EFTA01476303

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 david.bianco@db.com Winnie Nip Strategist (+1) 415 617-3297 winnie.nip@db.com S&P 500 Key Forecasts Price Ju Wang Strategist (+1) 212 250-7911 ju.wang@db.com 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) Source: Bloomberg Finance LP, Deutsche Bank EUR/USD (rhs) Figure 2: Oil prices (1st month futures) 105 115 125 EFTA01476307 35 45 55 65 75 85 95 WTI Source: Bloomberg Finance LP, Deutsche Bank 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 $80 Dec 2015 Dec 2016 Source: Bloomberg Finance LP, Deutsche Bank Dec 2017 Dec 2018 Dec 2015 Dec 2016 Source: Bloomberg Finance LP, Deutsche Bank Dec 2017 Dec 2018 Figure 5: Weak oil prices: Industry impact spectrum Detriment Benefit Energy Industrial Cap Gds Machinery Materials Metals & Mining, mixed for Chems Utilities MLPs Rails Based on observed EPS history and DB estimates, oil prices have no material influence on Health Care or Telecom Source: Deutsche Bank Tech Financials REITs Cons. Disc. Retailers Cons. Staples Transports Packaged Food Airlines/Trucking Page 2 Deutsche Bank Securities Inc. Front Month Futures ($/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 Source: Deutsche Bank 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 Source: Deutsche Bank 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 Source: Deutsche Bank Markets Research 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% $119 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 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 Source: Deutsche Bank 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 - 2014 shown below is aggregate net income, 2014 y/y is EPS growth: 55.6 2,354 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 Source: Deutsche Bank, IBES 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 82,431 114,789 105,211 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 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% 115.5 5,384 4.4% 702 -0.4% 545 14.8% 755 7.5% 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 Source: Deutsche Bank, IBES 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 6.8% 845 23.4% 4,289 6.9% 5,757 0.6% 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% 37,500 100% 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% 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 Source: Deutsche Bank, IBES 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% $44 7% 34% 35% 31.5 26% 34% 26% 22% 23% 25% 27% 31% 34.6 10% 38.1 10% 30% 31% 44.0 54% 46% 43% 44% 45% 48% 49% 51% 45.3 3% 47.3 4% 53% 54% 34.6 17% 16% 38% 26% 21% 26% 31% 31% 29.3 -15% 23.4 -20% 65% 45% 51.9 43% -274% 36% 16% 23% 23% 24% 27% 58.9 13% 66.7 13% 27% 29% 37.7 29% 30% 27% 30% 27% 33% 31% 28% 44.8 19% 49.5 10% 29% 30% 37.9 33% 39% 46% 32% 31% 32% 33% 33% 39.1 3% 40.9 5% 34% 35% 50.3 12% 14% 17% 13% 14% 18% 25% 24% 60.8 21% 69.3 14% 27% 29% EFTA01476353 12.1 32% 39% 47% 29% 29% 36% 41% 37% 11.8 -3% 12.0 2% 39% 37% 21.5 60% 63% 81% 81% 90% 84% 76% 70% 23.5 9% 23.7 1% 70% 73% 19.6 50% 50% 53% 53% 55% 61% 63% 59% 20.7 6% 21.7 5% 62% 63% 176.3 200.7 232.1 232.2 189.4 208.9 239.9 278.4 316.6 341.2 31% 39% 35% 27% 27% 30% 32% 33% 368.7 8% 392.7 6% 34% 35% 128.3 146.5 170.9 177.7 169.0 188.2 210.0 241.6 272.0 289.3 28% 38% 39% 30% 30% 32% 34% 35% 309.9 7% 326.0 5% 37% 37% 58.3 92.6 102.3 29% 70% 23% 15% 18% 20% 24% 26% 119.6 17% 136.0 14% 27% 29% 118.0 134.3 156.0 161.1 151.4 167.8 184.9 208.1 224.0 239.0 31% 47% 46% 36% 35% 37% 37% 38% 249.1 4% 256.7 3% 41% 40% 19.0 72% NM NM 7% 24% 20% 21% 28% 23.3 22% 27.4 18% 25% 28% 31.7 5.3 3.7 16.2 Dividends Y/Y 2016 Y/Y Payout (%) 2015 2016 Figure 13: S&P fair valuation by sector — we still see 5% downside to Energy Market Value ($bn) Consumer Discretionary Consumer Staples Energy Financials Banks Health Care Industrials Information Technology Materials Telecom Utilities S&P 500 ($ bn) S&P 500 Index ($/sh) Source: Deutsche Bank, IBES 2,433 1,762 1,281 3,044 1,127 2,628 1,930 3,939 543 423 EFTA01476354 526 18,508 2081.24 17.5 Current 2015 PE 21.1 20.6 28.5 14.0 12.1 17.0 16.8 17.5 17.9 12.6 15.7 2015E Earnings ($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) Source: Census, ISM, IBES, Deutsche Bank Core Capital Goods Shipment (3m avg, y/y) New Orders Source: Census, Deutsche Bank 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 Source: IBES, Deutsche Bank 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 Source: IBES, Deutsche Bank 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 Source: Gartner, Deutsche Bank (October 2015) 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 Source: IBES, Deutsche Bank 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) Source: Linear Technology, Deutsche Bank estimates Source: Company data, Deutsche Bank estimates 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) Source: IBES, Compustat, Deutsche Bank 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% Source: S&P, BEA, Deutsche Bank 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 Source: BEA, Deutsche Bank 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% Source: BEA, Deutsche Bank 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% Source: Company reports, Deutsche Bank Source: BEA, Deutsche Bank 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 Source: Clarifi/Compustat, Deutsche Bank Source: Bloomberg Finance LP, Deutsche Bank 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 Source: IBES, Deutsche Bank Source: IBES, Deutsche Bank 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 Source: Deutsche Bank, IBES 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 EFTA01476381 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 Source: Deutsche Bank, Compustat, IBES Source: Deutsche Bank, IBES 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) Source: BLS, Deutsche Bank 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) Source: BLS, FRB, Deutsche Bank Deutsche Bank Securities Inc. Page 15 1960 1963 EFTA01476383 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 EFTA01476384 2012 2015 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3012 1013 3013 1014 3014 1015 3015 EFTA01476385 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 Source: BLS, Deutsche Bank 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) Source: FRB, IBES, Deutsche Bank Figure 39: Higher overnight rates: Financials industries benefit spectrum Most Least Online Brokers Trust Banks Asset Managers Source: Deutsche Bank 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 EFTA01476388 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 ($/sh) 2,433 1,762 1,281 3,044 1,127 2,628 1,930 3,939 543 423 526 18,508 2081.24 Source: Deutsche Bank, IBES 17.5 Current 2015 PE 21.1 20.6 28.5 14.0 12.1 17.0 16.8 17.5 EFTA01476389 17.9 12.6 15.7 2015E Earnings ($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 ($bn) 2,177 1,616 1,152 2,982 1,226 2,857 1,756 3,866 453 513 602 17,974 1996.4 2015E Dividend Yield 1.4% 2.6% 2.3% 1.9% 2.1% 1.7% EFTA01476392 2.0% 1.5% 2.2% 5.5% 3.9% 2.0% 2.0% 2015 End Fair Value ($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% Source: Deutsche Bank, S&P, IBES 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 EFTA01476394 2005 2008 2011 2014 EFTA01476395 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.) Source: Deutsche Bank $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. Page 18 Deutsche Bank Securities Inc. EFTA01476397 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 year EPS must be considered cyclically peaked. It is not enough for EPS to merely grow; in order to be considered normal or sustainable, EPS must grow at a rate that yields a return equal to the cost of equity on any additionally retained EPS. Let us explain further using our S&P 500 EPS estimates. Although our 2015E S&P 500 EPS is $119, we think $122 better represents normalized S&P 500 EPS for 2015. Apart from Energy and Managed Health Care, we think 2015 earnings generally represent normal mid-cycle earning for most sectors. We think Energy is under earnings in 2015 and parts of Health Care and some other industries over earnings. We think Managed Health Care (HMOs) profits could drift lower on higher industry taxes, limits to premium hikes and the mix of new enrollees weighted towards elderly or with pre- existing conditions. Our $122 normalized EPS estimate for 2015 captures the outlook 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 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. EFTA01476399 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. EFTA01476401 US Equity Insights 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 EFTA01476402 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 Source: Deutsche Bank 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 EFTA01476403 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% EFTA01476404 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 Source: S&P, Deutsche Bank 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 Source: S&P, Deutsche Bank 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. EFTA01476405 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 EFTA01476406 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 Source: S&P, Deutsche Bank 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 (%) Source: Deutsche Bank 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 EFTA01476408 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 EFTA01476409 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% Source: Deutsche Bank, S&P, IBES 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 Source: Deutsche Bank, IBES, S&P 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 EFTA01476411 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Subsequent 10yr rolling EPS growth >196 EFTA01476412 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) Source: I/B/E/S, S&P, Deutsche Bank 10 15 20 25 30 35 5 5 25% S&P 500 Trailing PE (rhs) 30% 35% Source: I/B/E/S, S&P, Deutsche Bank 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 EFTA01476413 1980 1985 1990 1995 2000 2005 2010 S&P 500 Trailing PE EFTA01476414 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 EFTA01476415 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 EFTA01476416 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% Source: Deutsche Bank EFTA01476417 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 EFTA01476419 20 November 2015 US Equity Insights high foreign currency sales, they demonstrated that the stronger dollar didn't hurt margins much despite a significant hit to sales as foreign currency revenue and costs were fairly well aligned. Energy margins were 5.4% in 3Q and flattish from 1H, but much lower than the 8%+ before the oil price plummet. Figure 53: Summary statistics on 3Q 2015 EPS reporting % 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 Technology Materials Telecommunication Services Utilities Source: IBES, Deutsche Bank 3Q15 Summary (Based on reported companies) 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 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 EFTA01476422 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 Source: IBES, Deutsche Bank Source: IBES, Deutsche Bank 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 EFTA01476424 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% Source: IBES, Deutsche Bank Source: IBES, Deutsche Bank EFTA01476425 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 Source: IBES, Deutsche Bank Source: IBES, Deutsche Bank 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 EFTA01476427 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 EFTA01476428 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% -0.2% 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 Source: IBES, Deutsche Bank 1Q11 9.7% 9.3% 9.9% 8.6% 9.4% 9.2% 6.5% 4.9% 6.6% 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% 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. 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. Source: Deutsche Bank, IBES 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 Source: Deutsche Bank, IBES, Company data 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 y/y % 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% 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 Source: FRB, Bloomberg Finance LP, I/B/E/S, Deutsche Bank 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 Source: Deutsche Bank Markets Research 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 $4.1bn during last week" published on May 27 2015. Click here for complete report Source: Deutsche Bank Page 36 Deutsche Bank Securities Inc. EFTA01476469 US Equity Insights 20 November 2015 Deutsche Bank Securities Inc. Page 37 Figure 66: S&P 500 Annual EPS Outlook and PE (based on current constituents in the index unless specified) EPS Y/Y 2005A S&P 500 EPS (historical index) S&P 500 EPS (current constituents) Sector ($ 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% $119 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 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. Source: Company reports, First Call, Deutsche Bank Markets Research 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 $160 2015 2009 2008 2012 2013 2014 2011 2010 2016 Source: I/B/E/S and Deutsche Bank Markets Research EFTA01476491 US Equity Insights 20 November 2015 Deutsche Bank Securities Inc. Page 39 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 EFTA01476492 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 EFTA01476493 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 EFTA01476494 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 Figure 68: Sales revisions — The % below shows the change in 2015 consensus estimate since July end Cons. Disc. ($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 Source: I/B/E/S and Deutsche Bank Markets Research 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 Source: Deutsche Bank, Compustat, Thomson Reuters *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 Source: Deutsche Bank, Compustat, Thomson Reuters 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 Source: Deutsche Bank, Thomson Reuters 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% Source: Deutsche Bank, Thomson Reuters -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% Source: Deutsche Bank, Thomson Reuters 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 Source: Deutsche Bank, Thomson Reuters, Bloomberg Finance LP 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% Source: Deutsche Bank, Thomson Reuters, Bloomberg Finance LP -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% Source: Deutsche Bank, Thomson Reuters, Bloomberg Finance LP -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% Source: S&P, Deutsche Bank, Thomson Reuters, Bloomberg Finance LP 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 Source: S&P, Deutsche Bank, Thomson Reuters, Bloomberg Finance LP 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% Source: Deutsche Bank, Haver Analytics, Thomson Reuters -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% -21.4% 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% 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 Source: Deutsche Bank 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 The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). 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Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor's home jurisdiction. United States: Approved and/or distributed by Deutsche Bank Securities Incorporated, a member of FINRA, NFA and SIPC. Non-U.S. analysts may not be associated persons of Deutsche Bank Securities Incorporated and therefore may not be subject to FINRA regulations concerning communications with subject company, public appearances and securities held by the analysts. Germany: Approved and/or distributed by Deutsche Bank AG, a joint stock corporation with limited liability incorporated in the Federal Republic of Germany with its principal office in Frankfurt am Main. Deutsche Bank AG is authorized under German Banking Law (competent authority: European Central Bank) and is subject to supervision by the European Central Bank and by BaFin, Germany's Federal Financial Supervisory Authority. 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Commissions and risks involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. We may also charge commissions and fees for certain categories of investment advice, products and services. Recommended investment strategies, products and services carry the risk of losses to principal and other losses as a result of changes in market and/- or economic trends, and/or fluctuations in market value. Before deciding on the purchase of financial products and/or services, customers should carefully read the Page 50 Deutsche Bank Securities Inc. EFTA01476550 20 November 2015 US Equity Insights relevant disclosures, prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the name of the entity. Reports on Japanese listed companies not written by analysts of DSI are written by Deutsche Bank Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are not disclosed according to the Financial Instruments and Exchange Law of Japan. Malaysia: Deutsche Bank AG and/or its affiliate(s) may maintain positions in the securities referred to herein and may from time to time offer those securities for purchase or may have an interest to purchase such securities. Deutsche Bank may engage in transactions in a manner inconsistent with the views discussed herein. Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre Regulatory Authority. 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