
2015
PE
21.1
20.6
28.5
14.0
12.1
17.0
16.8
17.5
17.9
12.6
15.7
2015E
Earnings
($bn)
115.5
85.5
45.0
218.0
93.2
154.5
115.0
225.0
30.3
33.5
33.5
1055.7
119.0
Normal
Ratio
100%
100%
178%
100%
100%
98%
98%
100%
104%
100%
100%
102.9%
103%
Normal
2015E
EFTA01476355
Earnings
115.5
85.5
80.0
218.0
93.2
151.5
112.2
225.0
31.4
33.5
33.5
1086.0
122.0
Accounting
Quality
Adjustment
-10%
-10%
-10%
-10%
-10%
-10%
-10%
-10%
-10%
-10%
-10%
-10%
-10%
Fully
Adjusted
Earnings
103.9
77.0
72.0
196.2
83.9
136.4
101.0
202.5
28.3
30.2
30.1
977.4
109.8
Real
CoE
5.25%
5.00%
6.25%
EFTA01476356
6.25%
6.50%
5.25%
5.75%
5.50%
6.25%
5.00%
5.00%
5.58%
5.50%
Steady
State
Value
1,979
1,539
1,152
3,139
1,290
2,597
1,756
3,682
453
603
602
17,502
1996.4
Growth
Premium
10%
5%
0%
-5%
-5%
10%
0%
5%
0%
-15%
0%
3%
0%
2015 Start
Fair Value
($bn)
2,177
1,616
1,152
2,982
1,226
2,857
1,756
EFTA01476357
3,866
453
513
602
17,974
1996.4
2015E
Dividend
Yield
1.4%
2.6%
2.3%
1.9%
2.1%
1.7%
2.0%
1.5%
2.2%
5.5%
3.9%
2.0%
2.0%
2015 End
Fair Value
($bn)
2,304
1,688
1,221
3,171
1,305
3,015
1,857
4,096
480
520
620
18,972
2106.8
2015 End
Fair Value
PE
20.0
19.7
27.1
14.5
14.0
19.5
16.1
18.2
15.8
15.5
EFTA01476358
18.5
17.7
2015 end
Upside
-5%
-4%
-5%
4%
16%
15%
-4%
4%
-12%
23%
18%
2.5%
1.2%
EFTA01476359
20 November 2015
US Equity Insights
2015 did not have healthy underlying broad based revenue or EPS
growth ex oil and dollar
S&P sales and operating EPS growth was broadly weak in 2015. Weakness
extended
beyond commodity producers and FX drags at multinationals. A surge in
airline profits
masked a significant decline in profits at Industrial Capital Goods. Revenue
was flat at
Financials with EPS growth from less litigation than 2014. No growth at
Consumer
Staples despite lower input costs. Good growth at Retailers, but
disappointing given the
macro tailwinds owing to fierce price competition. Strong at auto, but home
builders
disappointed.
The strongest growth was at Health Care and consumer oriented Tech firms.
Corporate
tech spending on equip. and software remains very sluggish and chip makers
were
flattish on earnings given slow PC, handset and weak industrial end markets.
Ex.
Energy, Financials, HC and AAPL, AMZN & GOOG 2015 S&P EPS growth is —2.5%;
this
is the underlying trend with —4% FX drag that should fall to —1.5%.
Figure 14: S&P Industrials ex. Defense sales growth vs.
Core capital goods shipments & Mfg ISM
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
y/y growth
was high single-digit
y/y sales growth was low single-digit in 2014
when ISM was >55. 1H sales growth is negative
on lower Mfg ISM.
34.0
38.0
42.0
46.0
50.0
54.0
58.0
62.0
EFTA01476360
Industrials ex. Def sales growth (y/y, lhs)
Mfg ISM (3m avg, rhs)
Core Capital Goods Shipment (3m avg, y/y)
New Orders
Shipments
Figure 15: Core non-defense capital goods new orders &
shipments
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Non defense Capital Goods ex. Aircraft (Core)
3mo average y/y
y/y growth
was double-digit
y/y growth has slowed down
since late 2014, and new orders
3mo average started to decline in
202015
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Figure 16: Industrials ex. Airlines / Defense sales growth
-20%
-16%
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
EFTA01476361
24%
Sales growth
Y/Y
-20%
-16%
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
24%
Industrials
Industrials ex. Defense
Industrials ex. Airlines
Figure 17: Tech ex. AAPL & GOOG sales growth
-16%
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
24%
Sales growth
Y/Y
-16%
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
24%
Information Technology
Tech ex. AAPL & GOOG
Deutsche Bank Securities Inc.
Page 9
2006
1006
EFTA01476362
3006
1007
3007
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3012
1013
3013
1014
3Q14
1Q15
3Q15
2007
2008
2009
2010
2011
2012
2013
2014
2015
1Q06
3Q06
1007
3007
1008
3Q08
1Q09
3Q09
1010
3010
1011
3011
1Q12
3Q12
1013
3013
1014
3Q14
1Q15
3Q15
2000
2001
2002
EFTA01476363
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
EFTA01476364
20 November 2015
US Equity Insights
Figure 18: S&P EPS growth ex Energy, Fin., HC and
AAPL, AMZN & GOOG
EPS growth y/y
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
Energy
Financials Healthcare AAPL,
AMZN &
GOOG
2015 btm-up
8.2%
0.9%
7.9%
2.5%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
S&P S&P ex all of
above
2016 btm-up
2.5%
1.3%
3.1%
3.2%
3.4%
Figure 19: Global enterprise tech spending growth
forecast by region
-3.0%
2014
N. America
2015E
2016E
EFTA01476365
W. Europe
2017E
Japan
2018E
ROW
2019E
Global
Figure 20: Linear Technology (LLTC, broad-based
Industrial player) Industrial bookings, weak through
1H16
100
110
120
130
140
150
160
170
180
-10%
-5%
0%
5%
10%
15%
20%
Figure 21: Aggregate Industrial revenues (DB US
semiconductor coverage) expected to rebound after
1Q16
2500
2750
3000
3250
3500
3750
4000
Industrial bookings (m)
Y/Y
-10%
0%
10%
20%
30%
40%
50%
Industrial revenues ($m)
Y/Y
Figure 22: S&P 500 trailing 4-qtr EPS growth: 1960 — 3Q2015
-40%
EFTA01476366
-30%
-20%
-10%
0%
10%
20%
30%
40%
Est
1960-2014 CAGR: 6.7%
Aggressive Fed tightening
slowed GDP growth and
weighed on S&P EPS
Weak oil and
strong $ weighed
on S&P EPS
Weak oil and
Russian default
weighed on
S&P EPS
Recession
S&P 500 Trailing 4-qtr EPS (y/y)
CAGR avg.
Page 10
Deutsche Bank Securities Inc.
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
EFTA01476367
2011)
2012
2014
EFTA01476368
20 November 2015
US Equity Insights
Figure 23: S&P Sales growth lags US GDP growth_
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
y/y % chg
Correl: 0.69
1977-79
GDP: 12.1%
Sales: 17.1%
1985-89
GDP: 6.8%
Sales: 5.3%
2H1993-99
GDP: 5.9%
Sales: 7.9%
Recession
Avg 1970-1990
GDP: 8.7%
Sales: 9.7%
Nominal GDP
2004-07
GDP: 5.6%
Sales: 9.2%
2H2011-2H14
GDP: 4.0%
Sales: 3.0%
S&P 500 Sales
Avg 1991-now
GDP: 4.5%
Sales: 4.9%
Recession
Real GDP
Real Exports of Goods
-20%
-15%
-10%
-5%
0%
5%
EFTA01476369
10%
15%
20%
25%
30%
Figure 24: ... even though GDP growth was not
particularly strong
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
y/y % chg
1992-99
GDP: 4.0%
Exports: 8.0%
2003-07
GDP: 3.0%
Exports: 7.8%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Figure 25: Capex growth is key for healthier S&P Sales growth
y/y % chg
1967
capex
slowdown
1985-87
capex
slowdown
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
EFTA01476370
25%
FY2015
estimates
1962-69
Domestic
infrastructure
GDP: 4.7%
Capex: 8.7%
Recession
Avg 1951-1970
GDP: 3.7%
Capex: 5.0%
1976-79
Oil boom
GDP: 4.3%
Capex:10.4%
1992-99
Productivity
driven IT
capex boom
GDP: 4.0%
Capex: 10.3%
Real GDP
Avg 1971-1990
GDP: 3.2%
Capex: 5.7%
2003-07
Asia / export/
commodity capex
GDP: 3.0%
Capex: 6.3%
Capex (Equip. + IPP) y/y % chg
Avg 1991-2014
GDP: 2.6%
Capex: 5.3%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Figure 26: Spenders of capex (S&P 500 capex by sectors)
Healthcare
4%
Financials
5%
EFTA01476371
Telecom
6%
Energy
28%
Figure 27: Receivers of capex (GDP accounts — US capex
by type)
2014
27%
Energysensitive
Ag/Mining/
Const.
Equip.
6%
Tech
12%
$711bn
Cons. Staples
6%
Materials
4%
Cons. Disc.
13%
Utilities
12%
Industrials
10%
—54% S&P
heavy
industrial
Industrial Equip.
13%
$1,720bn
Software
18%
Transportation
Equip.
16%
Other IPP
5%
R&D
17%
22%
Intangibles
Other Equip
7%
Medical Equip.
5%
Comm. Equip.
6%
EFTA01476372
Computers
5%
Other IT
2%
31% of
capex =
Tech &
Telecom
Deutsche Bank Securities Inc.
Page 11
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
2011
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
EFTA01476373
2008
2010
2012
2014
EFTA01476374
20 November 2015
US Equity Insights
Reiterating OW on Healthcare
Healthcare is 15.3% of US GDP (22.4% of PCE). The largest piece of this is
healthcare
services as rendered by healthcare professionals, hospitals and other
facilities. The
smaller but even faster growing part of Healthcare is drugs, devices and
equipment. As
is typical for the S&P 500, the Health Care sector is more exposed to
manufacturing
products than delivering services. We believe growth in healthcare products
will stay
strong owing to an aging population and increasing efforts to treat
conditions with
drugs and maximize the productivity of scarce healthcare labor with as many
tools and
conveniences as conceivable. We believe S&P 500 Biotech, Pharma, Devices,
Equipment, Supplies, Tech and Tools sit in the sweet spot of these trends.
We remain
cautious on Managed Care and other HC services and facilities.
Given superior growth, the sector normally trades at a 10% premium to the
S&P, so the
current discount is rare. We see nearly 4pts of PE upside as we believe the
sector
should trade at 18-20x fwd PE or —20x trailing, if the 10yr Treasury yield
doesn't
significantly exceed 3%. Currently, HC is trading at a 15.5-16x fwd PE,
below S&P's
16.7x.
HC trailing PE is already as undemanding at it was in 1993 during the worst
of the
Hillary Care sell-off back then as a 13-14 PE with 6-7% 10yr Tsy yields is
more
demanding than a 14-15 trailing PE with 2-2.5% 10yr Tsy yields. So
valuations are
similar or even less demanding now than during the bottom of the 1993 sell-
off.
Moreover in 1993, Democrats held a Congress majority and when Republicans
took it in
1994, Hillary Care stopped. Today, Republicans control Congress.
We expect 6%+ sales growth and —7% EPS growth from S&P Healthcare next year,
and
it has best sales and EPS estimates revision trends of any major sector. We
also like its
low cyclicality and strong balance sheets. As the biggest and fastest
growing part of US
GDP and household consumption, HC remains our most favored sector.
Figure 28: S&P Healthcare Trailing PE as low as during
worst of Hillary Care sell-off in 1993
10
EFTA01476375
15
20
25
30
35
40
5
Figure 29: 10yr Treasury yields 6-7% in 1993 sell-off vs.
2-2.5% today
10
0
1
2
3
4
5
6
7
8
9
Page 12
Deutsche Bank Securities Inc.
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
1990
EFTA01476376
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
EFTA01476377
20 November 2015
US Equity Insights
Figure 30: Relative price performance during Clinton
healthcare initiatives in the 1992-1994 election
-20%
0%
20%
40%
60%
80%
100%
S&P 500
S&P Healthcare
Nov 1992: Clinton Elected
Jan 1993: Hillarycare task
force created
Figure 31: Hit to Health Care since Hillary Clinton's tweet
on Sept 21 (relative price performance)
Sept 1994: Sen Majority
leader Mitchell declares
Clinton initiatives dead
-16.0%
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
S&P 500
S&P Healthcare
Sept 21: Hillary Tweets
about drug prices
Reiterating UW on Energy
We continue to question the still highly elevated valuations at Energy
stocks. YTD oil
prices are down nearly $50 y/y, a huge headwind to Energy profits. Every $5/-
barrel
decline in oil prices reduces S&P annual net income by —$7.5bn or nearly $1
EPS, as it
hits S&P Energy profits by 10%, even as Energy companies cut costs
aggressively.
We think Energy stocks are overvalued. We assume normalized oil prices of
$65-70
(40% gain vs. —$50 YTD average), but likely not achieved until 2017. For
EFTA01476378
normalized
Energy earnings, we forecast $80bn on improved costs (60% gain in profits on
40%
gain in oil price), but again, not until 2017.
However, at Energy's current —$1.3tr market cap, the market-implied
normalized
Energy earnings is $90bn in 2016, if a fair forward PE on normalized
earnings is
assumed to be 15x. In fact, history suggests 13-15x fair fwd PE on
normalized earnings
is more appropriate, in which case the market is implying an even higher
normalized
Energy earnings of $90-100bn in 2016. Note: we are not applying 13-15x on
either our
forward Energy earnings or bottom-up consensus; we are using a 13-15x fwd 12-
month
PE as suggested by history solely for the purpose of implying the level of
Energy
earnings that the market currently expects to be achieved by 2016.
$90bn+ of normalized earnings would imply that either an 80% gain in profits
is
required on 40% gain in oil price (to $65-70) for the entire sector, or that
the market
assumes oil prices will normalize above $70. Achieving $90bn+ in profits
even with
$70/bbl oil will be challenging given:
1) oil service profits staying very weak given the capacity rationalization
likely
needed to get oil prices to $70/bbl,
2) natural gas prices that are likely to stay very depressed for a long time,
3) oil refining margins would suffer a big hit should oil prices rise to $70/-
bbl without
a large WTI to Brent price spread.
We think a fair intrinsic value for Energy at YE2015 is —$1.2tr or 25x our
actual (but
sub-normal) estimate for 2016 Energy earnings of $52bn. We see —5% downside
to
Energy stocks into YE2015, unless oil prices quickly rally to —$60 or
higher. Credit
markets also support our cautious stance on Energy, as a comparison of
equity risk
premium (EPS yield — 10 TIPS yld) vs. credit risk spreads by sector reveals
that Energy
equities are expensive vs. the sector's debt. We think it is too early to
rotate into Energy
equities and we maintain our UW on the sector.
Deutsche Bank Securities Inc.
Page 13
7/1/2015
7/8/2015
7/15/2015
EFTA01476379
7/22/2015
7/29/2015
8/5/2015
8/12/2015
8/19/2015
8/26/2015
9/2/2015
9/9/2015
9/16/2015
9/23/2015
9/30/2015
10/7/2015
10/14/2015
10/21/2015
EFTA01476380
20 November 2015
US Equity Insights
Stronger revenue growth is key to achieving healthy S&P EPS
growth in 2016
Strong revenue growth at Health Care, better capex on productivity enhancers
like tech
equip/software, slower but still strong revenue growth at consumer oriented
big cap
Tech are key to our 4% S&P sales growth, 1% share shrink and flat net margin
estimates for 2016. Some cyclically risky sectors like Auto, Airlines,
Chemicals &
Semiconductors must avoid losing any earnings power.
Figure 32: S&P Quarterly EPS growth breakdown
-2%
0%
2%
4%
6%
8%
10%
12%
Average for the last 15 quarters (S&P 500):
EPS growth: 6.2%
Net income growth: 4.8%
EPS growth from share buybacks = 1.4%
Qtrly Net Income Growth y/y
EPS growth from share buybacks (earnings weighted)
Page 14
Deutsche Bank Securities Inc.
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
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20 November 2015
US Equity Insights
Margin expansion is possible, but upside counterbalanced by
downside risk
Fierce price competition at Retailers, more global competition at
Industrials and the
political threats at Health Care pose some sales risk, but mostly margin
risk. There is
also tax rate risk. Many are concerned about wage pressure on margins, but
this is not
a major risk for S&P firms. However, a tighter than expected labor market
could lead to
more Fed hikes than expected and thus EPS risks via dollar, oil or PE risk
via credit
market or higher Tsy yids. Fed hikes are a small boost to S&P EPS.
Figure 33: S&P trailing 4qtr net margins
12%
10%
8%
6%
4%
Cyclical but not
mean reverting
2%
0%
2%
0%
Figure 34: S&P quarterly net margins
12%
10%
8%
6%
4%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Recession
S&P 500 GAAP Net Margins
Non-GAAP Net Margins
Pro forma Net Margins
GAAP Net Margins
EFTA01476382
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Figure 35: Labor participation in decline
Figure 36: Fed hikes yet to begin despite rising wage
pressures
58%
60%
62%
64%
66%
68%
Recession
Full-time employed (% of employed, rhs)
78%
80%
82%
84%
86%
88%
Participation rate (% of 16 yrs+ pop, lhs)
0%
2%
4%
6%
8%
10%
0%
1%
2%
3%
4%
5%
Recession
Fed Funds Target (lhs)
Avg. hourly earnings (Production and non-supervisory, y/y, rhs)
Avg. hourly earnings (All employees, y/y, rhs)
Deutsche Bank Securities Inc.
Page 15
1960
1963
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1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
1985
1988
1991
1994
1997
2000
2003
2006
2009
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2012
2015
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3012
1013
3013
1014
3014
1015
3015
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20 November 2015
US Equity Insights
Figure 37: Large vs. small companies' compensation
$10
$15
$20
$25
$30
$35
$40
$45
$50
$0
$5
Annual
Quarterly
150%
155%
160%
165%
170%
175%
180%
185%
Ratio
Pvt cos. with 1-99 employees total comp. $/hr
Pvt cos. with 500+ employees total comp. $/hr
Figure 38: S&P industry-level returns on interest rate changes
-30%
-20%
-10%
0%
10%
20%
30%
Correlation of 3m S&P industry total returns vs. 3m chg in real 10yr yield
(2003-2014)
Figure 39: Higher overnight rates: Financials industries benefit spectrum
Most
Least
Online Brokers
Trust Banks
Asset Managers
Consumer Finance
Diversified Banks
Investment Banks
Regional Banks
Thrifts & Mortgage Finance
EFTA01476386
Exchanges
P&C Insurance
Life Insurance
REITs
Page 16
Deutsche Bank Securities Inc.
Commerical Banks
Distributors
Div Financial Svcs
Containers & Packaging
Airlines
Air Freight & Logistics
Div Consumer Svcs
Road & Rail
Consumer Finance
Construction Materials
Commercial Svcs & Suppl
Auto Components
Trading Co & Distributors
Aerospace & Defense
Specialty Retail
Electr Equip & Instru
Industrial Conglomerates
Household Products
Automobiles
Life Sci Tools & Svcs
Semi & Semi Equip
Office Electronics
Construction & Engineering
Building Products
Food Products
Real Estate Inv & Develop
Media
Health Care Technology
Electrical Equipment
Capital Markters
Textiles & Apparel
Paper & Forest Products
Insurance
Communication Equipment
Household Durables
Food & Staples Retailing
Biotechnology
Software
Multi-line Retail
Personal Products
Leisure Equip & Prod
Health Care Equip & Suppl
Machinery
Oil, Gas & Cons Fuels
Health Care Providers & Svcs
EFTA01476387
Thrifts & Mortgage Finance
Energy Epqt & Services
Internet Software & Services
Chemicals
Hotels, Resturants & Leisure
Pharmaceuticals
REITs
IT Services
Wireless Telecom Services DISC
Beverages
Tech Hardware, Storage & Peripherals
Internet Retail
Diversified Telcom Services
Tobacco
Gas Utlities
Power/Renewable Elec. Producers
Metals & Mining
Multi-Utilities
Electric Utlities
Q1.90
Q1.94
Q1.98
Q1.02
Q1.03
Q1.04
Q1.05
Q1.06
Q1.07
Q1.08
Q1.09
Q1.10
Q1.11
Q1.12
Q1.13
Q1.14
Q1.15
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20 November 2015
US Equity Insights
5% delineates healthy from unhealthy S&P EPS growth and
supports an 18 PE
Our 1 year target of 18x trailing S&P EPS uses a 5.5% real and 7.5% nominal
CoE. EPS
is retained, so real EPS g must = real CoE - div yld to justify PE = 1/real
CoE.
Figure 40: S&P fair valuation & real CoE by sector
Market
Value
($bn)
Consumer Discretionary
Consumer Staples
Energy
Financials
Banks
Health Care
Industrials
Information Technology
Materials
Telecom
Utilities
S&P 500 ($ bn)
S&P 500 Index ($/sh)
2,433
1,762
1,281
3,044
1,127
2,628
1,930
3,939
543
423
526
18,508
2081.24
17.5
Current
2015
PE
21.1
20.6
28.5
14.0
12.1
17.0
16.8
17.5
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17.9
12.6
15.7
2015E
Earnings
($bn)
115.5
85.5
45.0
218.0
93.2
154.5
115.0
225.0
30.3
33.5
33.5
1055.7
119.0
Normal
Ratio
100%
100%
178%
100%
100%
98%
98%
100%
104%
100%
100%
102.9%
103%
Normal
2015E
Earnings
115.5
85.5
80.0
218.0
93.2
151.5
112.2
225.0
31.4
33.5
33.5
1086.0
122.0
Accounting
EFTA01476390
Quality
Adjustment
-10%
-10%
-10%
-10%
-10%
-10%
-10%
-10%
-10%
-10%
-10%
-10%
-10%
Fully
Adjusted
Earnings
103.9
77.0
72.0
196.2
83.9
136.4
101.0
202.5
28.3
30.2
30.1
977.4
109.8
Real
CoE
5.25%
5.00%
6.25%
6.25%
6.50%
5.25%
5.75%
5.50%
6.25%
5.00%
5.00%
5.58%
5.50%
Steady
State
Value
1,979
1,539
EFTA01476391
1,152
3,139
1,290
2,597
1,756
3,682
453
603
602
17,502
1996.4
Growth
Premium
10%
5%
0%
-5%
-5%
10%
0%
5%
0%
-15%
0%
3%
0%
2015 Start
Fair Value
($bn)
2,177
1,616
1,152
2,982
1,226
2,857
1,756
3,866
453
513
602
17,974
1996.4
2015E
Dividend
Yield
1.4%
2.6%
2.3%
1.9%
2.1%
1.7%
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2.0%
1.5%
2.2%
5.5%
3.9%
2.0%
2.0%
2015 End
Fair Value
($bn)
2,304
1,688
1,221
3,171
1,305
3,015
1,857
4,096
480
520
620
18,972
2106.8
2015 End
Fair Value
PE
20.0
19.7
27.1
14.5
14.0
19.5
16.1
18.2
15.8
15.5
18.5
17.7
2015 end
Upside
-5%
-4%
-5%
4%
16%
15%
-4%
4%
-12%
23%
EFTA01476393
18%
2.5%
1.2%
Figure 41: S&P Trailing PE vs implied equity risk premium
10
15
20
25
30
35
0
5
Recession
Implied ERP (rhs)
Avg ERP ex 1975-82 = 3.5%
Trailing PE (lhs)
Avg ERP = 4%
Avg PE = 15.9
Overstated EPS from
inflation distortions
Low offered ERP
contributes to crash
Long-term growth
optimism
Return to
normal
0%
2%
4%
6%
8%
10%
12%
Deutsche Bank Securities Inc.
Page 17
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
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2005
2008
2011
2014
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20 November 2015
US Equity Insights
S&P intrinsic valuation model
An EPS discount model
Our intrinsic valuation model combines our detailed S&P EPS analysis with
our intrinsic
valuation expertise. We did this by creating a single-stage earnings
discount model so
that we could intrinsically value the S&P 500 based upon our EPS estimates.
Our EPS
discount model is consistent with the principles underlying a dividend
discount model
(DDM) or a discounted cash flow (DCF) model, but the direct input is EPS and
not DPS.
Our full valuation model, shown on page 21, can be daunting upon first
glance, but it is
actually very simple at its core. The model simply capitalizes S&P 500 EPS.
S&P 500 value = normalized EPS / a fair long-term real return on S&P 500
ownership
While our model can be reduced to the basic formula above, the full version
of our
model allows us to decompose and more closely examine our underlying
assumptions.
Examining our assumptions piece by piece helps us to fully consider current
macro
conditions and make more meaningful comparisons to history. It also allows
us to
better compare our assumptions to market implied expectations and run
sensitivity
tests. We validate the mechanics of our model by reconciling it to a
dividend growth
model, as well as a DCF and economic profit valuation model. This helps
ensure correct
math and provides us additional frameworks of thought to assess our
assumptions.
A simple version of our model before introducing the full version
The simplest version of our model is just like a steady-state terminal value
calculation in
a DCF model. We set DPS equals to EPS and assume long-term growth is only
inflation.
Figure 42: Capitalize steady state earnings at the real cost of equity
Deutsche Bank's 2015E S&P 500 EPS
DB's "normal 2015E" S&P 500 EPS
"Normal 2015E" EPS / 2015E EPS
Accounting quality adjustment to pro forma EPS
Normal 2015E S&P 500 EPS fair to capitalize
Fair long-term return on S&P 500 index:
+ Long-term real risk free interest rate
+ Long-term fair S&P 500 equity risk premium
= Fair real return on S&P 500 ownership
+ Long-term inflation forecast
EFTA01476396
= Nominal S&P 500 cost of equity
S&P 500 intrinsic value at 2015 start
= Adj. normal EPS / (nominal CoE - inflation)
S&P 500 intrinsic value at 2014 end
= Year start value * (1 + nominal CoE - div. yld.)
$119.00
$122.00
103%
-$12.00
$110.00
1.50%
4.00%
5.50%
2.00%
7.50%
2000
2109
We capitalize our cyclically
normalized and accounting
quality adjusted pro forma
S&P 500 EPS estimate at the
real cost of equity.
This assumes that there will
be no long-term S&P 500
economic profit growth or
deterioration.
We try to stay disciplined
about our real cost of equity
assumption, usually 5.5-6.5%
We set our 12-month S&P
500 target using a fair
intrinsic value model.
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Deutsche Bank Securities Inc.
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20 November 2015
US Equity Insights
The drivers of our full S&P 500 intrinsic value model
Most of our valuation model inputs are fairly straightforward and typical of
any intrinsic
value model; such as interest rates, risk premiums, retained earnings ratio,
return on
reinvestment, etc. But our normalized EPS input tends to require additional
explanation.
Understanding our normalized EPS estimates
We assess EPS normality or sustainability by evaluating the ability of
current year EPS
to grow at a healthy rate over the next several years. If EPS cannot grow at
a healthy
rate, which we approximate as the nominal cost of equity less the expected
dividend
yield, then current
enough for
EPS to merely grow;
must grow at
a rate that yields
retained EPS.
Let us explain further using our S&P 500
S&P 500
EPS is $119, we think $122 better
2015. Apart
from Energy and Managed Health Care,
represent
normal mid-cycle earning for most
in 2015
and parts of Health Care and some
Managed
Health Care (HMOs) profits could drift
limits to premium
hikes and the mix of new enrollees weighted
existing
conditions. Our $122 normalized EPS estimate
for
improving profitability at Energy and weakness to come at HMOs. We consider
our
2016E EPS of $125 to be roughly $2 shy of fully normalized mid-cycle
earnings.
Comparing EPS growth expected over the next several years to a value neutral
hurdle
rate is how we capture the magnitude of current cyclical EPS distortions and
the time it
should take to return to healthy long-term growth in our normalized EPS
estimates.
Why an accounting quality adjustment to normalized EPS?
We deduct $12 from our normalized S&P 500 EPS estimate for accounting
quality. Pro
year EPS must be considered cyclically peaked. It is not
in order to be considered normal or sustainable, EPS
a return equal to the cost of equity on any additionally
EPS estimates. Although our 2015E
represents normalized S&P 500 EPS for
we think 2015 earnings generally
sectors. We think Energy is under earnings
other industries over earnings. We think
lower on higher industry taxes,
towards elderly or with pre-
for 2015 captures the outlook
EFTA01476398
forma or non-GAAP EPS tends to overstate and GAAP EPS tends to understate
true
EPS. A good measure of EPS should capture what FCF per share would be when no
investments are made for growth. At steady-state EPS = FCF/sh = DPS.
An EPS discount model versus a dividend discount model explained
In a dividend growth or free cash flow discount model, future flows can be
discounted
directly because earlier period flows should be reduced by investments that
fed growth.
However, earnings growth cannot be discounted directly because earnings
growth fails
to account for what portion of prior period earnings were retained to feed
growth. Thus,
an EPS discount model must separate EPS growth into two parts: 1) growth from
reinvestment at returns equal to the cost of equity, 2) growth from returns
in excess of
the cost of equity or economic profit growth. Our EPS discount model
calculates value
by taking the present value of growth in economic profits (not ordinary
profits) and
adds this to the capitalized value of current normalized EPS.
DCF: Value = PV of all future free cash flows
DDM: Value = PV of all future dividends
Economic Profit Model: Value = book value plus all future economic profits
Incremental EP Model: Value = capitalized EPS plus all future economic
profit growth
Once economic profit growth stops, equity value is simply EPS capitalized at
the real
cost of equity. This is because EPS growth only adds to steady-state value
(EPS/real
Deutsche Bank Securities Inc.
Page 19
We reduce our pro forma
normalized EPS est. to ensure
that it represents steady-state
FCF per share and DPS.
Our normalized S&P 500 EPS
estimate is the main driver of
our intrinsic value model.
The mechanics of our model
are equivalent to a DDM.
Intrinsic value drivers:
1) Normalized EPS
2) Accounting adjustments
3) Long-term real interest rate
4) Equity risk premium
5) Growth premium
Inflation affects EPS quality,
and the risk premium.
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20 November 2015
US Equity Insights
CoE), when EPS growth is greater than the retention ratio times the real
cost of equity.
EPS growth that does not exceed this threshold is merely a dividend
substitute.
Our full model allows for the consideration of economic profit growth
To really understand our valuation model, and for that matter our macro
minded
intrinsic value driven investment strategy, it is very important to
understand the
concepts of normalized earnings and economic profit growth potential.
Whenever we think about the worth of a business, we ask ourselves three
questions:
1) What are its normalized and accounting quality adjusted earnings?
2) What is a fair rate at which to capitalize such normalized earnings?
3) Can the business replicate itself and increase its economic profits?
For the S&P 500 overall, the key investor debate is usually about normalized
EPS and a
fair capitalization rate. Economic profit growth potential (or decline) is
usually more of
an industry or company specific debate. Right now, the market seems
dismissive of
long-term economic profit growth potential for the vast majority of big cap
stocks. This
is a bit conservative relative to long-term market history, but contrasts
sharply from the
late 1990s. This may provide the S&P 500 with additional upside over the
long-term.
But over the shorter-term, overall market and relative sector performance
will likely be a
function of 2016 & 2017 EPS outlooks and actual results and the course of
interest rate.
Normalized vs. current EPS is a crucial PE driver for cyclical companies.
Often it is the
perception of normal EPS that drives short-term performance, but actual EPS
through
the full cycle tends to drive most of long-term performance.
Confidence or uncertainty in the normalized EPS estimate, as well as in
every intrinsic
value driver estimate, affects the fair PE. Confidence in normalized S&P 500
EPS has
risen from very low levels over the past few years as Financial profits have
improved
and now that Energy profits declined due to the collapse in highly elevated
oil prices.
But what is a fair cost of equity?
Valuing normal EPS and estimating economic profits requires a cost of equity
estimate.
The cost of equity is the long-term risk free interest rate plus an equity
risk premium.
EFTA01476400
Today's long-term real risk free interest rate is among the lowest in
history, at 0.500.75%
10yr TIPS, versus a 2-3% norm. Our intrinsic value model and target PE assume
that real interest rates stay below the low end of their normal range.
Because cyclical
fluctuations in rates and risk premiums are opposite in direction, we think
it is good
practice to estimate a normalized interest rate and add to it a normalized
risk premium.
The real cost of equity assumed in our intrinsic valuation model is 5.5%.
This assumes a
1.5% long-term real interest rate (10yr TIPS yield) and a 4% ERP. This risk
premium is
in-line with the upper range of the 3-4% typically observed on both an ex.
ante and ex.
post long-term basis. We use the upper end of the normal ERP range given
that we are
using the lower end of the normal long-term real interest rate range and we
do not
want to deviate too much from a real cost of equity of 5.5%-6.5% (we have
used 7% for
short periods of severe risk) as this range best proxies most measures of
long-term real
returns on S&P 500 ownership.
Focus on secular changes in
interest rates. Real interest
rates are far below their
historical nom. This is likely
attributable to both cyclical
and also secular causes.
Our full model details our
assumptions and allows
consideration of economic
profit growth potential.
Right now the market is
focused on what are typically
value investor debates.
Perception of normal EPS
tends to drive short-term
performance, but actual EPS
through the full cycle drives
most of the market's longterm
performance.
Page 20
Deutsche Bank Securities Inc.
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20 November 2015
Deutsche Bank Securities Inc.
Page 21
Figure 43: Our S&P 500 Intrinsic Valuation Model
S&P 500 Capitalized EPS Valuation
Deutsche Bank's 2015E S&P 500 EPS
DB's "normal 2015E" S&P 500 EPS
"Normal 2015E" EPS / 2015E EPS
Accounting quality adjustment to pro forma EPS
Normal 2015E S&P 500 EPS fair to capitalize
Key principle: steady-state value = normal EPS / real CoE
S&P 500 EPS Capitalization Valuation
Normal EPS / (real CoE - (EM/payout) - EM):
S&P 500 intrinsic value at 2015 start
S&P 500 intrinsic value at 2015 end
Implied fair fwd PE in early 2015 on 2015E $119 EPS
Implied fair trailing PE at 2015 end on 2015E $119 EPS
Normal EPS / (real CoE-value added EPS growth)
S&P 500 Dividend Discount Model
S&P 500 Long-term EPS & DPS Growth
$119 Deutsche Bank's 2015E S&P 500 DPS
2015E dividend payout ratio
$122 DB's "normal 2015E" S&P 500 DPS
103% Normal dividend payout ratio
-$12.00 EPS directed to net share repurchases
Normal share repurchase payout ratio
$110 Total payout of S&P 500 EPS
Total payout rate
S&P 500 DPS Discount Model
Normal DPS / (nominal CoE - DPS growth):
2000 S&P 500 intrinsic value at 2015 start
2109 S&P 500 intrinsic value at 2015 end
16.8
17.7
2000
Implied fair forward yield on 2015E DPS of $41.0
Implied fair trailing yield on 2015E DPS of $41.0
DPS discount model using true DPS (all payout)
$41.00 Deutsche Bank's 2015E S&P 500 aggregate ROE
34% 2014 end S&P 500 book value per share
$41.00 DB's "normal 2015E" S&P 500 aggregate ROE
37%
S&P 500 EPS retained for true reinvestment
$26.50 Estimated ROE on reinvested S&P 500 EPS
24% Economic margin (EM) or ROE-CoE
$67.50 Sources of long-term earnings growth:
61% + Long-term inflation forecast
+ Fair return on true reinvestment
+ Value added return on true reinvestment
= Long-term earnings growth
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2000 + Growth from net share repurchases
2109 = Long-term S&P 500 EPS/DPS growth
2.05% + Fair normal dividend yield
1.94% = Total shareholder return at constant PE
2000
Value added growth premium in fair value est.
S&P 500 Cost of Equity & Fair Book Multiple
15.9% Fair long-term nominal return on S&P 500 index
$750 Components of estimated fair S&P 500 return:
14.7% + Long-term real risk free interest rate
+ Long-term fair S&P 500 equity risk premium*
39% = Long-term real S&P 500 cost of equity
7.50% + Long-term inflation forecast
0.00% = S&P 500 nominal cost of equity
2.00%
2.13% Fair S&P 500 Market Value and Book Value Multiple
0.00% 2014 end S&P 500 book value per share
4.13% Fair PB = Fair PE * normal aggregate ROE
1.33% Fair PE = (ROE-g) / (real ROE*(real CoE-real g))
5.45% Implied S&P 500 fair value of book at 2015 start
2.05% Steady-state PB = normal agg. ROE / real CoE
7.50% Confirmed by fair steady-state PE = 1 / real CoE
0%
Normal 2015E economic profit per share
S&P 500 EPS discount model 5 steps to value:
1) Estimate normalized S&P 500 EPS
2) Adjust normalized EPS for pro forma accounting quality
3) Estimate a fair long-term real return on S&P 500 ownership (CoE)
4) Capitalize normalized and accounting quality adj. EPS at real CoE
5) Consider long-term potential for value added growth opportunities
Real
cost of
equity
Sensitivity matrix of S&P fair value at 2015 yearend to normalized EPS and
Real CoE
Normal 2015E S&P 500 EPS
5.00%
5.25%
5.50%
5.75%
6.00%
$118
2227
2124
2031
1945
1867
$120
2270
2165
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2070
1983
1903
$122
2313
2206
2109
2020
1939
$125
2377
2267
2168
2077
1993
$130
2484
2370
2265
2170
2083
$135
2591
2472
2363
2264
2173
$750
2.67
18.2
2000
2.67
18.2
$68.75
7.50%
1.50%
4.00%
5.50%
2.00%
7.50%
* S&P 500 ERP usually 300-400bps, w/ real CoE
5.5%
6.5%
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20 November 2015
US Equity Insights
What's normal S&P EPS growth? It depends on EPS
retention.
Figure 44: S&P nominal and real trailing 4-qtr EPS growth (y/y % chg)
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
S&P 500 EPS CAGR from
1960-2013 was
Nominal: 6.7%
Real: 2.8%
1960-2013 Nominal CAGR: 6.7%
1960-2013 Real CAGR: 2.8%
Series2
Nominal lyr EPS growth
Real lyr EPS growth
Figure 45: Rolling 3yr and 10yr Real EPS growth
-20%
-10%
0%
10%
20%
30%
Median Rolling Real EPS Growth:
1960-1993: 3yr CAGR 1.2%; 10yr CAGR: 1.9%
1994- 2013: 3yr CAGR 7.3% ; 10yr CAGR: 5.4%
-20%
-10%
0%
10%
20%
30%
Rolling 3 yr Real EPS CAGR
Rolling 10yr Real EPS CAGR
Rolling 3yr and 10yr CAGR of
real EPS growth show higher
EPS growth since mid 1990s
than from 1960 to 1990
Page 22
Deutsche Bank Securities Inc.
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1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
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20 November 2015
US Equity Insights
Figure 46: S&P 500 dividend payout ratio and subsequent EPS growth trend
30%
35%
40%
45%
50%
55%
60%
65%
Median Forward 10yr
TrendEPS Growth:
1960-1984: 1.4%
1985-2004: 4.5%
-2%
0%
2%
4%
6%
8%
10%
12%
3yr Avg. Div Payout (lhs)
Subsequent 10yr Real EPS Trend Growth (rhs)
Note: EPS trend growth is the regressed exponential growth rate that best
explains all observed EPS over the subsequent 10yr period
Is the empirical proof that retained earnings affect long-term EPS growth?
The empirical evidence on earnings retention and long-term EPS growth is
inconclusive. However, the theory is robust and consistent with DCF based
corporate finance.
Figure 47: S&P div payout ratio vs. subsequent 10yr rolling real EPS growth
(1960-2004)
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
30%
1990
1986
1992
2003
EFTA01476407
2004
2000
1996
1997
1994
1995
1988
1984
1978
1998
1979 1980
1999
1974
1976
1973
35%
40%
1981
45%
50%
55%
60%
Dividend payout ratio (%)
65%
70%
75%
80%
1972
1965
1966
y = 0.1055x - 0.0228
R2 = 0.1718
1977
1975
1989
1987
1983
1985 1993
1971
1968
1969
1982
1963
1961
1964 1962
1967
1960
2002
2001
1970
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1991
The chart above shows a positive relationship between payout ratio and
subsequent 10 year real EPS growth. However, the data includes recessions,
which causes payout ratios to surge and associated subsequent EPS growth to
be measured from depressed levels. The regression is inconclusive if one
excludes years with payout ratio > 60% or 10yr EPS growth <1% (chart
below).
Deutsche Bank Securities Inc
Page 23
Subsequent 10yr rolling real EPS growth
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
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20 November 2015
US Equity Insights
Figure 48: S&P 500 div payout ratio vs. subsequent 10yr real EPS growth
(1960-2004, excluding years with EPS growth <1% or dividend payout >60%)
0%
1%
2%
3%
4%
5%
6%
7%
8%
y = -0.0044x + 0 0382
R2 = 0.0005
1986
1996
1995
2003
1997
2004
1988
1983
1984
1982
2000
1978
1998
30%
35%
40%
45%
Dividend payout ratio <60%
50%
55%
60%
1975
1969
1971
1964
19681967
1962
1960
1963
1994
1989 1987
1985
2002
1993
Years excluded in Figure 149 are: 1961, 1965, 1966, 1970, 1972, 1973, 1974,
EFTA01476410
1976, 1977, 1979, 1980,
1981, 1990, 1991, 1992, 1999 and 2001. The years in bold are the ones which
were recession at start
of the 10yr period and the years underlined were recession at the end of the
10yr period.
Figure 49: Real S&P 500 earnings growth and dividend yield
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Real Trailing EPS y/y Growth
In concept, the higher the payout the more the fair PE converges with a
steady-state PE of 1/real CoE. The S&P PE is often above average when its
dividend payout ratio is high, but this is usually because its EPS is
cyclically
depressed following recessions. Some studies suggest that high dividend
payout ratios lead to strong EPS growth, but this fails to account for the
distortion of cyclically peaked payout ratio and then EPS growth measured
from depressed levels.
long and strong growth periods
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Real Trailing EPS y/y Growth + Div Yield
Page 24
Deutsche Bank Securities Inc.
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
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1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Subsequent 10yr rolling EPS growth >196
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20 November 2015
US Equity Insights
Figure 50: S&P 500 trailing PE vs. dividend payout ratio
(1960-2014)
70%
60%
50%
40%
30%
20%
Recession
Dividend Payout Ratio (trailing 4-qtr, lhs)
10
15
20
25
30
35
5
5
25%
S&P 500 Trailing PE (rhs)
30%
35%
40%
45%
50%
Dividend Payout Ratio (trailing 4-qtr)
55%
60%
65%
Figure 51: S&P 500 trailing PE vs. dividend payout ratio
(1960-2014, ex. recessions and 1 year after recessions)
10
15
20
25
30
35
y = -1.8307x + 16.679
R2 = 0.0015
1960-2014 (excluding recessions and
the year followign recessions)
Deutsche Bank Securities Inc.
Page 25
1960
1965
1970
1975
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1980
1985
1990
1995
2000
2005
2010
S&P 500 Trailing PE
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US Equity Insights
20 November 2015
Page 26
Deutsche Bank Securities Inc.
Figure 52: Our S&P Intrinsic Valuation Model
S&P 500 Capitalized EPS Valuation
Deutsche Bank's 2015E S&P 500 EPS
DB's "normal 2015E" S&P 500 EPS
"Normal 2015E" EPS / 2015E EPS
Accounting quality adjustment to pro forma EPS
Normal 2015E S&P 500 EPS fair to capitalize
Key principle: steady-state value = normal EPS / real CoE
S&P 500 EPS Capitalization Valuation
Normal EPS / (real CoE - (EM/payout) - EM):
S&P 500 intrinsic value at 2015 start
S&P 500 intrinsic value at 2015 end
Implied fair fwd PE in early 2015 on 2015E $119 EPS
Implied fair trailing PE at 2015 end on 2015E $119 EPS
Normal EPS / (real CoE-value added EPS growth)
S&P 500 Dividend Discount Model
S&P 500 Long-term EPS & DPS Growth
$119 Deutsche Bank's 2015E S&P 500 DPS
2015E dividend payout ratio
$122 DB's "normal 2015E" S&P 500 DPS
103% Normal dividend payout ratio
-$12.00 EPS directed to net share repurchases
Normal share repurchase payout ratio
$110 Total payout of S&P 500 EPS
Total payout rate
S&P 500 DPS Discount Model
Normal DPS / (nominal CoE - DPS growth):
2000 S&P 500 intrinsic value at 2015 start
2109 S&P 500 intrinsic value at 2015 end
16.8
17.7
2000
Implied fair forward yield on 2015E DPS of $41.0
Implied fair trailing yield on 2015E DPS of $41.0
DPS discount model using true DPS (all payout)
$41.00 Deutsche Bank's 2015E S&P 500 aggregate ROE
34% 2014 end S&P 500 book value per share
$41.00 DB's "normal 2015E" S&P 500 aggregate ROE
37%
S&P 500 EPS retained for true reinvestment
$26.50 Estimated ROE on reinvested S&P 500 EPS
24% Economic margin (EM) or ROE-CoE
$67.50 Sources of long-term earnings growth:
61% + Long-term inflation forecast
+ Fair return on true reinvestment
+ Value added return on true reinvestment
= Long-term earnings growth
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2000 + Growth from net share repurchases
2109 = Long-term S&P 500 EPS/DPS growth
2.05% + Fair normal dividend yield
1.94% = Total shareholder return at constant PE
2000
Value added growth premium in fair value est.
S&P 500 Cost of Equity & Fair Book Multiple
15.9% Fair long-term nominal return on S&P 500 index
$750 Components of estimated fair S&P 500 return:
14.7% + Long-term real risk free interest rate
+ Long-term fair S&P 500 equity risk premium*
39% = Long-term real S&P 500 cost of equity
7.50% + Long-term inflation forecast
0.00% = S&P 500 nominal cost of equity
2.00%
2.13% Fair S&P 500 Market Value and Book Value Multiple
0.00% 2014 end S&P 500 book value per share
4.13% Fair PB = Fair PE * normal aggregate ROE
1.33% Fair PE = (ROE-g) / (real ROE*(real CoE-real g))
5.45% Implied S&P 500 fair value of book at 2015 start
2.05% Steady-state PB = normal agg. ROE / real CoE
7.50% Confirmed by fair steady-state PE = 1 / real CoE
0%
Normal 2015E economic profit per share
S&P 500 EPS discount model 5 steps to value:
1) Estimate normalized S&P 500 EPS
2) Adjust normalized EPS for pro forma accounting quality
3) Estimate a fair long-term real return on S&P 500 ownership (CoE)
4) Capitalize normalized and accounting quality adj. EPS at real CoE
5) Consider long-term potential for value added growth opportunities
Real
cost of
equity
Sensitivity matrix of S&P fair value at 2015 yearend to normalized EPS and
Real CoE
Normal 2015E S&P 500 EPS
5.00%
5.25%
5.50%
5.75%
6.00%
$118
2227
2124
2031
1945
1867
$120
2270
2165
2070
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1983
1903
$122
2313
2206
2109
2020
1939
$125
2377
2267
2168
2077
1993
$130
2484
2370
2265
2170
2083
$135
2591
2472
2363
2264
2173
$750
2.67
18.2
2000
2.67
18.2
$68.75
7.50%
1.50%
4.00%
5.50%
2.00%
7.50%
* S&P 500 ERP usually 300-400bps, w/ real CoE
5.5%
6.5%
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20 November 2015
US Equity Insights
30 EPS Tracker
479 S&P 500 companies comprising 98% of S&P earnings have reported. 62%
of companies beat on EPS with a weighted average beat of 3.9% (5.3% ex Fin).
33% of companies beat on sales with a weighted average miss of -0.4% (-0.5%
ex Fin).
Big banks posted soft profits to start the earnings season, on moderate loan
growth, a still challenging rate environment and lulls in trading and capital
markets. Industrials companies reported weak results and guidance. Sizable
beats from Tech giants GOOG, MSFT & AMZN brightened 3Q earnings season.
Health Care companies (PFE, BMY, GILD, BAX) had large beats on both EPS
and sales. Large Oil & Gas companies (XOM, CVX, MPC, VLO) had big beats
on EPS on very low bars. Retailers (M, JWN, FOSL) reported weak results.
The blended (actual for reported and estimate for remaining) bottom-up 3Q
EPS is $30.02. Less litigation charges vs. a year ago at JPM, BAC, C, and GS
is
$0.60 tailwind to 3Q15 EPS, adding 2% to 3Q S&P EPS y/y growth.
We think 3Q EPS will finalize around $30.00, flattish y/y, with sales down
—4%,
margins up —3%, and —1% from share count shrink.
Analysts continue to cut 4Q15 EPS and btm-up 4Q EPS is $29.72 now, down
from $31.21 on 9/1/2015. Our 4Q EPS estimate is $30.25, essentially flat y/y.
We think 4Q growth will be slow: (1) FX will be a smaller drag; (2) Oil
still a
negative; (3) Mfg, exports, and capex continue to deteriorate; (4) Low
interest
rates continue to challenge NIM of Banks; (5) Less bank litigations is a
positive;
(6) Slower buybacks a smaller contribution to EPS growth; (7) Fair value
pension charges at year end hit 4Q operating EPS. (8) Oct Mfg. ISM is 50.1,
weakest since Dec 2012. Latest core capital goods new orders are -5.8% y/y,
worst since Dec 2009. Mfg. IP ex Auto growth is weak.
Analysts have cut 2015 S&P 500 EPS by 1.2% since June end, led by the 6.8%
and 7.9% cuts in Energy and Materials earnings, on renewed worries of lower
for longer oil and commodity prices. The consensus 2015 btm-up EPS is
$118.63, about $0.35 lower than our estimate of $119.
Blended EPS y/y growth is -0.2% for S&P 500, 7.0% ex. Energy, and 6.4% ex.
Energy & Financials. Blended sales y/y growth is -4.1% for S&P, 1.3% ex.
Energy, and 1.6% ex. Energy & Financials.
Blended sales growth is strongest at Health Care (9.2%) again, followed by
Cons. Disc. (3.8%). All other sectors (except Telecom) have sales decline or
low
single digit sales growth. Tech sales growth is 0.5% y/y (-4.7% ex AAPL &
GOOG) due to continuing weak enterprise spending. There is significant
revenue recession at Energy (-36.5%), Materials (-13.3%) and Industrials
(5.3%).
Blended
EPS y/y growth is strongest at Cons. Disc. (17.1%), followed by
Telecom (15.3%), Health Care (13.9%), Financials (9.2%) and Tech (7.5%). Tech
ex AAPL & GOOG EPS is -0.1% y/y. There is significant profit recession at
EFTA01476418
Energy (-57.0%) and Materials (-16.6%). Industrials EPS is flat y/y.
S&P net margins remains at historic highs. Blended net margin is 10.8% for
S&P 500, 11.3% ex. Energy, and 10.5% ex. Energy & Financials. Margins at
Cons. Disc. expanded to 7.8%, its highest during this cycle. Health Care
(10.6%) and Tech (19.4%) margins continued to hold up well. As sectors with
Deutsche Bank Securities Inc.
Page 27
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20 November 2015
US Equity Insights
high foreign currency
didn't
hurt margins much
revenue and costs
and flattish from
plummet.
Figure 53:
% of EPS
reported
S&P 500
S&P 500 ex. Financials
S&P 500 ex. Energy
S&P ex. Tech
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information
Materials
Telecommunication
Utilities
3Q15 Summary (Based on
EPS (% of of co's)
# Cos
reported
97.8%
97.3%
97.7%
98.5%
97.9%
95.5%
100.0%
100.0%
97.0%
98.7%
95.1%
100.0%
100.0%
100.0%
479
392
439
413
77
32
40
sales, they demonstrated that the stronger dollar
despite a significant hit to sales as foreign currency
were fairly well aligned. Energy margins were 5.4% in 3Q
1H, but much lower than the 8%+ before the oil price
Summary statistics on 3Q 2015 EPS reporting
Technology
Services
Bank
reported companies)
EFTA01476420
87
52
63
66
28
5
29
65%
62%
61%
57%
63%
70%
52%
79%
68%
68%
46%
80%
52%
25%
23%
25%
26%
26%
19%
25%
34%
10%
21%
15%
46%
20%
38%
EPS
EPS
Sales (% of co's)
3.9% 0.0% 33%
5.3% -2.1% 34%
3.2% 7.4% 33%
3.6% -1.8% 31%
50%
52%
49%
54%
56%
50%
65%
43%
31%
67%
EFTA01476421
24%
75%
20%
72%
Sales
Sales
% beat % miss surprise (%) y/y (%) % beat % miss surprise (%) y/y (%)
62%
-0.4% -4.4%
-0.5% -5.1%
-0.6% 1.3%
-0.5% -5.0%
4.2% 17.6% 43%
2.5% -2.8% 34%
20.9% -57.0% 30%
-1.2% 9.2% 28%
7.5% 14.3% 52%
3.8% 1.8% 17%
5.4% 8.1% 39%
-2.1% -16.6% 14%
3.5% 15.3% 40%
0.3% -2.0% 21%
0.0% 3.0%
-1.2% 1.4%
1.3% -36.5%
0.0% -0.1%
0.6% 8.5%
-1.2% -4.7%
0.6% 1.2%
-5.1% -13.3%
-2.1% 12.3%
-4.6% -2.0%
Figure 54: Fish hooks: S&P 500 quarterly btm-up EPS
revisions
22
23
24
25
26
27
28
29
30
31
32
33
4Q14
S&P 500 quarterly btm-up EPS revisions
3Q14
4Q13
3Q13
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4012
4011
3011
2011
2Q12
3012
1Q12
1Q13
2Q13
1Q14
2Q14
2015
3Q15
4Q15
1015
22
23
24
25
26
27
28
29
30
31
32
33
Figure 55: Change in quarterly EPS before and during
reporting (1Q11 — now)
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Avg (1Q11-2015): 3.3%
Avg: -3.9%
EPS beat during reporting
EPS cut prior to reporting
Page 28
Deutsche Bank Securities Inc.
Jan-11
Apr-11
Jul-11
Oct-11
EFTA01476423
Jan-12
Apr-12
Jul-12
Oct -12
Jan-13
Apr-13
Jul-13
Oct -13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct -15
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
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20 November 2015
US Equity Insights
Figure 56: Change in btm-up 3Q15 EPS since 6/30/2015
(current 3Q EPS is blended: actual for reported and
consensus for the rest)
-20%
-15%
-10%
-5%
0%
5%
10%
6.1%
3.9%
0.0% 1.2%
1.1% 1.7%
-0.2%
-0.4%
-3.0%
0.0%
-4.6%
1.7%
-2.5%
-2.4%
7.1%
Figure 57: Change in btm-up 2015 EPS since 6/30/2015
-14.5%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
Change in btm-up 2015 EPS since 6/30/2015
-1.2%-1.0%
-1.0%-1.2%
-2.8%
-0.7% 0.0%
3.2%
2.2%
-0.6%
-2.1%
-2.0%
-1.5%
-1.4%
-6.5%
-7.9%
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Figure 58: S&P EPS (earnings weight) to be reported
each week
0%
5%
10%
15%
20%
25%
30%
35%
S&P 500 EPS (earnings weight) to be reported each week
32.2%
27.0%
16.7%
12.4%
3.2%
1.0%
2.7% 2.6% 2.2%
Figure 59: Sector EPS (earnings weight) to be reported
each week
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Reported
After 11/22 #21
Deutsche Bank Securities Inc.
Page 29
S&P
Pre-season
# 19
W1 (10/5-10/9) #5
ex. Tech
En, Fin.
W2 (10/12-10/16) #34
Ex. En, Fin
W3 (10/19-10/23)
W4 (10/26-10/30)
W5 (11/2-11/6)
W6 (11/9-11/13)
W7(11/16-11/20)
After 11/23
EFTA01476426
#114
#168
#102
#19
#18
#21
Materials
Telecom
Utilities
Ex. En, Fin, HC
Disc.
Staples
Energy
Financials
Health Care
Industrials
Tech
ex. Fin
ex. En
Disc.
S&P
Staples
Energy
Financials
Health Care
Industrials
Tech
Materials
Telecom
Utilities
Health Care
Industrials
Tech
Materials
Telecom
Utilities
Ex. En, Fin, HC
Disc.
Staples
Energy
Financials
ex. Fin
ex. En
ex. Tech
En, Fin.
Ex. En, Fin
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20 November 2015
US Equity Insights
Figure 60: S&P 500 quarterly EPS & Sales growth and Net Margins by sector
(3015 is blended with actual for reported
and consensus for the rest)
2011
EPS growth (y/y)
S&P 500
S&P 500 ex. Financials
S&P 500 ex. Energy
S&P 500 ex. Tech
S&P ex. Energy & Financials
S&P ex. Energy, Financials, Healthcare
Consumer Discretionary
Multiline & Specialty Retail
Cons. Disc. ex. Auto & Home Builders
Consumer Staples
Energy
Energy Equipment & Services
Oil, Gas & Consumable Fuels
Financials
Financials ex. BAC, C & 3PM
Health Care
Industrials
Industrials ex. Defense
Information Technology
Tech ex. AAPL & GOOG
Materials
Telecommunication Services
Utilities
1011
2011
3Q11
4Q11
1012
2012
2012
3012
4012
1013
8.8% 8.2% 3.2% 8.8%
18.4% 15.2% 13.1% 11.3% 10.7% 5.9% 2.4% 4.5%
20.4% 16.7% 13.2% 11.3% 12.0% 5.5% 2.4% 5.0%
3.1%
5.5%
6.4%
3.2%
3.3%
2013
2013
3013
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4Q13
1Q14
2014
2Q14
3Q14
4Q14
1Q15
2015
2Q15
3Q15
18.4% 12.3% 17.5% 9.9% 10.5% 8.3% 3.3% 7.3% 5.1% 6.3% 5.8% 10.4% 5.2% 9.3%
10.8% 6.7% 2.8% 1.7% -0.2%
21.1% 19.2% 19.8% 11.6% 9.3% 2.2% -0.2% 5.9%
15.9% 8.0% 11.9% 9.4% 11.8% 12.7% 6.1% 6.4%
17.1% 9.9% 19.0% 7.5%
1.3% 7.2% 7.5% 6.5% 13.5% 9.5% 9.1% -0.3% -1.7% -2.3%
8.3% 7.7% 13.3% 5.9% 8.2% 10.8% 10.6% 11.1% 9.4% 7.0%
8.3% 5.0% 10.2% 4.5% 7.7% 10.9% 3.4% 1.0% 0.3% -2.0%
3.0% 10.0% 10.6% 7.7% 12.7% 9.3% 14.4% 9.7% 7.4% 6.4%
2.4% 10.2% 10.8% 7.0% 11.5% 8.0% 12.9% 7.7% 6.0% 4.8%
18.1% 7.6% 20.7% 13.5% 11.3% -0.1% 8.1% 13.7% 8.1% 14.3% 21.6% 7.1% 7.3%
7.6% -1.5% 15.7% 9.3% 12.3% 17.1%
15.7% 19.4% 18.6% 14.9% 20.5% 9.3% 10.1% 13.2% 8.8% 17.3% 13.8% -6.3% 0.6%
7.7% 11.4% 22.6% 17.2% 11.2% 15.1%
13.1% 21.9% 19.9% 17.4% 18.9% 8.5% 11.3% 11.1% 11.6% 17.1% 13.5% 5.1% 14.4%
11.0% 10.3% 14.6% 6.2% 7.7% 12.2%
8.5% 11.3% 10.3% 6.4%
7.6% 3.8% 1.4% 9.9%
3.5%
2.4% 6.0% 4.2% 4.0% 7.4% 6.5% 0.0% 4.0% 0.9% -2.4%
36.6% 41.6% 62.7% 13.2% 2.7% -14.3% -11.9% 13.3% 2.3% -7.6% -7.4% -8.5% 0.0%
18.6% 10.9% -24.3% -57.6% -56.1% -57.0%
-3.6% 19.0% 26.8% 26.1% 30.9% 15.7% 8.6% -4.9% -1.9% 1.0% 10.7% 16.5% 15.8%
20.9% 16.7% 22.2% -22.3% -44.9% -55.1%
42.6% 44.5% 68.3% 11.2% -0.3% -17.7% -14.5% 16.5% 2.9% -9.1% -10.4% -12.2%
-2.4% 18.2% 9.7% -33.5% -63.4% -58.3% -57.5%
6.3% -23.9% 6.6% 0.9% 16.0% 54.9% 23.3% 15.4% 14.0% 30.6% -0.9% 24.7% -0.1%
-6.5% 17.0% -3.4% 16.2% 17.3% 9.2%
10.8%
3.5% 0.9% 0.6% 25.1% 16.8% 42.5% 13.3% 11.3% 27.4% 11.1% 22.1% 7.3% 6.7%
11.6% 3.9% 7.1% 1.9% -5.4%
10.6% 8.6% 12.5% 11.2% 5.4% 7.8% 2.2% 1.9%
38.7% 16.2% 17.5% 18.6% 19.3% 16.8% 5.6% -3.9% 5.7%
45.3% 17.1% 19.0% 19.5% 19.8% 18.2% 6.2% -2.9% 5.4%
23.9% 23.3% 11.5% 18.5% 17.5% 8.7% 3.5% 2.4%
17.1% 11.8% 5.2% 3.6%
2.7%
3.7% 5.8% 0.5% 2.7%
8.5% 1.4% -1.3% -6.8% -8.5% -7.9% 9.0%
2011
Sales growth (y/y)
EFTA01476429
S&P 500
S&P 500 ex. Financials
S&P 500 ex. Energy
S&P 500 ex. Tech
S&P ex. Energy & Financials
S&P ex. Energy, Financials, Healthcare
Consumer Discretionary
Multiline & Specialty Retail
Cons. Disc. ex. Auto & Home Builders
Consumer Staples
Energy
Energy Equipment & Services
Oil, Gas & Consumable Fuels
Financials
Financials ex. BAC, C & 3PM
Health Care
Industrials
Industrials ex. Defense
Information Technology
Tech ex. AAPL & GOOG
Materials
Telecommunication Services
Utilities
1011
2011
3011
4011
9.2% 9.1% 7.1%
1012
2012
2012
3012
4012
9.8% 12.7% 12.3% 8.6%
9.8% 11.1% 10.5% 8.6%
10.8% 12.0% 10.9% 9.2%
10.2% 9.7% 11.5% 8.9%
3.8%
5.1% 4.8% 5.2%
6.2% 3.9% 2.7% 6.6%
6.2% 1.7% 1.0% 5.0%
6.9% 4.0% 2.8% 4.6%
7.1% 3.2% 2.3% 3.9%
11.0% 10.4% 12.3% 10.1% 8.7%
8.1% 10.2% 12.8% 9.9%
1.7% 2.7% 3.4%
3.5% 3.4% 3.7%
1013
1.4%
3.4%
1.4%
EFTA01476430
3.3%
2 6%
2.7% 11.9% 12.8% 6.1% 15.5% 7.8% 9.1% 2.5% -0.2% -0.1%
5.8% 8.8% 9.7% 10.9% 18.2% 15.8% 22.5% 18.4% 13.3% 13.9%
2.3% 8.8% 20.5% 3.0% 14.6% 14.9% 14.0% 10.3% -0.1% 0.0%
1.8% 8.6% 22.0% 1.2% 15.6% 15.7% 12.7% 11.8% -1.0% -0.5%
0.0% -2.2% 9.2% 10.9% 8.1% 17.0% 10.5% 18.2% 10.4% 7.9% 7.5%
5 0%
56.5% 60.3% 23.6% -16.9% -3.0% -13.2% -21.9% 13.8% 0.1% -3.4% 9.0% 17.5%
-1.2% 10.4% 20.0% 3.4% 2.1% 8.2% -16.6%
-6.0% -3.8% 3.7% -19.2% 9 9% 13.2% 12.9% 3.7% 10.4% 5.4% 8.9% 23.6% 15.7%
4.0% 3.6% 7.3% 0 8% 9.7% 15.3%
-5.5%
1.9% -2.8% 2.1% -4.9% 22.4% 0.4% 1.8% 9.4% 2.4% 4.2% -2.0%
2013
2Q13
3Q13
4Q13
1Q14
2014
2Q14
3Q14
4Q14
1Q15
2015
2Q15
3Q15
10.2% 12.9% 12.1% 8 9% 6.7% 2.2% 1.3% 5.2% 1.7% 2.9% 3.7% 2.2% 3.3% 4.9%
4.3% 1.4% -3.2% -3.7% -4.1%
12.3% 15.1% 13.7% 10.4% 7.3% 2.1% 1.2% 3.5%
7.8%
2.6% 4.2% 3.6% 3.8% 5.2% 4.1% 1.7% -4.2% -4.4% -4.7%
3.8% 3.9% 2.8% 3.8% 5.3% 5.8% 4.7% 2.2% 1.1% 1.3%
3.0% 3.6% 1.8% 3.2% 4.5% 3.9% 0.5% -4.3% -4.5% -4.7%
3.7% 4.6% 4.5% 4.5% 5.8% 5.7% 5.8% 2.0% 1.2% 1.6%
3.3% 3.6% 3.7% 3.6% 4.6% 4.4% 4.1% 0.5% -0.4% -0.1%
7.1% 1.6% 2.6% 3.9%
6.1%
8.3% 4.1% 3.8% 3.4%
3.8%
1.8%
3.6%
2.6%
6.7% 5.9% 4.0% 4.5% 4.7% 4.1% 3.7% 0.8% 2.1% 3.8%
5.1% 4.4% 1.3% 3.2% 5.8% 5.1% 5.5% 4.0% 3.9% 5.1%
5.6% 5.0% 3.9% 5.3% 5.9% 5.3% 4.6% 1.8% 2.6% 3.3%
2.8% 2.5% 3.3% 1.4% 3.3% 2.8% 1.4% 1.8% 0.6% 1.3%
24.7% 34.8% 29.7% 19.3% 9.1% -5.9% -5.4% -1.6% -7.1% -2.2% 2.3% -0.8% 0.6%
2.3% -3.5% -18.0% -34.8% -31.7% -36.5%
30.8% 34.4% 26.6% 26.3% 25.7% 17.5% 11.3% 16.5% 4.7%
9.3% 8.9% -0.4% 7.2% 3.2% 7.0% 5.0% -10.3% -24.8% -33.6%
EFTA01476431
24.2% 34.8% 30.0% 18.7% 7.7% -7.9% -6.9% -3.4% -8.3% -3.4% 1.6% -0.8%
2.2% -4.7% -20.9% -37.8% -32.5% -36.9%
-1.4%
3.9%
5.3%
0.0% 2.0% -0.9% 2.7% 3.2% 2.3% 17.8% 3.7%
6.6% 1.9% 0.3%
6.9% 8.1% 5.4%
5.1%
12.6% 10.2% 11.1% 8.3%
15.5% 12.8% 13.6% 7.9%
8.3% 6.2% 2.7%
29.1% 33.6% 16.5% 6.0%
2.5%
-2.7%
2011
Net margins
S&P 500
S&P 500 ex. Financials
S&P 500 ex. Energy
S&P 500 ex. Tech
S&P ex. Energy & Financials
S&P ex. Energy, Financials, Healthcare
Consumer Discretionary
Multiline & Specialty Retail
Cons. Disc. ex. Auto & Home Builders
Consumer Staples
Energy
Energy Equipment & Services
Oil, Gas & Consumable Fuels
Financials
Financials ex. BAC, C & 3PM
Health Care
Industrials
Industrials ex. Defense
Information Technology
Tech ex. AAPL & GOOG
Materials
Telecommunication Services
Utilities
1Q11
9.7%
9.3%
9.9%
8.6%
9.4%
9.2%
6.5%
4.9%
6.6%
-0.2%
EFTA01476432
6.4%
8.6%
2Q11
3Q11
4Q11
1Q12
5.6% 8.1% 5.3% 8.5%
6.6% 5.1% 1.5% 1.9%
7.6%
6.0% 2.1% 2.7%
4.0%
3.1% -0.5% 3.1%
14.7% 14.9% 10.2% 11.7% 10.8% 6.7% 4.6% 7.0%
8.9%
4.6% -2.6% -5.9% 3.8%
7.8% 6.0% 10.2% 8.0% 2.7% 2.3% 2.1%
8.3% 2.8% 6.3% -3.3% -2.4% 0.8% 5.1%
2012
2Q12
3Q12
4Q12
9.2% 9.4% 9.3% 9.1%
8.7% 8.9% 8.9% 8.2%
9.5% 9.7% 9.5% 9.2%
9.4% 9.6% 9.4% 9.3%
5.7% 4.7% 6.3%
7.3% 7.5% 7.6%
1Q13
9.3%
9.0%
9.4%
9.3%
3.3% 8.6% 23.6% 4.3%
7.1%
0.3%
0.7%
4.3%
1.6%
0.3%
0.6%
5.6%
4.4% 0.3% -6.1% -0.1% 2.5% 6.2% -1.1% 3.0% 0.7% -0.1%
3.3% -0.9% -8.0% 1.0% 4.3% 6.7% -0.2% 4.0% 0.9% 1.0%
5.6% 9.2% 8.8% 8.9% 11.8% 11.7% 13.6% 9.1% 8.1% 9.2%
1.0% 1.6% 2.5% 1.6% 3.7% 4.5% 3.9% -2.3% -3.5% -5.3%
1.4% 2.2% 3.5% 2.3% 4.6% 5.3% 3.9% -2.4% -4.1% -6.1%
1.5% 4.2% 5.5% 3.7% 8.5% 7.9% 8.2% 5.5% 2.5% 0.5%
0.8% 4.1% 4.8% 3.1% 8.6% 6.9% 2.5% 0.2% -3.3% -4.7%
2.0% 6.1% 3.5% 1.5% 3.2% 2.4% -1.7% -9.2% -9.5% -13.3%
2.2% 2.6% 2.1% 3.7% 3.1% 3.0% 5.2% 2.5% 2.4% 12.3%
8.8% 2.5% 2.7% 16.8% 3.1% 4.7% 9.1% -2.5% -4.6% -2.0%
EFTA01476433
2013
2Q13
3Q13
4Q13
1Q14
2014
2Q14
3Q14
4Q14
1Q15
2015
2Q15
3Q15
9.5% 9.8% 9.3% 9.8% 9.8% 9.9% 9.4% 10.0% 10.1% 10.0% 10.0% 10.1% 10.4% 10.5%
10.4% 10.6% 10.8% 10.8%
9.6% 9.6% 9.0%
9.2% 9.5% 9.3% 9.4% 9.7% 9.8% 9.8% 9.6% 9.9% 10.0%
9.6% 10.0% 9.7% 10.2% 10.2% 10.2% 9.6% 10.3% 10.6% 10.4% 10.4% 10.4% 10.7%
10.8% 10.8% 11.1% 11.4% 11.3%
8.5% 8.9% 8.0%
9.7% 9.7% 9.3%
9.6% 9.5% 9.3%
9.2% 9.0% 8.7% 9.0% 9.4% 9.5% 8.9% 9.4% 9.8% 9.7%
9.6% 9.9% 9.6% 9.6% 10.0% 10.1% 10.2% 10.2% 10.5% 10.5%
9.5% 9.9% 9.8% 9.5% 10.0% 10.2% 10.4% 10.0% 10.4% 10.5%
7.1% 6.7% 6.2%
5.6% 4.6% 6.0%
7.3% 7.2% 7.3%
7.1% 6.9% 6.5%
8.9% 9.1% 7.5%
8.0% 8.4% 8.2%
6.3% 6.8% 6.9% 6.6%
5.2%
6.7%
6.2% 6.9% 6.6% 6.8%
7.9% 7.9% 8.3% 8.4%
8.0%
7.7% 7.5% 7.8%
6.3%
5.3%
7.0%
6.4%
8.5%
7.9%
7.1% 7.8% 6.6% 6.4% 7.1% 7.1% 7.2% 6.7% 7.5% 7.8%
6.0% 4.9% 5.6% 4.9% 5.8% 5.0% 6.2% 5.3% 6.0% 5.5%
7.8% 7.9% 7.4% 7.4% 7.9% 8.0% 7.9% 7.4% 8.0% 8.7%
6.9% 6.9% 6.9% 6.4% 7.1% 7.0% 6.7% 6.5% 7.0% 6.8%
7.3% 7.3% 7.6% 8.3% 8.3% 8.2% 6.9% 5.4% 5.2% 5.4%
11.7% 11.6% 11.8% 11.9% 12.0% 12.0% 12.0% 11.4% 11.2% 11.0% 11.0% 11.4%
11.6% 12.0% 12.2% 12.6% 12.3% 11.6% 8.5%
EFTA01476434
7.8%
7.8% 7.5% 7.2% 7.2% 7.4% 7.6% 7.3% 6.7% 5.9% 5.0%
12.2% 8.7% 11.4% 11.5% 13.8% 13.0% 13.6% 11.3% 15.0% 16.1% 13.5% 15.0%
14.6% 14.7% 14.4% 16.6% 16.7% 16.0%
11.7% 10.9% 10.3% 12.0% 14.0% 12.3% 13.4% 10.9% 14.7% 15.0% 14.9% 14.5%
15.6% 15.2% 15.4% 14.9% 15.7% 15.1% 14.6%
10.7% 10.3% 10.5% 9.7% 10.3% 10.0% 10.0% 9.1%
6.9%
7.0%
8.0% 8.2% 8.1%
8.1% 8.4% 8.2%
7.6% 8.7% 8.4% 7.5%
7.7%
8.9% 8.6% 7.7%
8.5% 8.2% 6.2%
9.9% 12.2% 7.6%
9.3% 8.8% 6.7% 6.9%
8.5% 9.3% 8.9% 6.1%
9.0% 9.6% 12.0% 8.5%
9.8%
7.9%
8.0%
9.3%
8.9%
9.3%
9.9% 9.8% 9.0% 9.9% 10.3% 10.1% 9.7% 10.8% 11.0% 10.6%
8.8% 9.0% 8.7% 7.9% 9.7% 9.8% 9.5% 8.7% 9.7% 10.0%
8.9% 9.2% 8.9% 7.8% 9.9% 10.0% 9.7% 8.7% 9.9% 10.6%
19.1% 18.7% 18.7% 20.7% 19.8% 18.6% 18.2% 19.6% 18.7% 17.7% 18.7% 20.2%
19.0% 18.5% 18.6% 21.2% 19.3% 18.9% 19.4%
18.0% 17.2% 17.4% 18.6% 17.3% 17.0% 17.1% 18.1% 17.4% 17.0% 18.1% 19.2%
17.7% 17.7% 17.8% 19.8% 17.6% 17.7% 18.7%
10.1% 10.0% 8.1% 6.2%
8 1%
9 0%
8.5% 7.1% 7.9% 9.0% 8.9% 8.2% 8.0% 9.7% 10.4% 7.7%
9.1% 9.0% 7.1% 10.2% 10.5% 10.4% 8.3% 11.0% 11.1% 11.3%
9.0% 12.1% 7.9% 9.9% 8.9% 11.9% 8.0% 10.4% 9.7% 12.1%
Page 30
Deutsche Bank Securities Inc.
15.0%
EFTA01476435
20 November 2015
US Equity Insights
Figure 61: 3Q15 Sales and EPS growth by sector
Sales y/y
EPS y/y
-20%
Cons Disc
Ex Auto & Home Builders
Cons Staples
Energy
Financials
Health Care
Industrials
Tech
Ex AAPL & GOOG
Materials
Telecom
Utilities
-15%
-10%
-5%
0%
5%
4%
17%
3%
12%
1%
-2%
-37%
-57%
0%
9%
9%
14%
-5%
0%
0%
8%
-5%
0%
-13%
-17%
12%
15%
-2%
-2%
10%
15%
20%
S&P 500
EFTA01476436
-4%
0%
S&P 500 ex Energy
S&P ex Energy & Fin.
1%
2%
7%
6%
Deutsche Bank Securities Inc.
Page 31
EFTA01476437
20 November 2015
US Equity Insights
Figure 62: S&P 500 quarterly EPS
GAAP
2007 Q1
Q2
Q3
Q4
Year
2008 Q1
Q2
Q3
Q4
Year
2009 Q1
Q2
Q3
Q4
Year
2010 Q1
Q2
Q3
Q4
Year
2011 Q1
Q2
Q3
Q4
Year
2012 Q1
Q2
Q3
Q4
Year
2013 Q1
Q2
Q3
Q4
Year
2014 Q1
Q2
Q3
Q4
Year
2015 Q1
Q2
Q3 E
Q4 E
EPS Write-offs
22.79
23.38
EFTA01476438
23.16
18.02
87.35
18.35
18.23
15.36
-17.18
34.77
9.01
0.26
1.43
0.21
2.21
4.11
2.15
4.24
4.69
14.70
16.23
16.92
56.87
19.18
21.44
21.74
22.01
84.37
22.76
24.36
24.38
22.36
93.86
24.49
23.21
22.74
22.91
93.34
26.06
27.34
26.58
27.72
107.70
25.13
27.64
28.04
23.16
103.98
21.95
22.40
24.44
23.25
Year E 92.04
EFTA01476439
2016 Year E 113.00
23.84
34.92
4.37
1.33
0.94
0.18
6.83
1.29
0.87
1.06
1.25
4.47
1.27
0.40
1.68
2.96
6.30
1.69
3.09
3.75
3.71
12.24
1.05
0.42
1.16
1.36
3.99
2.66
2.13
2.19
7.26
14.25
6.62
7.72
5.58
7.00
26.91
12.00
EPS
23.06
24.81
23.36
20.24
91.47
20.50
22.47
20.05
6.66
69.69
EFTA01476440
13.39
16.03
17.17
17.10
63.69
20.47
22.31
22.81
23.25
88.85
24.03
24.75
26.06
25.32
100.16
26.18
26.30
26.49
26.62
105.59
27.12
27.76
27.74
29.08
111.69
27.79
29.78
30.23
30.43
118.23
28.56
30.12
30.02
30.25
118.95
125.00
S&P 500 Quarterly EPS ($/sh)
Pro-forma EPS
10.0%
3.6%
-11.7%
-11.1%
-9.4%
-14.2%
-67.1%
-34.7%
-28.6%
-14.4%
156.9%
53.0% 0.20
39.1% 0.00
EFTA01476441
32.8% 0.15
36.0% 0.30
0.65
17.4% 0.21
11.0% 0.33
14.2% 0.20
8.9% 0.26
1.00
8.9% 0.27
6.2% 0.04
1.7% 0.24
5.1% 0.39
0.94
3.6% 0.21
5.6% 0.13
4.7% 0.92
9.2% 0.34
1.61
2.5% 0.54
7.3% 0.79
9.0% 0.81
4.7% 0.48
2.61
2.8% 0.14
1.2% 0.23
-0.7% 0.23
-0.6% 0.10
0.70
0.20
20.68
22.31
22.96
23.55
89.50
24.24
25.09
26.25
25.58
101.16
26.45
26.33
26.74
27.01
106.53
27.33
27.89
28.66
29.42
113.30
28.33
30.56
EFTA01476442
31.04
30.90
120.84
28.70
30.35
30.25
30.35
119.65
125.20
Litigation EPS ex.
EPS
y/y % Charges Litigation
10.4%
S&P 500
180.4
194.3
184.9
161.8
721.4
166.7
182.9
165.5
54.9
570.0
110.5
133.5
145.6
146.8
536.5
178.2
194.8
199.2
204.5
776.7
17.2% 213.0
12.5% 219.3
14.3% 230.1
8.6%
9.1%
5.0%
1.8%
5.6%
3.3%
5.9%
7.2%
8.9%
3.7%
9.6%
8.3%
5.1%
1.3%
y/y %
EFTA01476443
S&P 500 Quarterly Pro-forma Net Income ($ bn)
Non-financials
Financials
Y/Y %
12.0%
11.7%
3.9%
-8.5%
-7.6%
-5.9%
-10.5%
-66.1%
-33.7%
-27.0%
-12.0%
167.4%
61.2%
45.9%
36.8%
39.3%
222.0
884.4
230.6
233.0
234.1
235.8
933.5
239.8
245.5
245.1
256.4
986.8
248.3
265.1
268.5
269.6
1051.5
252.3
-0.7% 265.3
-2.6% 264.8
-1.8% 278.0
1060.4
1114.9
19.6%
12.6%
15.5%
8.5%
8.2%
6.2%
1.7%
6.2%
EFTA01476444
4.0%
5.3%
4.7%
8.7%
3.5%
8.0%
9.6%
4.7%
2.8%
1.2%
-0.7%
-0.6%
47.2
48.9
39.9
8.4
144.4
18.8
22.8
5.0
-66.7
-20.1
8.1
21.5
17.1
3.5
50.3
31.9
31.1
33.6
32.2
128.7
36.5
25.7
34.3
34.0
130.5
42.4
39.7
41.9
39.2
163.1
47.8
51.4
41.6
48.9
189.6
47.7
47.7
48.2
46.5
EFTA01476445
190.0
54.5
55.1
52.0
58.0
219.5
230.0
Y/Y %
14%
12%
-7%
-81%
-60%
-53%
-88%
NM
-57%
-6%
244%
NM
295%
44%
96%
812%
15%
-17%
2%
6%
16.2%
54.5%
22.2%
15.2%
12.8%
29.5%
-0.9%
24.7%
-0.3%
-7.1%
15.9%
-4.9%
14.3%
15.5%
7.9%
24.8%
133.1
145.4
145.0
153.4
576.9
147.9
160.1
EFTA01476446
160.5
121.7
590.1
102.5
112.0
128.5
143.3
486.2
146.3
163.7
165.7
172.3
647.9
176.5
193.6
195.8
187.9
753.9
188.2
193.3
192.2
196.6
770.4
192.0
194.1
203.5
207.6
797.2
200.7
217.4
220.3
223.2
861.5
197.8
210.3
212.8
220.0
840.9
884.9
Y/Y %
11%
12%
7%
17%
11%
10%
11%
-21%
-31%
-30%
-20%
EFTA01476447
18%
43%
46%
29%
20%
21%
18%
18%
9%
6.6%
-0.2%
-1.8%
4.6%
2.0%
0.4%
5.9%
5.6%
4.5%
12.0%
8.3%
7.5%
-1.4%
-3.3%
-3.4%
-1.4%
Page 32
Deutsche Bank Securities Inc.
EFTA01476448
US Equity Insights
20 November 2015
Deutsche Bank Securities Inc
Page 33
Strategy Flashcard
Strategy Flashcard
S&P 500 to reach 2250-2300 by 2016 end on a long expansionary cycle of
moderate growth
Reasons to still buy stocks:
2015 end target: 2050-2100
EPS
PE on yearend S&P targets
DPS
EPS/DPS growth
Market strategy and tactics:
Lower S&P returns than history likely, but still decent and few alternatives
- stay involved, buy on dips
Consider lesson of 2014: Interest rates stayed very low despite better
growth and tighter labor market
Next 5%+ move is likely:
Balanced Risk
Thematic and sector strategy:
Tilt toward:
1) Secular Growth Sectors - industries with strong sales growth in the
middle of economic cycles
2) Sales Growth near 5% - industries not dependent on margin expansion to
drive 5%+ EPS growth
3) High ROE or long competitive advantage - ability to defend ROE/margins
amidst low interest rates
4) Dividend Growth - stocks with ability to significantly raise dividend
payout ratios
5) Debt Capacity - companies that can issue cheap debt for acquisitions and
share buybacks
Tilt away from:
1) Consumer companies w/tired brands or facing tough competition (seek
unique products/experiences)
2) Smaller cap cyclical plays which are still expensive, prefer big-cap
banks and select retailers
3) Commodity and industrial capital goods producers, prefer Transports
Risk of near-term correction: Moderate
"S&P PE stands on the shoulders of bonds
2014A
$118
17.4
$38
2015E
$119
17.4
$41
2016 end target: 2250-2300
2016E
EFTA01476449
$125
18.2
$44
6%/6% 1%/7% 5%/7%
Quarterly EPS
1Q14A
2Q14A
3Q14A
4Q14A
$28.00
$29.75
$30.00
$30.25
Div Yld: 2%
1Q15A
2Q15A
3Q15E
4Q15E
$28.60
$30.10
$30.00
$30.25
1) -2.25% US GDP likely in 2015
2) S&P EPS will rise despite $/oil
3) PEs justifiable and been higher
4) Bond yields are nil after inflation
Dare to ask:
Why not 2500+ S&P cycle-high?
2500+ = —18x 2018E EPS of -$145
S&P 500 avg. trailing 4qtr PE:
1960-2014
1985-2014
1995-2014
2005-2014
16.0
17.6
18.6
15.9
Sectors/Industries:
Health Care, Tech
Health Care, Tech, Consumer Disc.
Tech, Health Care, some Consumer
Big Banks, Mega-cap Tech
Tech, Health Care, some Consumer
Staples
Be selective and valuation mindful
Energy, Industrial Capital Goods
Risks
- US tax on foreign profits, whether repatriated or not, threatens large
multinationals and would cause margin contraction
- EM economy weakness that causes a steep decline in commodity prices,
EFTA01476450
especially oil, and threatens US exports and investment spending
- A surge in long-term interest rates or any global economic shock would
threaten our constructive view on the S&P for 2015
EFTA01476451
US Equity Insights
20 November 2015
Page 34
Deutsche Bank Securities Inc.
EPS outlook, Performance & What to buy now
Figure 63: The Seven Signs (cross asset class market signals) suggest
Cautious / Neutral stance on equities
Current Change vs
Change vs
"The Seven Signs" Cross Asset Class Market Signals
Interest Rates and Inflation
10yr Treasury yield
10yr TIPS yield
10yr Treasury - TIPS spread
5yr Treasury yield
30yr Treasury yield
Fed Fund Rate 2015 End (Futures)
Fed Fund Rate 2016 End (Futures)
Duration
US Treasury yield curve slope (10-2yr)
US Treasury yield curve slope (10-5yr)
Credit
Corporate IG credit spreads (bps)
Financial
Industrial
Financial spreads over Industrial
Corporate HY credit spreads (bps)
TED spreads (bps)
Muni spreads (bps)
Sovereign spreads (bps)
Germany
France
Italy
Spain
Currency
US Dollar index
USD/EUR
JPY/USD
CHF/USD
USD/Gold (real $)
Commodities
CRB
Brent Oil
WTI Oil
Natural gas
Copper
Uncertainty
VIX
1M Implied Vol
1M Realized Vol
1M Vol Premium (Implied - Realized)
EFTA01476452
Correlation (S&P 500)
1M Implied Correlation
1M Realized Correlation
1M Correl Premium (Implied - Realized)
LTM PE / 3m Avg. VIX (mkt emotion)
Offered Equity Risk Premium
LTM PE
PE on 2015E EPS
PE on normalized 2015E EPS
Implied real return offered by S&P 500
Implied ERP offered by S&P 500
14.2
14.3
-0.1
35.4
27.3
8.1
0.85
17.5
17.5
17.1
5.7%
5.1%
-1.2
1.5
-2.8
-3.8
4.4
-8.2
0.01
1.7%
-1.7%
0.1%
13.4
13.3
0.1
31.3
25.2
6.1
0.85
17.4
5.7%
5.1%
-3.2
-5.5
2.2
-3.9
-26.3
22.4
0.01
4.7%
EFTA01476453
-4.5%
-6.9%
11.2
9.9
1.3
33.9
24.1
9.8
1.17
17.5
5.7%
5.2%
14.9
13.8
1.2
40.1
37.0
3.1
0.95
15.2
6.7%
6.2%
18.6
16.9
1.6
36.9
32.4
2.6
0.98
18.5
6.5%
3.6%
33%
48%
26%
51%
44%
73%
33%
63%
35%
75%
382.59
44.18
40.54
2.28
4651.5
-0.3%
0.3%
-2.9%
0.7%
EFTA01476454
-3.8%
389.50
46.88
43.87
2.27
4987.4
-2.5%
-5.0%
-5.5%
-8.5%
-3.9%
451.97
78.10
74.58
4.37
6755.0
481.12
98.48
87.45
3.56
7427.5
347.21
56.79
54.89
4.49
4535.7
62%
45%
43%
13%
54%
94.10
1.0734
122.87
1.0128
449.5
0.0%
-0.7%
0.2%
1.3%
-1.5%
92.59
1.0852
122.09
0.9985
469.4
1.4%
-3.8%
1.8%
3.4%
-3.2%
EFTA01476455
82.80
1.2554
117.97
0.9570
502.2
77.27
1.2934
96.12
0.9254
616.7
86.57
1.2193
108.22
1.2356
350.3
71%
23%
88%
27%
69%
71%
77%
12%
73%
138.7
169.2
-30.5
637.2
25.8
19.78
-176.8
-144.8
-75.1
-54.4
-0.7
1.7
-2.4
15.8
2.6
1.0
-4.8
-4.8
-5.0
-4.2
142.1
169.0
-27.0
611.9
27.5
21.9
-165.6
EFTA01476456
-131.9
-63.1
-46.9
-13.5
-10.6
-3.0
-45.1
-5.1
-13.9
-17.8
-22.1
-25.0
-24.8
130.3
135.3
-5.0
488.7
23.1
15.5
-151.1
-116.4
-3.0
-23.2
182.7
141.8
40.9
527.7
25.6
22.1
-75.4
-16.0
171.5
182.3
174.8
156.1
18.7
609.7
43.6
2.5
-47.4
-25.3
65.4
53.2
51%
71%
23%
63%
40%
63%
0%
1%
EFTA01476457
10%
21%
1.40%
0.59%
-0.06%
-0.02%
1.43%
0.62%
0.00%
-0.07%
1.84%
0.72%
1.93%
1.03%
1.25%
0.61%
64%
75%
Level
2.25%
0.65%
1.60%
1.67%
3.01%
0.21%
0.78%
1 Wk Ago 4 Week Avg. 4 Wks Ago
-0.06%
-0.10%
0.04%
-0.04%
-0.08%
0.00%
-0.06%
2.22%
0.67%
1.55%
1.60%
3.00%
0.20%
0.76%
0.17%
0.11%
0.06%
0.24%
0.12%
0.01%
0.14%
Level
lyr Ago
2.36%
EFTA01476458
0.52%
1.84%
1.64%
3.08%
0.53%
1.47%
0.21%
2.14%
1.32%
3.34%
0.25%
0.25%
4.18%
1.75%
2.43%
3.57%
4.79%
2.66%
2.66%
5yr Avg. 20yr Avg. Rel to Hist. Rel to Hist.
2.35%
4%
12%
3%
8%
4%
96%
88%
3%
92%
96%
PCTL Risk Aver. Risk Aversion Incremental
Level
High
High
High
Low
High
High
High
High
Normal
36% Normal
25% Normal
Normal
51% Normal
High
71%
23%
Low
63% Normal
EFTA01476459
40% Normal
63% Normal
0%
1%
10%
21%
Low
Low
Low
Low
High
High
High
Low
High
69% Normal
Normal
38% Normal
55% Normal
57% Normal
87%
High
46% Normal
Normal
33% Normal
48% Normal
26%
Low
51% Normal
44% Normal
73%
High
67% Normal
Normal
37% Normal
Normal
Normal
35% Normal
75% Normal
Risk Aversion
Down
Down
Down
Down
Down
Down
Down
Down
Up
Up
Up
EFTA01476460
Down
Down
Down
Down
Down
Down
Down
Down
Down
Down
Down
Up
Up
Up
Down
Down
Down
Up
Up
Up
Up
Up
Up
Down
Down
Down
Up
Down
Down
Up
Down
Down
Down
Down
Down
Down
Down
A signal's risk aversion is based on its current level expressed as a
percentile of all the observations in its long-term history. Monthly
observations from 1960 for Interest Rates & Inflation, Duration, LTM PE and
Implied ERP; 20 yr history for the rest.
Not Safe
No
No
Neutral
No
Safe
Yes
Yes
Yes
EFTA01476461
Yes
Yes
Yes
Yes
Neutral
Neutral
Neutral
Neutral
Neutral
Yes
below 18
below 18
below 3
below 40
below 40
below 10
0.8 - 1.2
below 18
below 17
below 17
above 5.5%
above 4%
$70 - $100
$70 - $100
Strategic
Safety
Caution
Yes
Caution
Yes
Caution
Yes
Yes
Yes
Neutral
Yes
Caution
Neutral
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
Neutral
Caution
$1.20 - $1.40
EFTA01476462
Safe
Criteria
2 - 4%
0.5% - 2%
bet. 1 - 3%
1.5% - 3%
2.5% - 4.5%
below 2.5%
below 2.5%
above 100bps
above 60bps
below 200
below 200
below 50
below 600
below 50
below 25
below 0 bps
below 100 bps
below 100 bps
below 100 bps
EFTA01476463
US Equity Insights
20 November 2015
Deutsche Bank Securities Inc
Page 35
Figure 64: S&P 500 Advised Sector and Industry Allocation (2014/15 PE based
on DB US Equity Strategy top down sector and industry EPS estimates)
Market
Advised
Weight (%) Weight (%)
Sector
2015 2016
PE
PE
Biotechnology
Health Care Equipment & Supplies
14.5% 18.0% Health Care
17.0 15.9 Health Care Technology
Life Sciences Tools & Services
Pharmaceuticals
Technology Hardware, Storage & Peripherals
Internet Software & Services
IT Services
21.0%
Overweight
16.4%
17.2%
Financials
21.0%
Information
Technology
17.5
16.5 Semiconductors
Software
Communications Equipment
Electronic Equipment
Banks
Capital Markets
14.0 13.2 Consumer Finance
Electric Utilities
Gas Utilities
2.9%
2.3%
3.4%
2.6%
Utilities
15.7
15.2
Independent Power Producers
Multi-Utilities
Telecom 12.6 13.0 Telecommunication Services
Overweight
EFTA01476464
2015 2016
PE
PE
15.1 13.5
21.8 20.4
27.2 23.6
19.5 18.8
17.1 16.3
12.2 11.5
29.8 26.6
19.0 17.9
16.6 16.1
21.4 20.2
12.2 11.7
17.5 16.3
12.1 11.5 Diversified Financial Services
15.0 13.9 Insurance
11.7 11.2 REITs
Real Estate Mgmt. & Development
Thrifts & Mortgage Finance
15.0 14.7
21.2 19.8
10.8 9.8
17.1 16.5
12.6 13.0
Auto Components
Automobiles
Distributors
Equalweight
13.0%
13.2%
Consumer
Discretionary
21.1 19.5
Household Durables
Leisure Products
Multiline Retail
Specialty Retail
Internet & Catalog Retail
Media
Food & Staples Retailing
9.6%
8.5%
Consumer
Staples
20.6
20.1
Airlines
Underweight
10.3%
8.5%
EFTA01476465
Industrials
16.8
16.5
7.3
8.3 Building Products
Air Freight & Logistics
Commercial Services & Supplies
Industrial Conglomerates
Professional Services
Road & Rail
Chemicals
3.0%
2.6%
Materials
17.9
16.7
24.2
18.8
19.6
23.0
20.1
15.9
17.3
13.7
8.6
19.5
16.6
21.2
14.5
21.1
80.7
18.9
18.1
12.7 Diversified Consumer Services
8.2 Hotels, Restaurants & Leisure
18.2 Textiles, Apparel & Luxury Goods
14.7
20.0
13.6
19.4
64.6
17.8
17.5 Beverages
Food Products
Household Products
Personal Products
Tobacco
22.6 Aerospace & Defense
17.6 Construction & Engineering
18.7 Electrical Equipment
21.8 Machinery
EFTA01476466
18.3 Trading Companies & Distributors
15.0
16.5 Construction Materials
Containers & Packaging
Metals & Mining
Paper & Forest Products
7.0%
5.0%
Energy
28.5
Aggregate PE of DB Industry allocations
S&P 500 Index
24.6
Overweight
15.6
2081.24
14.9
Equalweight
2015 & 2016 DB Strategy EPS
Bottom-up Cons. EPS
18.5
17.4
Energy Equipment & Services
Oil, Gas & Consumable Fuels
Underweight
119.0 125.0 2015 & 2016 DB Strategy PE
118.8 128.5 Bottom-up Cons. PE
23.1 22.9
21.3 20.4
20.6 20.0
27.7 24.2
20.3 20.6
17.7 16.7
13.7 13.7
16.3 16.3
15.5 16.0
16.7 15.9
45.6 38.0
16.1 15.4
28.3 18.5
11.0 11.0
20.9 29.9
30.6 23.8
21.3
20.0
17.5 16.6
17.5 16.2
18.3 16.7
25.0 22.8
23.6 21.5
EFTA01476467
20.9
12.3
18.8
17.4
33.2
19.3
11.7
18.0
16.1
11.7
Equalweight
2015 2016
PE
PE
Underweight
Health Care Providers & Services
2015 2016
PE
PE
16.0 15.2
EFTA01476468
20 November 2015
US Equity Insights
Figure 65: Sector and Industry ETFs
Note: Please see DB note "Equity ETPs capture $4.1bn during last week"
published on May 27 2015. Click here for complete report
Page 36
Deutsche Bank Securities Inc.
EFTA01476469
US Equity Insights
20 November 2015
Deutsche Bank Securities Inc.
Page 37
Figure 66: S&P 500 Annual EPS Outlook and PE (based on current constituents
in the index unless specified)
EPS
Y/Y
2005A
S&P 500 EPS (historical index)
S&P 500 EPS (current constituents)
Sector ($ bn)
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
S&P 500 ($ bn)
S&P ex. Financials ($bn)
S&P ex. Energy ($bn)
S&P ex. Tech ($bn)
Energy & Financials ($bn)
S&P ex. Energy and Financials ($bn)
Key Macro Forecast
Global GDP growth (real, DB est.)
US GDP growth (real, DB est.)
US Bus. FI (Equip + IPP, DB est.)
US Unemployment Rate (year-end, DB est.)
US 10yr Treasury Yield (year-end, Our est.)
Bank Litigation (post-tax, $bn)
Loan Loss Provisioning (% of loans, Our est.)
US$/Euro (average/year-end, Our est.)
US$/Euro (year-end, DB est.)
Avg Oil Price (WTI/Brent, $/bbl)
Avg Natural Gas Price (Henry Hub $/mmbtu)
$76.28
$79.53
51.6
94.0
133.8
68.6
63.2
83.6
17.4
13.9
21.4
EFTA01476470
603.1
469.3
509.1
519.5
227.8
375.3
2006A
$88.18
$91.14
53.9
57.0
2007A
2008A
2009A
2010A
$85.12 $65.47 $60.80 $85.28
$93.81 $71.79 $64.23 $88.54
2007 - 14 shown below is agg. net income, 2014 y/y is EPS growth:
55.6
52.5
61.1
114.3
173.1
73.0
71.0
97.6
21.2
18.0
23.4
702.6
529.4
588.3
605.0
287.5
415.1
118.7
143.8
81.8
83.9
121.4
24.8
26.4
25.9
740.2
596.5
621.6
618.8
262.4
477.8
40.9
66.8
EFTA01476471
141.5
-19.9
86.7
75.3
122.1
21.0
27.0
26.9
588.2
608.1
446.7
466.1
121.6
466.6
48.6
68.9
59.0
56.6
88.3
51.7
105.6
13.2
21.8
26.6
540.3
483.7
481.3
434.7
115.6
424.7
74.1
73.6
94.5
129.0
101.3
73.8
151.4
24.9
23.2
28.2
773.9
644.9
679.4
622.5
223.5
550.4
2011A
2012A
2013A
2014A
$97.82 $103.75 $110.39 $118.82 7.6%
EFTA01476472
$99.73 $105.09 $111.63 $117.75 5.5% $118.84 0.9% $128.55 8.2%
84.0
78.0
129.7
132.5
109.6
88.2
175.2
31.7
22.4
29.5
880.7
748.2
751.0
705.4
262.1
618.5
90.4
78.7
122.1
162.6
112.5
94.3
185.7
29.2
23.9
29.8
929.1
766.6
807.0
743.5
284.6
644.5
99.5
84.2
113.9
189.1
117.9
102.5
193.1
30.5
25.1
30.4
986.2
797.1
872.3
793.1
303.0
683.2
102.9
86.2
$119
EFTA01476473
112.3
189.9
136.3
113.4
209.8
32.7
30.7
33.2
1047.4
857.5
935.1
837.6
302.2
745.2
4.7% 5.2% 5.3% 2.7% -0.4% 5.2% 3.9% 3.2% 2.8% 3.4%
3.4% 2.7% 1.8% -0.3% -2.8% 2.5% 1.9% 2.8% 1.9% 2.6%
8.4% 7.1% 3.8% -3.1% -14.1% 9.4% 9.2% 5.9% 4.1% -5.5%
4.9% 4.4% 5.0% 7.3% 9.9% 9.5% 8.6% 7.8% 7.0% 5.7%
4.4% 4.7% 3.9% 2.5% 3.8% 3.3% 1.9% 1.8% 3.0% 2.2%
8.9
5.7
8.4
14.3
23.3
0.8% 0.7% 1.3% 3.0% 4.2% 2.6% 1.2% 0.8% 0.4% 0.4%
1.25/1.18 1.26/1.32 1.37/1.46 1.47/1.40 1.39/1.32 1.33/1.29 1.39/1.30
1.28/1.32 1.33/1.38 1.33/1.21
56/54
8.67
66/65
6.74
72/72
6.96
100/97
8.88
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
S&P 500
S&P ex. Financials
S&P ex. Energy
S&P ex. Tech
Energy & Financials
S&P ex. Energy & Financials
EFTA01476474
Trailing Pro-forma PE (year-end prices)
2005
17.3
15.8
10.1
15.0
17.9
18.6
20.0
16.8
13.2
15.1
15.9
14.6
17.0
15.3
13.0
17.7
2006
20.7
16.5
10.4
13.9
17.8
18.2
18.8
15.1
15.7
16.6
15.7
14.3
16.8
15.3
12.5
18.0
2007
18.9
17.3
12.9
14.9
16.5
16.9
18.0
16.4
16.4
17.3
16.2
15.9
16.8
15.8
14.0
EFTA01476475
17.4
61/61
3.95
79/79
4.40
95/111
3.99
94/111
2.75
98/108
3.73
93/99
4.26
Bottom-up
2008
15.5
13.9
7.0
NA
11.3
10.8
10.3
10.8
11.0
11.6
12.9
13.8
14.7
13.5
17.4
11.7
2009
18.4
14.8
18.2
26.0
12.6
18.6
18.9
26.3
13.6
12.7
17.6
18.5
17.5
17.3
22.1
16.4
2010
16.6
15.2
EFTA01476476
13.5
14.5
11.4
16.5
14.4
17.8
14.2
12.3
14.4
14.9
14.5
14.4
14.0
14.6
2011
14.8
15.6
10.5
12.2
11.6
13.4
12.5
12.4
15.8
13.7
12.8
13.6
13.1
12.8
11.4
13.3
2012
16.4
16.3
11.4
12.6
13.4
14.1
13.4
15.6
16.2
14.0
13.8
14.5
14.1
13.9
12.1
14.5
2013
20.8
18.4
EFTA01476477
14.7
14.4
17.9
18.0
16.4
18.3
15.7
15.5
16.8
17.5
17.1
16.9
14.5
17.8
2014
21.4
20.4
13.3
16.2
18.7
17.4
17.8
17.5
14.2
17.8
17.5
18.3
18.0
17.5
15.1
18.5
2015
21.1
20.7
27.4
14.0
17.0
16.6
17.6
17.7
12.5
15.8
17.5
18.4
17.1
17.5
16.4
17.9
2016
18.3
19.4
EFTA01476478
27.4
12.9
15.6
15.9
16.2
15.8
12.1
15.3
16.2
17.0
15.7
16.2
15.3
16.5
Note: 2005-2013 PE based on year end prices, 2014/2015 PE based on current
prices and FC and DB US Equity Strategy EPS estimates for 2014 and 2015.
Dividend yield and payout is based on indicated dividend.
3.4% 115.5
2.4% 85.1
-1.5% 46.8
0.4% 216.8
15.6% 155.0
10.7% 116.3
8.6% 224.1
7.4% 30.6
22.1% 33.7
9.2% 33.2
6.2% 1057.1
7.6% 840.3
7.2% 1010.3
5.6% 833.0
-0.3% 263.6
9.1% 793.5
-1.3% 91.0
-58.4% 46.8
14.2% 235.5
13.7% 168.9
2.6% 121.5
6.8% 243.3
-6.5% 34.3
9.8% 34.9
-0.1% 34.4
0.9% 1143.4
-2.0% 907.9
8.0% 1096.6
-0.6% 900.1
-12.8% 282.3
6.5% 861.1
15.0% 115.5
6.9% 85.5
EFTA01476479
0.1% 45.0
8.6% 218.0
9.0% 154.5
4.4% 115.0
8.6% 225.0
12.0% 30.3
3.4% 33.5
3.7% 33.5
8.2% 1055.7
8.0% 837.7
8.5% 1010.7
8.1% 830.7
7.1% 263.0
8.5% 792.7
3.1%
2.1%
-4%
4.8%
2.25%
4.5
0.6%
-$1.10
1.05
-$50
-2.50
1.1% $125
All 2015/16 estimates are aggregate earnings representative of EPS
12.3% 132.8
12.2% 125.0
-0.8% 87.5
-59.9% 52.0
14.8% 230.0
13.4% 165.0
1.4% 117.0
7.3% 239.0
-7.5% 32.5
9.1% 32.5
0.7% 34.5
5.0% $122
8.3% 115.5
2.3% 85.5
15.6% 80.0
5.5% 218.0
6.8% 151.5
1.7% 112.2
6.2% 225.0
7.3% 31.4
-3.0% 33.5
3.1% 33.5
1.1% 1114.9 5.0% 1086.0
-2.3% 884.9
EFTA01476480
5.6% 868.0
8.1% 1062.9 5.2% 1006.0
-0.8% 875.9
-13.0% 282.0
6.4% 832.9
5.4% 861.0
7.2% 298.0
5.1% 788.0
3.5%
2.7%
-4%
4.5%
2.75%
2
0.5%
-$1.05
0.90
-$55
-2.75
DB US Equity Strategy
2015
21.1
20.6
28.5
14.0
17.0
16.8
17.5
17.9
12.6
15.7
17.5
18.5
17.0
17.5
16.4
17.9
2016
19.5
20.1
24.6
13.2
15.9
16.5
16.5
16.7
13.0
15.2
16.6
17.5
16.2
EFTA01476481
16.6
15.3
17.0
<3%
0.75%
$1.10-1.15
-$65
- 3.00
Indicated Dividend
Yield
1.5%
2.7%
3.4%
2.0%
1.7%
2.3%
1.6%
2.2%
5.2%
3.9%
2.1%
2.1%
2.0%
2.3%
2.4%
2.0%
103%
100%
100%
178%
100%
98%
98%
100%
104%
100%
100%
103%
104%
100%
104%
113%
99%
2015E
Y/Y
Bottom-up
2016E
Y/Y
2015E
DB US Equity Strategy
Y/Y
EFTA01476482
2016E
Normalized 2015
Y/Y
($) % of 2015
Payout (2015)
32.0%
56.1%
94.7%
27.9%
28.9%
37.8%
27.5%
39.6%
66.3%
61.5%
37.3%
39.7%
34.7%
39.9%
EFTA01476483
US Equity Insights
20 November 2015
Page 38
Deutsche Bank Securities Inc.
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
EFTA01476484
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
EFTA01476485
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
EFTA01476486
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
Figure 67: EPS revisions — The % below shows the change in 2015 consensus
estimate since July end
Cons. Disc. ($bn) — down 0.3%
Cons. Staples ($bn) — down 1.9%
110
130
150
30
EFTA01476487
50
70
90
2010
2011
2008
2009
2016
2015
2014
2012
2013
60
70
80
90
2012
2011
2009 2010
2008
100
110
2013
2015 2016
2014
100
120
140
160
180
200
40
60
80
2008
2012
2011
2009
2010
2016
2015
Energy ($bn) — down 8.1%
Financials ($bn) — down 2.3%
2013 2014
100
150
200
250
300
2008
50
EFTA01476488
0
2009
2016
2014 2015
2011
2012
2010
2013
Healthcare ($bn) — up 1.6%
Industrials ($bn) — down 0.2%
100
120
140
160
180
200
80
2016
2015
2014
2012 2013
2011
2008
2009
2010
100
110
120
130
140
40
50
60
70
80
90
2008
2016
2015
2013 2014
2012
2011
2010
2009
50
Technology ($bn) — down 0.5%
100
150
200
250
300
EFTA01476489
2016
2013
2012
2011
2008
2009
2010
2015
2014
Materials ($bn) — down 6.0%
10
15
20
25
30
35
40
45
5
2016
2013
2012
2011
2008
2010
2009
2015
2014
Telecom ($bn) — up 1.3%
Utilities ($bn) — up 0.2%
17
19
21
23
25
27
29
31
33
35
37
2015 2016
2014
2011
2008
2009
2010
2012
2013
24
26
EFTA01476490
28
30
32
34
36
2016
2015
2014
2008
2009
2011
2012 2013
2010
S&P ex. Fin ($bn) — down 0.8%
400
500
600
700
800
900
1000
1100
20152016
2014
2008
2009
2013
2012
2011
2010
S&P 500 EPS ($/sh) — down 1.1%
$40
$60
$80
$100
$120
$140
$160
2015
2009
2008
2012 2013 2014
2011
2010
2016
EFTA01476491
US Equity Insights
20 November 2015
Deutsche Bank Securities Inc.
Page 39
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
EFTA01476492
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
EFTA01476493
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
EFTA01476494
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
01-08
07-08
01-09
07-09
01-10
07-10
01-11
07-11
01-12
07-12
01-13
07-13
01-14
07-14
01-15
07-15
Figure 68: Sales revisions — The % below shows the change in 2015 consensus
estimate since July end
Cons. Disc. ($bn) — down 0.2%
Cons. Staples ($bn) — down 1.4%
925
1025
1125
1225
EFTA01476495
1325
1425
1525
1625
1725
2016
2015
2014
2013
2012
2009
2008
2010
2011
900
950
1000
1050
1100
1150
1200
1250
1300
1350
1400
2016
2015
2014
2013
2012
2008
20092010
2011
800
1000
1200
1400
1600
1800
2000
2008
Energy ($bn) — down 5.5%
Financials ($bn) — down 0.7%
2012 2013
2014
2011
2016
2015
2009
2010
900
EFTA01476496
1000
1100
1200
1300
1400
2016
2015
2011
2009
2010
2008
2012
2014
2013
Healthcare ($bn) — flat
Industrials ($bn) — down 1.4%
800
900
1000
1100
1200
1300
1400
1500
1600
1700
2016
2015
2014
2013
2012
2011
2009
2010
2008
800
900
1000
1100
1200
1300
1400
2013
2012
2011
2008
2010
2009
2016
2014 2015
Technology ($bn) — down 0.6%
EFTA01476497
600
700
800
900
1000
1100
1200
1300
2016
2015
2013 2014
2011
2012
2009
2008
2010
Materials ($bn) — down 3.6%
2013
240
260
280
300
320
340
360
380
400
420
2012
2008
2010
2011
2009
2014
2015
2016
Telecom ($bn) — down 2.0%
Utilities ($bn) — down 0.7%
220
240
260
280
300
320
340
360
2016
2014 2015
2013
2012
2008
EFTA01476498
2009 2010
2011
280
290
300
310
320
330
340
350
360
2016
2011
2009
2008
2013
2014
2012
2010
2015
S&P ex. Fin ($bn) — down 1.4%
5500
6000
6500
7000
7500
8000
8500
9000
9500
10000
2016
2014 2015
2013
2012
2011
2008
2009
2010
S&P 500 ($bn) — down 1.3%
7000
7500
8000
8500
9000
9500
10000
10500
11000
2016
2014 2015
EFTA01476499
2013
2009
2010
2008
2011
2012
Cons. Disc. 2010/11 jumped in Nov 2010 after GM was added to S&P. Cons.
Staples 2013 jumped in Oct 2012 due to KRFT IPO. Health Care 2012/13 jumped
after ESRX's acquisition of Medco. Telecom 2011/12 jumped due to CTL's Qwest
and Savvis acquisition.
EFTA01476500
US Equity Insights
20 November 2015
Page 40
Deutsche Bank Securities Inc.
Figure 69: What to buy now (large caps)? DB Buy-rated S&P 500 stocks in our
OW industries with market cap > $10bn, PE on 2015 EPS < 22, 2015 EPS
growth > 0%
DB
Ticker Company Name
BAC
3PM
MTB
PNC
STI
USB
Bank of America Corp
3PMorgan Chase & Co
M&T Bank Corp
PNC Financial Services Group Inc
SunTrust Banks Inc
U.S. BANCORP
WFC Wells Fargo & Co
AMP Ameriprise Financial Inc
BK
BLK
ABT
MDT
SYK
Bank of New York Mellon Corp
BlackRock Inc
TROW T. Rowe Price Group Inc
ABBOTT LABORATORIES
Medtronic Inc
Stryker Corp
AGN Allergan plc
ENDP Endo International PLC
MYL
Mylan Inc
PRGO Perrigo Company PLC
AAL
DAL
LUV
UAL
Southwest Airlines Co
CSCO Cisco Systems Inc
ADS
United Continental Holdings Inc
Alliance Data Systems Corp
AEP
EXC
NEE
EFTA01476501
American Airlines Group Inc
Delta Air Lines Inc
GICS Sector
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Health Care
Health Care
Health Care
Health Care
Health Care
Health Care
Health Care
Industrials
Industrials
Industrials
Industrials
CTSH Cognizant Technology Solutions Corp Information Technology
AMAT Applied Materials Inc
LRCX Lam Research Corp
American Electric Power Company IncUtilities
Exelon Corp
NextEra Energy Inc
Utilities
Utilities
GICS Industry
Banks
Banks
Banks
Banks
Banks
Banks
Banks
Capital Markets
Capital Markets
Capital Markets
Capital Markets
DB
Rating
Buy
Buy
Buy
Buy
EFTA01476502
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Health Care Equipment & Supplies Buy
Health Care Equipment & Supplies Buy
Health Care Equipment & Supplies Buy
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Airlines
Airlines
Airlines
Airlines
Information Technology Communications Equipment
Information Technology
IT Services
IT Services
Electric Utilities
Electric Utilities
Electric Utilities
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Information Technology Semiconductors & Semiconductor EquipmentBuy
Information Technology Semiconductors & Semiconductor EquipmentBuy
Buy
Buy
Buy
Price
Target
19
72
132
101
49
47
60
138
EFTA01476503
49
393
83
53
90
112
308
84
66
187
54
55
54
74
35
341
69
20
95
62
37
112
*Net Buyback Yield is calculated as (trailing 12-month buyback expenditures
less option exercise proceeds and less stock option expense) / Market Cap
Note: The list has the following changes from our previous US Equity
Insights report based on the screening rules: additions (CTSH), deletions
(ACN).
Price
125.43
95.10
43.60
44.15
114.97
43.83
359.09
76.38
45.73
Mkt Cap
($m)
17.69 186,626
67.66 249,385
22,277
48,297
22,306
77,924
55.97 284,352
20,105
48,090
59,141
19,206
EFTA01476504
68,321
75.75 109,640
95.41
36,530
302.05 122,494
59.41
51.22
154.63
42.30
48.51
46.87
58.50
286.07
65.24
18.20
77.92
56.32
28.16
100.99
13,435
25,571
22,786
28,049
37,554
30,118
21,515
27.37 137,964
17,589
39,683
21,767
12,423
27,196
25,858
46,450
P/E on
2015
EPS
12.6
11.3
16.7
12.9
12.3
14.0
13.4
12.4
15.4
18.6
16.7
21.3
17.7
18.7
EFTA01476505
19.0
13.1
11.9
20.2
4.7
10.5
13.1
4.9
15.7
19.0
21.4
15.3
15.4
15.0
11.3
17.9
2015
EPS
2016
EPS
Growth Growth
297%
13%
1%
1%
10%
0%
10%
2%
2%
9%
17%
0%
0%
9%
12%
8%
13%
6%
21%
22%
57%
41%
78%
137%
17%
19%
17%
12%
14%
9%
EFTA01476506
4%
7%
14%
-1%
0%
5%
4%
14%
12%
6%
8%
10%
2%
10%
-4%
27%
12%
22%
-39%
0%
2%
-40%
4%
13%
14%
0%
23%
-1%
-2%
9%
Dividend
Payout
Ratio
34%
30%
38%
26%
22%
31%
33%
26%
27%
40%
39%
44%
29%
26%
0%
0%
0%
8%
EFTA01476507
7%
7%
10%
0%
48%
0%
0%
37%
4%
59%
52%
55%
2015
DPS
Growth Div Yield
67%
9%
0%
7%
31%
5%
9%
15%
3%
6%
132%
9%
9%
10%
Net
Buyback
Yield
Total
Yield
1.1% -7.3% -6.1%
2.6% -0.9% 1.7%
2.2% -0.9% 1.4%
2.1% 4.2% 6.4%
2.2% 0.0% 2.2%
2.3% 2.0% 4.3%
2.7% 0.7% 3.4%
2.3% 6.8% 9.1%
1.5% 1.2% 2.7%
2.4% 1.3% 3.7%
2.7% 2.5% 5.2%
2.1% 0.9% 3.0%
2.0% 0.5% 2.4%
100%
50%
19%
11%
EFTA01476508
0%
300%
6%
0%
6%
1.4% 0.8% 2.2%
0.0% -7.9% -7.9%
0.0% -18.0% -18.0%
0.0% -0.8% -0.8%
0.3% -4.7% -4.4%
1.0% 3.8% 4.7%
1.1% 5.4% 6.5%
0.6% 3.2% 3.8%
0.0% 2.8% 2.8%
3.1% 1.0% 4.1%
0.0% 3.7% 3.7%
0.0% 0.0% 0.0%
2.2% 2.0% 4.2%
1.5% 2.9% 4.5%
4.0% -1.3% 2.7%
4.4% -0.6% 3.8%
3.1% -3.0% 0.1%
EFTA01476509
US Equity Insights
20 November 2015
Deutsche Bank Securities Inc.
Page 41
Figure 70: What to buy now (mid and small caps)? DB Buy-rated non-S&P 500
stocks in our OW industries with market cap > $800m, PE on 2015 EPS <
25, 2015 EPS growth > 8%, net debt/market cap < 30%, price upside > 5%
DB
DB
Ticker Company Name
LOPE Grand Canyon Education Inc
LOCK
Lifelock Inc
VIPS
FL
AKRX
JAZZ
BABA
IACI
GPN
NXPI
NUAN
SNCR
VRNT
Vipshop Holdings Ltd
Foot Locker Inc
WBA Walgreens Boots Alliance Inc
QGEN Qiagen Nv
Akorn Inc
Jazz Pharmaceuticals Plc
Alibaba Group Holding Ltd
Iac/interactivecorp
HAWK Blackhawk Network Holdings Inc
FLT
Fleetcor Technologies Inc
Global Payments Inc
WNS Wns (holdings) Ltd
MXL
Maxlinear Inc
Nxp Semiconductors Nv
SPWR Sunpower Corp
MSTR Microstrategy Inc
Nuance Communications Inc
Synchronoss Technologies Inc
Verint Systems Inc
GICS Sector
GICS Industry
Consumer Discretionary Diversified Consumer Services
Consumer Discretionary Diversified Consumer Services
Consumer Discretionary Internet & Catalog Retail
Consumer Discretionary Specialty Retail
EFTA01476510
Consumer Staples
Food & Staples Retailing
Health Care
Health Care
Health Care
Life Sciences Tools & Services
Pharmaceuticals
Pharmaceuticals
Information Technology Internet Software & Services
Information Technology Internet Software & Services
Information Technology IT Services
Information Technology IT Services
Information Technology IT Services
Information Technology IT Services
Rating
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Price
Price
Target Upside
45.0
25.0
18.3
80.0
95.0
31.0
40.0
Buy 173.0
98.0
90.0
50.0
Buy 184.0
Buy 139.0
Buy
36.0
20.0
43.0
65.0
66.0
Information Technology Semiconductors & Semiconductor Equipment Buy
Information Technology Semiconductors & Semiconductor Equipment Buy 100.0
Information Technology Semiconductors & Semiconductor Equipment Buy
Information Technology Software
EFTA01476511
Information Technology Software
Information Technology Software
Information Technology Software
Buy 220.0
30.0
Buy
Buy
Buy
Note: The list has the following changes from our previous US Equity
Insights report based on the screening rules: addition (AKRX, NUAN),
deletions (NTES,
ON).
For screening purpose, our over-weight industries for mid and small caps are
all industries in Consumer Discretionary, Consumer Staples, Health Care, and
Tech.
DB Analyst
16% Paul Ginocchio, CFA
72% Nandan Amladi
28%
30%
15%
Alan Hellawell
Paul Trussell
George Hill
16% Gunnar Romer
23%
19%
26%
45%
11%
Gregg Gilbert
Gregg Gilbert
Alan Hellawell
Ross Sandler
Bryan Keane
21% Ashish Sabadra
95%
15%
23%
24%
88%
27%
Bryan Keane
Bryan Keane
Ross Seymore
Ross Seymore
Vish Shah
Karl Keirstead
49% Nandan Amladi
66% Nandan Amladi
EFTA01476512
36% Nandan Amladi
Price
38.71
14.53
14.31
61.53
82.83
26.73
32.46
145.04
45.21
151.57
71.27
31.41
16.25
80.92
22.93
173.00
20.20
39.25
48.38
Mkt Cap
($m)
1,844
1,381
8,357
8,519
92,090
6,221
3,783
8,973
77.87 195,190
62.26
5,158
2,483
13,983
9,209
1,681
1,035
20,621
3,232
1,987
6,267
1,731
3,039
Net Debt /
Mkt Cap
-6%
-24%
-7%
-10%
EFTA01476513
14%
11%
28%
5%
-6%
4%
9%
20%
16%
-8%
-7%
13%
9%
-22%
27%
0%
12%
P/E on
2015 EPS
14.0
23.3
4.1
17.2
21.4
24.8
16.8
17.5
6.0
18.1
19.8
24.4
14.1
18.1
18.7
16.6
11.3
19.2
15.8
17.9
14.5
2015 EPS
Growth
17%
35%
69%
24%
18%
8%
81%
12%
10%
EFTA01476514
35%
29%
21%
22%
26%
100%
15%
54%
440%
14%
23%
18%
2016 EPS
Growth
6%
20%
43%
18%
18%
10%
25%
35%
30%
38%
14%
11%
17%
8%
24%
Div
Yield
Net
Buyback
Yield
Total
Yield
0.0% -0.6% -0.6%
0.0% -2.9% -2.9%
0.0% -0.5% -0.5%
1.6%
1.7%
0.0%
0.0% -0.7% -0.7%
0.0% -1.2% -1.2%
0.0% -6.5% -6.5%
2.2%
0.0% -1.5% -1.5%
0.0% -0.6% -0.6%
0.1%
0.0%
-3% 0.0%
EFTA01476515
10%
14%
3%
-9% 0.0% -0.3% -0.3%
2%
0.0% -1.1% -1.1%
0.0%
0.0% -3.7% -3.7%
0.0% -2.5% -2.5%
0.9% 0.9%
3.6% 5.2%
0.8% 2.5%
0.2% 0.2%
2.3% 4.5%
2.7% 2.7%
0.4% 0.4%
0.0% -2.5% -2.5%
3.3% 3.3%
EFTA01476516
20 November 2015
US Equity Insights
Figure 71: S&P 500 sector performance (total returns)
12 Month
YTD
S&P 500
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
Note:
3.7%
17.2%
4.4%
3.0%
12.5%
3.7%
-19.1% -13.1%
4.2%
5.4%
0.7%
9.5%
-6.4%
-4.1%
-1.9%
1.1%
4.8%
0.2%
Since
3 Month 1 Month 1 Week
6.2%
8.5%
8/25/2015
Mkt Trough
3.3% 1.8%
2.6% 0.5%
4.2% -0.8% 2.4%
8.0%
4.2%
-0.7%
8.6%
8.2% 12.8%
-4.5%
2.0%
-6.1%
EFTA01476517
6.4%
1.8%
0.4% 2.0%
4.9% 2.1%
3.9% 1.7%
4.1% 2.3%
5.7% 1.4%
5.1% 4.1%
1.2% 2.4%
-3.2% -3.8% 1.2%
Two biggest outperforming (underperforming) sectors are highlighted in green
(red)
All sectors within 5% of their 5 year high are highlighted in yellow
12.0%
13.4%
9.1%
15.5%
11.2%
4.9%
14.2%
18.3%
13.0%
7.5%
3.8%
Current Price
vs. 5yr High
2015
PE
97.7% 17.5
98.2% 21.1 12.9%
97.2% 20.7
67.2% 27.4
9.4%
6.9%
96.1% 14.0 16.2%
91.8% 17.0 14.2%
95.9% 16.6 10.1%
98.6% 17.6 20.6%
87.6% 17.7
87.6% 12.5
86.8% 15.8
2.8%
2.3%
2.8%
Sector
Wt. by
Mkt Cap
Figure 72: S&P 500 sector 12m vs. 3m performance
-6%
-4%
EFTA01476518
-2%
0%
2%
4%
6%
8%
10%
12%
14%
Tech ex. AAPL
Tech
Lagging
but gaining
Industrials
Energy
Materials
Cons. Disc
S&P 500
Financials
Telecom
Cons. Staples
Health Care
Utilities
Lagging and
slipping
-20%
-15%
-10%
-5%
0%
5%
12 Month Total Return
Figure 73: S&P 500 sector ytd vs. mtd performance
-2%
-1%
0%
1%
2%
3%
Lagging
but gaining
Industrials
Materials
S&P 500
Tech ex. AAPL
Tech
Financials
Leading
and gaining
10%
EFTA01476519
15%
Leading
but slipping
20%
Leading
and gaining
Energy
Telecom Health Care
Cons. Staples
Lagging and
slipping
-15%
-10%
Utilities
-5%
0%
YTD Total Return
5%
10%
Leading
but slipping
15%
Cons. Disc.
Page 42
Deutsche Bank Securities Inc.
MTD Total Return
3 Month Total Return
EFTA01476520
20 November 2015
US Equity Insights
Figure 74: Russell 2000 sector ytd vs. mtd performance (price returns)
12
Since
3
Month
Russell 2000
Consumer Discretionary
Consumer Staples
Energy
Financial Services
Health Care
Materials & Processing
Producer Durables
Information Technology
Utilities
Note:
YTD
1
0.8% -3.2% 0.9% 1.9% 1.0%
-4.7% -9.9% -5.4% -3.8% -0.8%
8.2% 1.7% 5.7% 1.2% 1.2%
-46.2% -33.3% -0.9% -6.1% 0.7%
4.3% 0.9% 3.5% 2.4% 1.0%
14.7% 5.2% -4.9% 6.8% 0.9%
-7.6% -10.1% 1.3% 2.4% 3.3%
-7.3% -10.0% 1.3% 1.8% 2.0%
11.2% 4.3% 7.5% 4.4% 1.4%
0.2% -4.3% 2.6% -0.5% 1.0%
8/25/2015
Month Month 1 Week Mkt Trough
Current
Price vs.
5yr High
5.7% 90.0%
-1.7% 84.1%
9.3% 98.6%
5.8% 34.0%
9.5% 96.9%
-1.1% 83.4%
7.6% 83.7%
5.7% 85.7%
12.0% 92.7%
8.0% 92.4%
Two biggest outperforming (underperforming) sectors are highlighted in green
(red)
All sectors within 5% of their 5 year high are highlighed in yellow
2015 PE
(ex. Neg
EFTA01476521
EPS)
18.4
17.5 14.4%
3.6%
2.8%
20.4
17.2
17.1 26.1%
22.3 16.5%
5.7%
18.6
16.8 11.6%
22.2 14.8%
4.5%
18.5
Sector
Weight
Figure 75: Russell 2000 sector 12m vs. 3m performance
Lagging
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
-50%
Tech
but gaining
Leading
and gaining
Cons. Staples
Utilities
Materials & Proc
Producer Dur
Energy
Health Care
Lagging and
slipping
-40%
-30%
-20%
-10%
12 Month Price Return
Figure 76: Russell 2000 sector ytd vs. mtd performance
-5%
-4%
-3%
EFTA01476522
-2%
-1%
0%
1%
2%
3%
4%
-40%
Health Care
Lagging
but gaining
Russell 2000
Materials & Proc
Producer Dur
Utilities
Lagging and
slipping
Energy
Cons. Disc.
-30%
-20%
-10%
YTD Price Return
0%
10%
Leading
but slipping
Tech
Leading
and gaining
Financial Svcs
Cons. Staples
Cons. Disc.
Leading
but slipping
0%
10%
20%
Financial Svcs
Russell 2000
Deutsche Bank Securities Inc.
Page 43
MTD Price Return
3 Month Price Return
EFTA01476523
20 November 2015
US Equity Insights
Figure 77: Thematic plays — YTD total returns
-16%
-12%
-8%
-4%
0%
4%
8%
12%
Figure 78: Thematic plays, underlying sectors and baskets — YTD total returns
Cyclicals
YTD Total Returns
0.9%
Consumer Discretionary
Energy
Financials
Industrials
Materials
Defensives
Utilities
Telecommunication Services
Consumer Staples
Health Care
Information Technology
Domestic Cyclicals
Consumer Discretionary
Financials
DBUSDMST (US Domestic Strength) *
Global Cyclicals
Energy
Industrials
Value
DBUSCICG (Challenged Cap Goods) *
Information Technology
Energy
Materials
Financials
Cyclical Growth
Consumer Discretionary
Industrials
Secular Growth
Health Care
Information Technology
S&P 500 ex. Secular Growth
* Returns of stock baskets are price returns
** Equal-weighted total return
12.5%
EFTA01476524
-13.1%
1.1%
0.2%
-4.5%
3.0%
-6.1%
2.0%
3.7%
4.8%
8.2%
5.9%
12.5%
1.1%
-3.2%
0.9%
-13.1%
0.2%
-9.9%
-4.5%
8.2%
-3.6%
-13.1%
1.1%
6.8%
12.5%
0.2%
6.8%
4.8%
8.2%
1.0%
Credit vs. Commodity Play
Financials
Energy
Capex
Industrials
Energy Equipment & Services
Information Technology
DBUSBRTE (Reasonable PE Tech) *
Consumer
Consumer Discretionary
Consumer Staples
Dividend Growth
Financials
Information Technology
Dividend Yield (Bond Substitutes)
Utilities
Telecommunication Services
REITs
Consumer Staples
Share Buybacks
Consumer Discretionary
EFTA01476525
Information Technology
Industrials
Health Care
Repatriation Holiday Beneficiaries
Strong Dollar
No foreign sales (139 Cos) **
Small Cap vs. Large Cap
Russell 2000
S&P 500
DBUSHIFC (High Foreign Cash) *
High foreign sales (139 Cos) **
1.1%
-13.1%
4.7%
0.2%
-11.6%
8.2%
-10.1%
8.6%
12.5%
3.7%
4.9%
1.1%
8.2%
1.4%
-6.1%
2.0%
1.5%
3.7%
6.8%
12.5%
8.2%
0.2%
4.8%
3.7%
-0.8%
0.2%
-2.0%
3.0%
Page 44
Deutsche Bank Securities Inc.
EFTA01476526
20 November 2015
US Equity Insights
Figure 79: Historical sector performance
Beta > 1
Beta = 1
US Value
Credit Plays
Financials
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
EFTA01476527
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015 YTD
Financials
2.4%
48.7%
-14.4%
14.6%
2.6%
-5.6%
1.4%
2.0%
50.2%
-10.8%
6.4%
10.1%
32.3%
-5.9%
-35.1%
19.3%
35.5%
-8.9%
5.9%
18.2%
14.7%
11.4%
20.4%
14.8%
8.8%
41.7%
8.2%
-16.1%
18.0%
32.5%
-20.8%
49.1%
23.3%
10.6%
-3.5%
54.1%
35.2%
EFTA01476528
48.2%
11.4%
4.1%
25.7%
-9.0%
-14.6%
31.0%
10.9%
6.5%
19.2%
-18.6%
-55.3%
17.2%
12.1%
-17.1%
28.8%
35.6%
15.2%
1.1%
Global Value
Commodity Plays
Global Growth
Capex Plays
Energy Materials Industrials
Energy Materials Industrials
-4.4%
25.4%
-6.4%
31.6%
11.9% -10.5%
22.1%
26.7%
1.5%
-7.1% -16.9%
17.9%
22.0%
-24.1% -15.3%
17.5%
4.8%
22.2%
8.1%
-23.7% -22.3%
27.0%
36.5%
-3.4% -27.7%
9.2%
46.8%
62.2%
-20.2%
-6.8%
30.3%
EFTA01476529
25.0%
10.6%
18.8%
39.7%
15.9%
3.7%
31.0%
25.9%
25.3%
0.6%
18.7%
20.8%
22.5%
12.8%
23.6%
6.6%
11.0%
0.7%
14.1%
5.7%
41.1%
19.0%
3.8%
50.4%
23.5%
2.3%
1.9%
33.0%
19.8% -16.9%
22.3%
22.3%
19.3%
46.5%
19.3%
22.4%
2.9% -10.7%
6.9%
2.3%
25.5%
10.3%
13.5%
5.8%
20.0%
15.8%
8.4%
-6.2%
25.3%
15.7% -15.7%
-10.4%
-11.1%
25.6%
EFTA01476530
31.5%
31.4%
24.2%
34.4%
-34.9% -45.7%
13.8%
20.5%
4.7%
4.6%
25.1%
-7.8%
-13.1%
3.5%
-5.5%
38.2%
13.2%
4.4%
18.6%
22.5%
48.6%
22.2%
-9.8%
15.0%
25.6%
6.9%
-4.5%
-10.2%
18.7%
Tech
Tech
-15.9% -33.2%
25.6%
13.2%
38.1%
-20.8%
42.0%
16.8%
-28.8%
Consumer Growth
Consumer Plays
Con Disc
Cons. Disc.
33.1% -10.1%
47.6%
31.3%
2.4%
31.9%
73.8%
-0.1%
16.6%
EFTA01476531
17.2% -16.3%
23.0%
27.8%
23.7%
30.3%
40.7%
39.1%
19.3%
13.4%
19.0%
24.1%
54.1%
40.3%
-7.9%
15.9%
-9.2%
7.7%
1.7%
-1.3%
47.1%
Staples
33.6%
36.3%
13.6%
14.4%
9.6% -29.5%
33.9%
10.3%
-3.8%
16.2%
19.9%
11.5%
65.6%
29.0%
-9.4%
0.2%
3.2%
-4.5%
31.4%
16.4%
10.2%
14.6%
20.5%
20.2%
-9.3% -21.9% -17.2%
-9.8% -13.2% -14.5%
-1.5%
31.3%
63.7%
-9.9% -21.1%
-2.2%
EFTA01476532
27.2%
-5.0%
27.5%
12.7%
21.0%
12.4%
18.4%
-7.6%
29.5%
9.6%
18.6%
-2.4%
39.1%
25.1%
27.0%
10.9%
21.5%
-6.7%
-0.1%
79.0%
30.0%
5.1%
24.4%
20.2%
4.1%
37.5%
12.4%
3.0% -12.2%
9.1%
2.9%
21.7%
19.9%
39.4%
43.9%
28.5%
78.1%
78.7%
13.3%
12.0%
47.2%
2.6%
1.0%
8.4%
61.7%
10.2%
2.4%
40.7%
9.8%
0.2%
14.8%
28.4%
EFTA01476533
20.1%
8.2%
41.5%
19.7%
14.6%
-8.3%
20.3%
12.4%
34.4%
41.1%
5.9% -40.9% -20.0%
-5.7% -25.9%
-26.3% -37.4% -23.8%
32.2%
18.0%
2.3%
16.3% -13.2%
41.3%
27.7%
6.1%
23.9%
43.1%
9.7%
12.5%
2.8%
37.4%
13.2%
-6.4%
18.6%
38.2%
10.9%
-5.4%
7.2%
-0.3%
11.6%
14.4%
41.2%
14.7%
13.5%
44.6%
31.9%
13.8%
28.7%
49.4%
15.3%
41.7%
39.6%
25.9%
32.9%
15.8%
Growth
EFTA01476534
Health
Care
Staples Healthcare Utilities
Cons.
Utilities
7.3%
26.1%
-7.0% -17.6% -18.6%
30.9%
30.5%
5.3%
20.9%
16.5%
30.4%
0.1%
25.1%
8.6%
19.8%
29.0%
-2.7%
12.2%
15.6%
4.7%
-4.6%
-0.6%
5.5%
23.6% -11.3%
-2.7%
19.8%
32.4%
5.0%
-4.0%
-9.2%
12.0%
16.0%
24.0%
2.4%
18.5%
9.5%
15.3%
43.5%
38.1%
11.0%
12.4%
44.9%
17.3%
53.7%
5.3% -16.2%
-3.9%
9.8%
-8.2%
EFTA01476535
-7.9% -17.7%
-26.9% -36.5% -42.3% -28.8% -18.2%
25.4%
24.9%
42.9%
30.2%
8.1%
-3.7%
13.0%
14.0%
11.0%
24.5%
19.2%
28.1%
-2.5%
17.8%
45.8%
13.7%
13.7% -11.8%
58.0%
21.0%
43.7%
43.9%
25.2% -15.1% -10.7%
16.8%
37.1%
14.4%
14.2%
14.9%
14.1%
14.0%
10.8%
26.1%
16.0%
3.7%
15.1%
1.7%
6.5%
7.5%
7.2%
19.7%
2.9%
12.7%
17.9%
41.5%
25.3%
4.8%
32.7%
5.7%
24.7%
14.8%
-21.4%
EFTA01476536
-9.2%
26.3%
24.3%
16.8%
21.0%
19.4%
15.7%
2.2%
7.5%
Beta < 1
Low Beta Defensives
Domestic (Bond Subst.)
Telecom
Telecom S&P 500
0.0%
0.0%
0.0%
22.4%
0.9%
-8.0%
10yr Tsy
TR
0.3%
26.6%
-8.8%
22.5%
16.3%
12.3%
-5.8% -10.0%
-4.3%
10.0%
-3.6%
5.9%
-3.1%
23.9%
3.9%
4.1%
3.9%
1.6%
3.7%
0.7%
5.0%
23.7% -3.2%
10.8%
2.2%
-8.3% -5.5%
3.5% 18.4%
14.3% 11.1%
19.0%
0.5% -14.7%
-4.5% -26.5%
EFTA01476537
21.6%
32.3%
1.9%
7.6%
-5.6%
1.4%
34.0%
10.3%
13.4%
24.3% -66.3%
31.7%
35.7%
16.4%
7.8%
23.3%
61.8%
-0.6% -13.9%
23.9%
6.6%
13.2%
16.2%
15.1%
-4.8%
42.3%
1.1%
41.2%
52.4%
19.1%
57.2% -38.8%
7.1%
19.9%
-5.6%
36.8%
11.9%
8.9%
19.9%
1.3%
13.2%
29.0%
-6.1%
19.0%
6.3%
18.3%
11.5%
3.0%
2.0%
37.2%
2.3%
3.3%
3.9%
5.4%
EFTA01476538
23.9% 15.2%
-7.2%
0.4%
18.6%
6.6% -0.9%
1.8%
32.5% -1.6%
-4.9%
4.8%
21.5% 39.1%
22.6%
2.0%
6.3% 14.6%
31.7% 29.6%
18.7% 21.3%
5.3% -2.8%
6.8%
16.6%
31.7% 17.7%
-3.1%
7.6%
7.1%
0.0%
30.5% 18.8%
7.6%
10.1% 12.9%
1.3% -7.3%
37.6% 25.4%
23.0%
-6.4% -11.9% -30.4% -12.2% -11.9%
33.4% 11.9%
28.6% 14.6%
21.0% -7.9%
-9.1% 17.2%
5.4%
-4.3% -18.8% -30.0% -34.1% -22.1% 15.4%
11.6%
8.2%
3.6%
28.7%
10.9%
4.9%
15.8%
11.9%
5.5%
0.2%
4.5%
3.0%
2.2%
5.5% 10.4%
-39.9% -43.1% -33.5% -15.4% -22.8% -29.0% -30.5% -37.0% 20.5%
EFTA01476539
20.9%
26.7%
-0.6%
15.3%
26.5% -10.2%
15.1%
16.0%
7.9%
2.1% 16 1%
2.7%
32.4% -8.5%
13.7% 10.6%
3.0%
1.1%
Deutsche Bank Securities Inc.
Page 45
EFTA01476540
US Equity Insights
20 November 2015
Page 46
Deutsche Bank Securities Inc.
Figure 80: List of DB US Equity Strategy research notes
Research Title
Date
S&P should finish the year in black, but more red ahead for Energy
Amazing margins, but mind the GAAP
A structural slowing of Industrials: Investing around this late cycle risk
Don't pull the plug on Health Care
Corporate debt and Bank EPS outlook
Portfolio Health Advisory: Premature rotation into Energy & Industrials
Window for 2015 liftoff slams shut: Cut S&P 2015 end target to 2050
Debt ceiling showdowns: A new twist to the election cycle?
Fed delays: Less S&P upside for 2015
Stocks will leave hike decision to the Fed, but dollar likely gains either
way
First back to school assignment: Stress test 2016 S&P EPS estimates
Post correction: Better without the froth, but still real risks to monitor
Further downside for global cyclicals
Stretching to hit numbers? GAAP vs. non-GAAP S&P EPS spread widens
Secular growth shines as acceleration hopes fade
A chance to go away until Labor Day
Another "fish hook" earnings season
The Hulk vs. the Amazing Euro Hero: Has the Euro found bottom at $1.10?
Got your 2H sector strategy ready? Consider Utilities over regional Banks
Yellen keeps equities on bullish path
Bullish if dollar and yields settle here
Dear Fed, avoid 1994 by hiking in Sep
10 themes to watch this summer
S&P hits record high on 18 trailing PE, PE will be sensitive to Treasury
yields
What if Fed relents on hikes for 2015? A little EPS upside, but more PE risk
Ascent of S&P margins continues: 1096+ net margin survives Energy dip
Jobs suggest: Fed hikes, stronger $, low inflation, flatter curve still ahead
Midway 10 earnings season update: Barely clearing a low bar
Meet & Maintain is new Beat & Raise: Results/guides support $118 S&P EPS
What to expect for 10 and guidance? Burden on 2H for up 2015 S&P EPS
The many measures of S&P EPS
Banks are the last cheap stocks left: But what if the yield curve goes flat?
2015's S&P 500 tug-of-war intensifies: Dimmer EPS vs. brighter PE outlook
The Hulk flexes, S&P EPS shrinks
Is S&P ready for Fed hikes?: 10 FAQs
Reaching for small caps, selectively: Prefer small Retailers vs. small Banks
Tech Titans can overcome the Hulk
Why should investors look through it?
Repatriation holiday: Good step to a territorial system, but not a substitute
Finding Domestic S&P 500 stocks: Both Domestic Cyclicals & Defensives
US equity strategy 2015 Outlook
* Chartbook publications
EFTA01476541
Research Title
8-Nov-15 2015 S&P gains now PE expansion dependent
8-Nov-15 S&P 500 Industrial Capital Goods: High risk, low reward - we prefer
Tech
1-Nov-15 Seven Signs: 2 Red, 4 Yellow, 1 Green
23-Oct-15 The PE tug-of-war continues in 2015: Slow EPS growth vs. low bond
yields
16-Oct-15 2015 S&P Outlook: Better time for consumers, but tougher for
producers
12-Oct-15 What's a profit recession?
2-Oct-15 Happy Thanksgiving: US GDP vs. S&P
28-Sep-15 Macro trends favor Retailers over Industrial Capital Goods, so do
we
18-Sep-15 Dollar and oil snip S&P 4Q EPS
11-Sep-15 Slow growth, but strong payouts: Definitive dividend vs blurry
buybacks
4-Sep-15 Trick or treat? Skip the dark houses
25-Aug-15 Post-bounce strategy into yearend
21-Aug-15 Better time for consumers ahead, tougher time for producers
14-Aug-15 Dollar Hulk? A somewhat stronger greenback ok, but beware the beast
6-Aug-15 Midterm elections matter, but no reason for correction
19-Jul-15 Catching a falling knife?
12-Jul-15 PE expansion is rare as the Fed hikes
2-Jul-15 S&P EPS growth after the super-cycle
26-Jun-15 The Seven Signs: Interest Rates, Oil Prices & the Dollar *
21-Jun-15 2Q EPS finishes with S&P at its top
12-Jun-15 Good reasons to return to the top
5-Jun-15 Dog days of August: Heat from interest rate and geopolitical anxiety
29-May-15 Lo and behold: Participation rate ticks up, mitigating interest
rate risk
22-May-15 The pressure release valve gets stuck: Treasury yields climb as
stocks sell off
15-May-15 The Seven Signs: Has the climb in yields begun? *
10-May-15 2Q growth better, as expected, but leaves market PE driven
1-May-15 Thematic sector strategy update: OW Secular Growth sectors &
Financials
26-Apr-15 The hunt for sales growth
17-Apr-15 Help wanted: A participation spurt with reliable productivity
needed
12-Apr-15 2Q EPS: A moment of truth for EPS acceleration
2-Apr-15 The Golden Ratio: Real GDP / Inflation
27-Mar-15 Summer Flip-book *
22-Mar-15 S&P 500 Valuation: Sum of Sectors
13-Mar-15 S&P Valuation Chartbook - Snapshot at another record high *
9-Mar-15 Chasing in the summer: Is it worth it?
27-Feb-15 Standing on the shoulders of bonds
18-Feb-15 GDP is a deceptive denominator: Several popular charts improved
6-Feb-15 Bank those Energy gains
3-Feb-15 Yields are key to S&P PE & Styles: Watch Participation &
Productivity
EFTA01476542
30-Jan-15 Signature Charts *
2015 S&P Outlook: Better time for consumers, but tougher for producers
Date
25-Jan-15
18-Jan-15
13-Jan-15
11-Jan-15
15-Dec-14
5-Dec-14
26-Nov-14
21-Nov-14
14-Nov-14
7-Nov-14
31-Oct-14
26-Oct-14
19-Oct-14
10-Oct-14
9-Oct-14
26-Sep-14
19-Sep-14
12-Sep-14
11-Sep-14
24-Aug-14
15-Aug-14
8-Aug-14
1-Aug-14
1-Aug-14
31-Jul-14
25-Jul-14
18-Jul-14
13-Jul-14
2-Jul-14
30-Jun-14
20-Jun-14
18-Jun-14
13-Jun-14
13-Jun-14
6-Jun-14
30-May-14
22-May-14
16-May-14
11-May-14
9-May-14
15-Dec-14
EFTA01476543
20 November 2015
US Equity Insights
Appendix 1
Important Disclosures
Additional information available upon request
*Prices are current as of the end of the previous trading session unless
otherwise indicated and are sourced from
local exchanges via Reuters, Bloomberg and other vendors . Other information
is sourced from Deutsche Bank,
subject companies, and other sources. For disclosures pertaining to
recommendations or estimates made on
securities other than the primary subject of this research, please see the
most recently published company report or
visit our global disclosure look-up page on our website at http://gm.db.com/-
ger/disclosure/DisclosureDirectory.eqsr
Analyst Certification
The views expressed in this report accurately reflect the personal views of
the undersigned lead analyst(s). In addition,
the undersigned lead analyst(s) has not and will not receive any
compensation for providing a specific recommendation
or view in this report. David Bianco/Ju Wang/Winnie Nip
Equity rating key
Buy: Based on a current 12- month view of total
share-holder return (TSR = percentage change in
share price from current price to projected target price
plus pro-jected dividend yield ) , we recommend that
investors buy the stock.
Sell: Based on a current 12-month view of total shareholder
return, we recommend that investors sell the
stock
Hold: We take a neutral view on the stock 12-months
out and, based on this time horizon, do not
recommend either a Buy or Sell.
Notes:
1. Newly issued research recommendations and
target prices always supersede previously published
research.
2. Ratings definitions prior to 27 January, 2007 were:
Buy: Expected total return (including dividends)
of 10% or more over a 12-month period
Hold: Expected total return (including
dividends) between -10% and 10% over a 12month
period
Sell: Expected total return (including dividends)
of -10% or worse over a 12-month period
Equity rating dispersion and banking relationships
100
150
200
250
300
EFTA01476544
350
400
450
500
50
0
Buy
Companies Covered
Hold
50 %
54 %
41 %
2 %35 %
Sell
Cos. w/ Banking Relationship
North American Universe
48 %
Deutsche Bank Securities Inc.
Page 47
EFTA01476545
20 November 2015
US Equity Insights
Regulatory Disclosures
1.Important Additional Conflict Disclosures
Aside from within this report, important conflict disclosures can also be
found at https://gm.db.com/equities under the
"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to
review this information before investing.
2.Short-Term Trade Ideas
Deutsche Bank equity research analysts sometimes have shorter-term trade
ideas (known as SOLAR ideas) that are
consistent or inconsistent with Deutsche Bank's existing longer term
ratings. These trade ideas can be found at the
SOLAR link at http://gm.db.com.
Page 48
Deutsche Bank Securities Inc.
EFTA01476546
20 November 2015
US Equity Insights
Additional Information
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EFTA01476547
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Deutsche Bank Securities Inc.
Page 49
EFTA01476548
20 November 2015
US Equity Insights
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EFTA01476549
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Deutsche Bank Securities Inc.
EFTA01476550
20 November 2015
US Equity Insights
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EFTA01476551
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consent.
Please
cite
source
when
quoting.
17th Floor, 11372 Riyadh, Saudi Arabia.
information at
Deutsche Bank Securities Inc.
Page 51
EFTA01476552
David Folkerts-Landau
Chief Economist and Global Head of Research
Raj Hindocha
Global Chief Operating Officer
Research
Michael Spencer
Regional Head
Asia Pacific Research
International locations
Deutsche Bank AG
Deutsche Bank Place
Level 16
Corner of Hunter & Phillip Streets
Sydney, NSW 2000
Australia
Tel: (61) 2 8258 1234
Deutsche Bank AG London
1 Great Winchester Street
London EC2N 2EQ
United Kingdom
Tel: (44) 20 7545 8000
Deutsche Bank AG
Grote GallusstraRe 10-14
60272 Frankfurt am Main
Germany
Tel: (49) 69 910 00
Deutsche Bank Securities Inc.
60 Wall Street
New York, NY 10005
United States of America
Tel: (1) 212 250 2500
Deutsche Bank AG
Filiale Hongkong
International Commerce Centre,
1 Austin Road West,Kowloon,
Hong Kong
Tel: (852) 2203 8888
Deutsche Securities Inc.
2-11-1 Nagatacho
Sanno Park Tower
Chiyoda-ku, Tokyo 100-6171
Japan
Tel: (81) 3 5156 6770
Marcel Cassard
Global Head
FICC Research & Global Macro Economics
Ralf Hoffmann
Regional Head
Deutsche Bank Research, Germany
Steve Pollard
Global Head
EFTA01476553
Equity Research
Andreas Neubauer
Regional Head
Equity Research, Germany
GRCM2015PROD034913
EFTA01476554
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212 250-8169Phone
250-2300Phone
2502300Phone
258 1234Phone
415 617-3297Phone
545 8000SWIFT/BIC
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Bill Siegel email chain discussing 'The Control Factor' and anti‑Islamic conspiracy narrative
The passage is an internal email and interview transcript promoting a conspiratorial worldview about 'Islamic Enemy' and 'Civilization Jihad.' It mentions Jeffrey Epstein as a sender but provides no c Email originates from Jeffrey Epstein's address, but only contains a casual invitation and a link to Bill Siegel outlines a theory called the 'Control Factor' that frames Islam as a coordinated threa
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