Electrical Equipment & Multi-Industry Marketing Deck March 2017

Transcription

1 March 20, :00 PM GMT Electrical Equipment & Multi-Industry Marketing Deck March 2017 M O R G A N S T A N L E Y R E S E A R C H North America Nigel Coe, CFA Nigel.Coe@morganstanley.com +1 (1) Jiayan Zhou, CFA Jiayan.Zhou@morganstanley.com +1 (1) Sawyer Rice Sawyer.Rice@morganstanley.com +1 (1) Jonathan Morales Jonathan.Morales@morganstanley.com +1 (1) Source: Shutterstock Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.

2 Morgan Stanley EE/MI Universe Trading Comps (March 17, 2017)* Rating Price Market Cap Ent. Value Price Target % Upside Div. Yield EV/Sales EV/EBITDA Price/FCF P/E E 2018E E 2018E E 2018E E 2018E E 2017E* General Electric , , % 3.3% 3.4% 3.5% M UW , , % 2.1% 2.3% 2.4% 2.5% United Technologies OW , , % 2.2% 2.2% 2.4% 2.7% Honeywell OW , , % 1.7% 1.9% 2.1% 2.4% Illinois Tool Works EW ,958 52, % 1.5% 1.7% 1.8% 1.9% Emerson Electric EW ,091 39, % 3.1% 3.1% 3.2% 3.3% Johnson Controls OW ,398 53, % 2.3% 1.9% 1.5% 2.5% (29.0) Eaton OW ,857 40, % 3.0% 3.1% 3.3% 3.4% Large Caps 720, ,055 6% 2.2% 2.3% 2.4% 2.6% Stanley Black & Decker EW ,045 22, % 1.6% 1.7% 1.9% 2.0% Ingersoll Rand OW ,018 23, % 1.4% 1.7% 2.0% 2.2% Fortive OW ,615 23, % 0.0% 0.2% 0.5% 0.5% Rockwell Automation EW ,060 19, % 1.7% 1.9% 1.6% 2.2% Ametek EW ,463 14, % 0.7% 0.7% 0.7% 0.7% Dover EW ,394 15, % 2.1% 2.2% 2.3% 2.6% Pentair EW ,428 15, % 2.0% 2.1% 2.3% 2.5% Hubbell OW ,671 7, % 1.9% 2.2% 2.4% 2.6% Lennox UW ,394 8, % 0.8% 0.9% 1.1% 1.3% Regal-Beloit EW ,370 4, % 1.2% 1.3% 1.3% 1.4% SPX Flow EW ,405 2, % 0.0% 0.0% 0.0% 0.8% (19.1) SMID Caps 136, ,327 3% 1.4% 1.7% 1.6% 2.0% Grainger UW ,326 16, % 1.9% 2.1% 2.4% 2.5% Fastenal EW ,004 15, % 2.2% 2.3% 2.5% 2.6% HD Supply OW ,428 12, % 0.0% 0.0% 0.0% 0.0% Watsco UW ,491 5, % 1.9% 2.3% 2.6% 2.9% WESCO EW ,401 4, % 0.0% 0.0% 0.0% 0.0% Distributors 45,649 54,248 3% 1.9% 2.1% 2.4% 2.5% MS MI/EE Universe 903,399 1,014,630 4% 1.8% 1.9% 2.1% 2.4% Stock rating and price target for this company have been removed from consideration in this report because, under applicable law and/or Morgan Stanley policy, Morgan Stanley may be precluded from issuing such information with respect to this company at this time. Source: Thomson Reuters, Morgan Stanley Research E = Morgan Stanley Research estimates; All multiples are on calendar year basis; GE EV-multiples exclude GE Capital * GE EV/Sales, EV/EBITDA and P/FCF is adjusted to exclude GE Capital; ^2016E PE Ex-Amortization 2

3 Morgan Stanley EE/MI Recommendation and Price Targets Stock Symbol Rating Price Price Target % Upside Bull Case % Upside Bear Case % Downside Johnson Controls JCI Overweight % 64 52% 27-36% HD Supply HDS Overweight % 60 44% 29-31% Eaton ETN Overweight % 92 26% 42-43% Hubbell HUBB Overweight % % 69-43% Ingersoll Rand IR Overweight % % 44-46% Honeywell HON Overweight % % 79-38% United Technologies UTX Overweight % % 77-32% Fortive FTV Overweight % 79 33% 41-31% Median Overweight 11% 30% -37% SPX FLOW FLOW Equal-Weight % 55 66% 16-52% WESCO WCC Equal-Weight % 98 40% 40-43% Dover DOV Equal-Weight % 99 24% 47-41% Ametek AME Equal-Weight % 71 31% 40-26% Emerson Electric EMR Equal-Weight % 84 39% 38-37% Pentair PNR Equal-Weight % 82 30% 43-32% Regal-Beloit RBC Equal-Weight % % 47-38% Fastenal FAST Equal-Weight % 64 23% 35-33% Rockwell Automation ROK Equal-Weight % % 75-52% Stanley Black & Decker SWK Equal-Weight % 140 7% 73-44% Illinois Tool Works ITW Equal-Weight % % 79-42% Median Equal-Weight 3% 28% -39% Watsco WSO Underweight % % 75-49% Grainger GWW Underweight % % % Lennox International LII Underweight % % 87-49% 3M MMM Underweight % 209 9% % Median Underweight -7% 26% -44% EE/MI Median 4% 30% -38% EE/MI Average 5% 31% -38% Source: Thomson Reuters, Morgan Stanley Research; as of March 17, For valuation methodology and risks associated with any price targets above, please morganstanley.research@morganstanley.com with a request for valuation methodology and risks on a particular stock. 3

4 Where Are We in The Cycle? 4

5 Where Are We in The Cycle? We have officially exited the global industrial recession that we saw during Specifically, we saw weighted Global Industrial Production accelerate to +0.7% Y/Y in 4Q16 vs. -0.3% in 3Q16, with growth inflecting positive after 12 consecutive months in the red. The US has rallied from mid-2015 toughs. Similar to the global index, we saw US IP inflect positive in December to +0.7% Y/Y before decelerating to flattish in January. This industrial acceleration is reinforced by our Cap Goods Momentum Index, which has stabilized well above 50 in recent months, suggesting industrial expansion. Specifically, strength in our CAPMI index has been lead by the US, which continues to show the strongest momentum among the major blocs. As such, while the US had been in a manufacturing stall for the past two years (with output falling ~4.4% below trend), we now believe we are ~9 months off the trough and in a modest expansionary environment. Turning to the rest of the world, we continue to see choppy growth in Europe (+1.9% Y/Y in 4Q decelerating to +0.5% in Jan), China appears to have stabilized at ~6% IP growth, and Brazil inflecting positive (up 0.4% Y/Y in January) after over two years of declines. Again, this is reinforced by our CAPMI index, where both Europe and APAC appear to have stabilized in modest expansionary terrority while we are seeing strong momentum in global indicators. Source: Morgan Stanley Research 5

6 Where Are We in The Cycle? We saw +0.7% Y/Y growth in weighted global Industrial Production* during 4Q16 (vs. -0.3% in 3Q16), with growth returning to positive territory in November after 12 consecutive months negative. US Industrial Production growth inflected positive in 4Q, up 0.7% in December, before decelerating to flattish in January. Source: Thomson Reuters, Company Data, Morgan Stanley Research 6

7 Where Are We in The Cycle? Eurozone Industrial Production has seen modestly positive growth north of 1%. 4Q saw growth averaging ~1.9% Y/Y, however we saw a deceleration to just +0.5% in January, notably on a tough comp (Jan '16 up 3.7%). China Industrial Production has found stability of late just north of 6.0% in 4Q, and settling at 6% in January. Source: Thomson Reuters, Company Data, Morgan Stanley Research 7

8 Where Are We in The Cycle? As comps have continued to ease, industrial output in Brazil is showing tentative signs of stability, with modest upward acceleration to +0.4% Y/Y in January. This compares to down 2.6% on average in 4Q. Looking forward, our global Cap Goods momentum index, CAPMI, was up M/M in February at 56 - marking a modest increase from the 55 January reading and continues the momentum that started in early It suggests to us that we should see a continuation of the momentum seen in recent months. Source: Thomson Reuters, Company Data, Morgan Stanley Research 8

9 Where Are We in The Cycle? Within the CAPMI mix, the US continues to show the strongest momentum among the major blocs. Europe and APAC appear to have stabilized in modest expansionary territory. We are seeing strong momentum in global indicators. Another supportive data point comes from the Morgan Stanley Global Trade Leading Indicator. This index rose to 0.89 in February from 0.78 previously, this marks the highest point in the indicator since January 2010 and the fourth highest point on record. Source: Thomson Reuters, Company Data, Morgan Stanley Research 9

10 Where Are We in The Cycle? The Morgan Stanley composite US Capex Plans Index climbed 1.7 points to 24.6 in February, marking a post recession high. However, we note that while the recent surge in the index is promising, actual capital spending will depend largely on the outlook for fiscal and regulatory policy. Our inventory tracker suggests inventories were down sequentially at 15.3% of sales compared to 15.9% in 3Q16. The 60bps decline was greater than the 10-year sequential average of 20bps and suggests that channel headwinds should subside as we move through Source: Thomson Reuters, Company Data, Morgan Stanley Research 10

11 Where Are We in The Cycle? Net/net we saw the peak of the last US Industrial cycle in December 2014, followed by 19 months of modest IP contraction. However, it appears we have emerged from the slight downturn and are the early innings of a new Industrial Production cycle that began in May Source: Thomson Reuters, Company Data, Morgan Stanley Research 11

12 Where Are We in The Cycle? Comparing US output to its long term trend line: we have seen manufacturing IP stall for the past 2 years on strong USD, O&G capex contraction and inventory correction. As such, industrial output is running 4.4% below trend - this compares to 5-10% seen at similar cycle downturns - this suggests a solid foundation for acceleration. Europe has been weaker for longer, as growth in the region had been plagued by continuous financial crises. More recently, we have seen industrial growth begin to reaccelerate albeit with significant political uncertainty. We see EU output 11.5% below trend and 6.5% below the peak level reached in Source: Thomson Reuters, Company Data, Morgan Stanley Research 12

13 Where Are We in The Cycle? Turning to Capacity, we've seen utilization stabilize at around 75% (75.3% in January). This is off ~3.5ppts from late 2014 peaks, and suggests that recovery in equipment spending could be somewhat muted until we reach 78-80% range. Within Europe, we've seen continued strength in capacity utilization, with the region ticking up to 82.5% in 1Q17. This marks the highest utilization since pre-recession levels. Source: Thomson Reuters, Company Data, Morgan Stanley Research 13

14 Where Are We in The Cycle? By industry, Oil & Gas Extraction operates at the highest utilization levels, followed by Electrical Equipment and Automobiles. On the other hand, Primarily Metals, Machinery, and Chemicals are operating at the lowest utilization rates. Looking at current utilization vs. 10Y averages, we see Automobiles and Transportation Equipment operating at above trend utilization levels, while Natural Gas Distribution, Power Generation & T&D, and Electrical Gas Utilities are ~7ppts below trend. Source: Thomson Reuters, Company Data, Morgan Stanley Research 14

15 Where Are We in The Cycle? We have seen total equipment investment stabilize recently at ~$730bn. However, as a percentage of GDP, we've seen total business investment decline from a peak of ~4.4% in 3Q14 to 3.5% in 4Q16. We've seen a less exaggerated decline when we exclude Oil & Gas investment. Spending has stabilized at ~$660bn. However we saw spending ex-o&g as a percentage of GDP peak at just 3.71% in 3Q15 before declining to 3.5% in 4Q16. Source: Thomson Reuters, Company Data, Morgan Stanley Research 15

16 Where Are We in The Cycle? US non-residential construction expenditure grew 5% in 2016 and is now close to levels reached back in 2008 when the market peaked. However, at 3.7% of GDP, spending levels are still slightly below 3.9% mid-cycle levels. Residential construction expenditure grew 8% in 2016 and has reached levels last seen around the peak of the cycle in However, as a ratio of GDP, spending is very much in line with cross-cycle averages at 2.5% of GDP. Source: Thomson Reuters, Company Data, Morgan Stanley Research 16

17 Capex Update 17

18 Capex Update The capex outlook for 2017 appears to be improving. We've updated our Bottom Up Capex Tracker, as more companies have provided guidance for We now have capex guidance from 177 companies (up from 113 in December). Based on this subset, the median end market outlook now calls for 3.6% growth in capex. Additionally, when we weight to account for the size of each end market, capex is looking to be up 3.7%, given a strong recovery in Oil & Gas (+9.2%). Conversely, we continue to see declines expected in Rails (-8%), Diversified Industrials (-6%), Electric Utilities (-3%), and Food & Staples Retailing (-2%). Since December, we've seen capex assumptions increase 6ppts at the median and 9ppts on a sum-weighted basis. Specifically, we view this as a positive read for O&G, Chemicals, Metals and Mining, and Semiconductor end markets. Conversely, we believe this Capex Tracker update screens negative for Airlines, Food & Beverage, and Food & Staples Retailing companies. Notably within O&G, we saw improved capex across all verticals, with Integrated (+20ppts), Midstream (+16ppts), E&P (+10ppts), and Refining (+4ppts) up significantly since December. Looking beyond 2017, our top-down capex analysis suggests upside in capital spending over the next two years. We have rolled forward our proprietary top-down global capex analysis to now include actual capital spend in 2016 and forecasts for sales growth through We now see upside across the broad Cap Goods space to mid-cycle capex levels - 7% on a weightedaverage basis and a 8% median across all end markets. Since 2017 is seen as flattish, this suggests that 2018 is a year of recovery in spending. The outlook by end market is bifurcated, with Airlines, Chemicals, and Semiconductors looking the most challenged, while Water/Wastewater, Oil & Gas, and Food & Staples Retailing are the end markets where we see the highest growth potential. Source: Morgan Stanley Research 18

19 Capex Update We've updated our Bottom Up Capex Tracker, as more companies have provided guidance for We now have capex guidance from 177 companies (up from 113 in December). Based on this subset, the median end market outlook now calls for 3.6% growth in capex. Additionally, when we weight to account for the size of each end market, capex is looking to be up 3.7%, given a strong recovery in Oil & Gas (+9.2%). Conversely, we continue to see declines expected in Rails (- 8%), Diversified Industrials (-6%), Electric Utilities (-3%), and Food & Staples Retailing (-2%). Source: Company Data/Commentary, Thomson Reuters, Morgan Stanley Research; Note Machinery, O&G - Refining & Marketing, Health Care Facilities and Rail are small sample sizes (<5 companies). 19

20 Capex Update Since December, we've seen capex assumptions increase 6ppts at the median and 9ppts on a sum-weighted basis - primarily due to new guidance, rather than updates on previous issued guidance. Companies who have more recently issued guidance likely have better visibility into 2017 trends - a positive read for O&G, Chemicals, Metals and Mining, and Semiconductor end markets. Conversely, we believe this Capex Tracker update screens negative for Airlines, Food & Beverage, and Food & Staples Retailing companies. Notably within O&G, we saw improved capex across all verticals, with Integrated (+20ppts), Midstream (+16ppts), E&P (+10ppts), and Refining (+4ppts) up significantly since December. Source: Company Data/Commentary, Thomson Reuters, Morgan Stanley Research 20

21 Capex Update Overall global capital intensity (capex/sales) appears to be improving, with 2016 standing ~30bps above mid-cycle levels. However, by 2018, we expect to see more upside than downside to mid-cycle levels in most end markets, as sales improve faster than capex spending. Specifically, we see the most upside to Water/Wastewater, Oil & Gas, and Food & Staples Retailing markets. Source: Morgan Stanley Research 21

22 Capex Update The outlook by end market is bifurcated, with Airlines, Chemicals, and Semiconductors looking the most challenged, while Water/Wastewater, Food & Staples Retailing, and Oil & Gas are the end markets where we see the highest growth potential. Source: Morgan Stanley Research 22

23 Taking Stock of Global Inventories De-stocking Over 23

24 Taking Stock of Global Inventories - De-stocking Over EE/MI Weekly v264: Our latest deep-dive on global inventories leads us to call for the end of the de-stocking cycle and that this has been a factor behind recent acceleration. We prefer to play via discounted beta where we find ETN most attractive. This week we return to the subject of inventories. We have been highlighting excess inventories as a problem since the beginning of 2015, however it appears inventory levels have normalized toward long-term rates across most end markets. As such we no longer view inventories as a meaningful headwind to recovering demand - in fact we could see some tailwinds emerge in certain end markets. We look at inventories through multiple lenses. First at the global level, we note that inventories decreased by 60bps as a percentage of sales Q/Q during 4Q16 and while this is directionally consistent with normal seasonality (-30bps in 4Q on average), inventories have moved to their lowest levels since 1Q15. By end market, we saw declines across every vertical and we now only see Chemicals, Machinery, Mining, and Semiconductors as above long-term levels. On the other hand, we've seen significant reductions in US Big Box and EEMI markets, which are now both meaningfully below historical norms. Source: Morgan Stanley Research 24

25 Taking Stock of Global Inventories - De-stocking Over Switching to the US and the ISM report suggests that inventory levels are now seen as too low and are now modestly expanding. That is a similar message we've seen in recent Durables Goods reports where we saw absolute and inventory/sales levels decline through 4Q before returning to normalized trends in January. As such, we've seen days on hand come down to ~1.66 months (vs. ~1.7 months in 3Q). Notably, this is still slightly elevated vs. cross-cycle average, however as we see growth accelerate, this should normalize. By end market, we view inventory levels in O&G, Autos, and Appliances as elevated vs. trend while Turbines, HVAC, and Comm'l Aero appear to be at more normalized levels. Bottom line, we believe that the inventory pressure point has now subsided for the majority of industries and this is one of the reasons for the acceleration that we have been seeing in short cycle markets. While our work suggests that there is still some excess inventories to work through in Heavy Industry markets, we believe that we are over the heavy lifting in Mining and Construction Equipment markets and this is where we could see the most meaningful acceleration in demand, through While we highlight specific end market exposures by stock through the note, we prefer to play re-balancing inventories through reasonably priced short cycle names, where ETN is our preferred pick. Source: Morgan Stanley Research 25

26 Taking Stock of Global Inventories - De-stocking Over Inventories were down sequentially at 15.3% of sales compared to 15.9% in 3Q16. The 60bps decline was greater than the 10-year sequential average of 20bps Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 26

27 Taking Stock of Global Inventories - De-stocking Over Inventories were down sequentially at 15.3% of sales compared to 15.9% in 3Q16. The 60bps decline was below the 10-year 4Q sequential average (30bps decline). Across sub-sectors, inventory trends Q/Q declined ranging from -10bps to -1.2ppts, in their respective inventory to sales ratios. Source: Company data, Morgan Stanley Research 27

28 Taking Stock of Global Inventories - De-stocking Over M O R G A N S T A N L E Y R E S E A R C H Airline Inventory/Sales were down 20bps Q/Q, below 4Q historical sequential trends. Airline inventories remain lean relative to broadly consistent sales growth and so limited movements in the Inventory/Sales ratio are not entirely unexpected. With MSe RPK growth of 6.4% and 6.5% in March and April, respectively, low inventory levels bode well for A&D aftermarket suppliers. Companies most levered to the aerospace aftermarket in our group include UTX, HON, GE, AME and ETN. Airline Inventory/Sales Ratio Airline Inventory/Sales Q/Q Change Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 28

29 Taking Stock of Global Inventories - De-stocking Over M O R G A N S T A N L E Y R E S E A R C H Automotive Inventory/Sales declined 70bps sequentially, below normal seasonality by -20bps. 4Q Auto inventory/sales dipped below long-term averages coming off recent highs from 2Q16 when the ratio hit its highest levels since late Looking ahead, February U.S. auto sales fell slightly, but remained strong as pickup trucks and SUVs continued a robust showing. ITW, Eaton and Honeywell are most levered to auto in our universe, while Rockwell Automation is driven more by OEM capital expenditures. Automotive Inventory/Sales Automotive Inventory/Sales Q/Q Change Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 29

30 Taking Stock of Global Inventories - De-stocking Over M O R G A N S T A N L E Y R E S E A R C H Chemicals Inventory/Sales were down 80bps sequentially, well below the long-term sequential trend of 10bps and taking inventory levels into balance with historical norms. We saw broad-based inventory draw downs across most of the companies in our tracker, likely reflective of continued top-line demand pressures. Note that 3M and ITW are the greatest consumers of base chemicals within our coverage universe. Chemicals Inventory/Sales Chemicals Inventory/Sales Q/Q Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 30

31 Taking Stock of Global Inventories - De-stocking Over M O R G A N S T A N L E Y R E S E A R C H US Home Center Inventory/Sales fell 1.2ppts Q/Q, ~20bps below normal seasonality. Home Depot noted flat inventory turns Y/Y at the end of 4Q, but expects to improve 0.2x Y/Y in As such, with inventories seemingly in balance, we would not expect much difference between sell-in and sell-out trends. SWK is the most leveraged to Big Box and housing in our group, and to a lesser degree, EMR and ITW. US Home Centers Inventory/Sales US Home Centers Inventory/Sales Q/Q Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 31

32 Taking Stock of Global Inventories - De-stocking Over M O R G A N S T A N L E Y R E S E A R C H Inventories at Industrial Distributors were down 10bps Q/Q - weaker than historical 4Q sequential decreases. With recent pickup in industrial activity, we expect restocking in the near term to accommodate the accelerated demand. Multis most levered to distribution sell-through include ROK, ETN, HUBB, FTV and ITW. Industrial Distributor Inventory/Sales Industrial Distributor Inventory/Sales Q/Q Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 32

33 Taking Stock of Global Inventories - De-stocking Over M O R G A N S T A N L E Y R E S E A R C H General Industrial inventory/sales fell 1.0ppts Q/Q, ~40bps below 4Q sequential trends. With inventory/sales near the lows of 4Q14 and 1Q15 (16.1% and 16.3%, respectively) and industrial demand accelerating, we see conditions for some restocking activity.. The recent ISM report was another upside surprise with the index reaching the highest level we have seen in two and half years and Orders at levels that we normally see coming out of recessions. This corresponds to strong results in from CAPMI, the MS global trade indicator and the MS Capital Plans Index. All-in, there is a very real and meaningful recovery forming. Industrial OEMs Inventory/Sales Industrial OEMs Inventory/Sales Q/Q Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 33

34 Taking Stock of Global Inventories - De-stocking Over M O R G A N S T A N L E Y R E S E A R C H Machinery Inventory/Sales ratios were down 80bps Q/Q, below normal 4Q seasonal declines of 40bps, but with inventories continuing to trend above historical trends. We typically look to CAT management commentary to size up the global inventory complex within Machinery the company continues to manage inventories for a low-growth environment. CAT drew down $800m-$1B in Dealer inventory in 4Q from North America alone. For 2017, mgmt expects sales flat to down 3% Y/Y, which likely means more inventory destocking, but at a rate below ETN and PH (covered by MS Machinery analyst Mili Pothiwala) are the most sensitive to Machinery OEM inventory swings. Machinery Inventory/Sales Machinery Inventory/Sales Q/Q Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 34

35 Taking Stock of Global Inventories - De-stocking Over M O R G A N S T A N L E Y R E S E A R C H Metals Inventory/Sales fell 90bps Q/Q, below normal seasonality (-20bps) and keeping inventory ratios into balance with historical trend, despite generally higher spot prices across the commodity complex. Our tracker is reinforced by recent data from our Metals & Mining analyst Evan Kurtz, who noted that the Metals Service Center Institute saw shipments fall just 2.5% Y/Y in December while inventories were down 13% Y/Y. Notably, increasing steel and metals prices, as we have seen, are negatives for Multis given input cost pressures. Metals Inventory/Sales Metals Inventory/Sales Q/Q Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 35

36 Taking Stock of Global Inventories - De-stocking Over M O R G A N S T A N L E Y R E S E A R C H Mining Inventory/Sales ticked down 50bps Q/Q, below normal 4Q seasonality (-10bps). The decline from recent peaks (~24% in 2Q15) continues an encouraging trend and takes the inventory ratio to a 5 year low. However, inventory levels still remain modestly above the historical average (+20.2% vs. 19.8% 7Y median) - and since inventory ratios can move in a wide arc (lows closer to 15%), it is possible that underproduction could continue. Nevertheless, this the trends is incrementally good news for MRO and brownfield activity where exposure in our coverage is greatest for Rockwell Automation and SPX FLOW. Mining Inventory/Sales Mining Inventory/Sales Q/Q Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 36

37 Taking Stock of Global Inventories - De-stocking Over M O R G A N S T A N L E Y R E S E A R C H Semiconductor Inventory/Sales declined 40bps Q/Q, below the -20bps destock we typically see in 4Q and the inventory ratio remains modestly above trend. Our work aligns with recent global inventory trackers from our US Semiconductor team, who found that there was an uptick of customers looking to depete inventory (31% vs. 22% last quarter) in their semiconductor distributor survey. Note that companies within our coverage that are exposed to these verticals include 3M, ITW, and FTV. Semiconductors Inventory/Sales Semiconductors Inventory/Sales Q/Q Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 37

38 Taking Stock of Global Inventories - De-stocking Over On an absolute basis, we saw US Durable Goods Inventories peak in Jan 2015 at ~$270bn before troughing at $258bn in May More recently, we have seen absolute inventory build return to a more normalized rate. On an inventory/sales basis, we've seen days on hand come off peak levels, down ~1.67 months - still mildly elevated vs. cross-cycle averages (10Y average of 1.63x). Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 38

39 Taking Stock of Global Inventories - De-stocking Over Since November, days on hand have decreased 130bps for Durable Goods ex-transport. Heavy Duty Truck, Defense Aircraft Engine & Parts, and Electric Lighting Equipment saw the largest increases in days on hand. Conversely, destocking activity has been most aggressive for Turbine & Generator Set Units, Commercial Aero, and Construction Machinery. Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 39

40 Taking Stock of Global Inventories - De-stocking Over At the industry level, lower days on hand have been driven by Turbines, Electrical Equipment, and Industrial Machinery. Conversely, inventories/shipments look heavy within Mining and O&G field machinery, Heavy Duty Truck, and Automobiles. Looking over a longer timeframe, we see that Inventories/Shipments are still elevated vs. their 5Y averages, with Mining and O&G Field Machinery, Automobiles, and Household Appliances well above historical levels, while Turbines, HVAC and Commercial Aircraft are modestly below trend levels. Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 40

41 Taking Stock of Global Inventories - De-stocking Over At the customer level, ISM data suggests that in February, inventory levels remained below "normal" levels with the ISM Customers' Inventory Index down 1ppts last month to Note that 50 is the level at which suppliers view their customer inventories as "normal". On the other hand, the ISM Inventories Index ticked up 3ppts last month, indicating that raw material inventory levels are expanding. This endorses the theme that US and global inventory are back into balance, and companies are beginning to build inventory ahead of increased demand. Source: Thomson Reuters, Census Bureau, Morgan Stanley Research 41

42 End Market Overviews 42

43 End Market Overviews Cap goods organic growth was up modestly at the median, with 0.9% growth in 4QCY16; up sequentially 40bps vs. 3QCY16. Additionally, given better performance in heavy industries, the average inflected positive for the first time in 6 quarters, up 0.4% vs % in 3Q16. When we dig into the growth by end market we discovered 12 of the 17 end market verticals saw flat or positive organic growth in the quarter: Auto, Agriculture Equipment, Elevator & Escalator, HVAC & Refrigeration, Tools & Appliances, Healthcare, Distributors, Utility T&D, Industrial Automation, Fire & Security, Electrical Equipment and Aerospace & Defense. Meanwhile, only five end markets saw declines; Mining Equipment, Truck, Flow Control, Power Generation, and Construction Equipment. Sequentially, we did see improvement as 12 out of the 17 end markets were up Q/Q, led by Construction Equipment, Agriculture Equipment, Truck, Industrial Automation, Flow Control, Mining Equipment, Elevator & Escalator, Distributors, Tools & Appliances, Utility T&D, Electrical Equipment, and HVAC & Refrigeration. Meanwhile, we saw modest Q/Q deceleration in Healthcare, Auto, Fire & Security, Aerospace & Defense, and Power Generation. Source: Morgan Stanley Research 43

44 End Market Overviews Cap Goods median organic growth was up 0.9% in 4Q marking a continued return to growth in the quarter. Source: Company data, Morgan Stanley Research 44

45 End Market Overviews The average cap goods end market was up 0.9%, however we saw out performance among Auto, E&E, and HVAC, while Mining Equipment, Truck, and Flow Control continued to lag. Source: Company data, Morgan Stanley Research 45

46 End Market Overviews Additionally, we only saw 5 of 17 end markets with negative organic growth in the quarter. On a Q/Q basis, we saw acceleration in 12 of 17 end markets, with the Cap Goods median up ~130bps Q/Q. We saw the largest acceleration in Heavy Industries such as Construction Equipment, Ag Equipment, and Truck Source: Company data, Morgan Stanley Research 46

47 End Market Overviews APAC was the strongest region in the quarter, accelerating ~8ppts Q/Q, while the US improved to flat (vs. down 1% last quarter. Meanwhile Latam, while still negative, accelerated 4ppts in the quarter; EMEA declined low single digits, driven by pressure from UK and the Middle East. Source: Company data, Morgan Stanley Research 47

48 End Market Overviews Organic orders were up 2% in the quarter as short cycle projects accelerate, offset by lower large equipment and mining orders. Construction facing industrials continue to lead the pack (i.e. New York City Tunnel project at Roper). Source: Company data, Morgan Stanley Research 48

49 End Market Overviews Median book to bill was up moderately from 0.97x to 1.0x Q/Q. This compares to 0.98x in 4Q15, 0.96x in 4Q14, and 0.98x in 4Q13. More than half (7 of 15) companies built backlog in the quarter. Source: Company data, Morgan Stanley Research 49

50 End Market Overviews FY17 Growth Outlooks by End Market Source: Company data, Morgan Stanley Research 50

51 End Market Overviews Factoring in 2017 end market expectations would take end markets back to prior peak levels on average. Source: Company data, Morgan Stanley Research 51

52 Detailed End Market Updates 52

53 Detailed End Market Updates Aerospace & Defense M O R G A N S T A N L E Y R E S E A R C H Aerospace and Defense organic growth decelerated by ~3.6 ppts Q/Q to flat in 4Q, with growth in Comm A/M and ATR OE offset by continued biz jet weakness, while trends in Military were mixed. Looking into 2017, the outlook for Commercial Aerospace was mixed, with engine OEMs (i.e. GE and UTX) broadly looking for a M-HSD growth in Commercial Aero (led by strength in both OE and A/M), while suppliers such as HON (down L-MSD in OE and up L/MSD in A/M) and COL (flat) are guiding for flattish core revenue trends next year, largely due to biz jet headwinds and lower wide-body production. On the Military side, management teams are broadly expecting a modest step-up in growth during 2017, driven by continued international growth and an improving budget environment in the US. Overall, we concur with this outlook and forecast 3% growth in 2017, slightly above 2% in Organic growth rates in Aerospace & Defense end markets decelerated in 4Q16 with flat growth Y/Y vs. (v. +3.6% in 3Q16) Aerospace & Defense sales ended +2% Y/Y and up 9% from prior peaks. We see 2017 sales up ~3% Y/Y. Source: Company data, Morgan Stanley Research 53

54 Detailed End Market Updates Agriculture Equipment M O R G A N S T A N L E Y R E S E A R C H Agriculture Equipment sales were up 4% Y/Y in 4QCY16, an improvement from 3Q s 3% decline. Outlook: By region, North America is expected to remain pressured in CY2017, while expectations are more mixed for Europe. Sentiment on LatAm is unanimously positive, although the degree of acceleration varies by OEM. Used equipment headwinds are likely to linger throughout the year, as management teams suggested that despite some recent stabilization, a significant amount of used inventory remains in the channel. Organic growth rates in Agriculture Equipment end markets accelerated in 4Q16 with 4% Y/Y vs. (v. -3% in 3Q16). Agriculture equipment markets are expected to decline ~3% in 2017 after a 2.8% decline in 2016 and ~16% below prior peak. Source: Company data, Morgan Stanley Research 54

55 Detailed End Market Updates Automotive M O R G A N S T A N L E Y R E S E A R C H Organic growth rates in Automotive end markets decelerated ~2ppts Q/Q in 4Q16, up 4.1% Y/Y (vs. +6.1% in 3Q16). Company commentary to date suggests a moderation in growth in 2017, with ITW explicitly citing 100bps lower Automotive production in Meanwhile, HON sees growth in gas turbo penetration (primarily in Europe and China) partially offset by slower diesel turbo penetration. Organic growth rates in Auto end markets decelerated in 4Q16, up 4.1% Y/Y in 4Q16 (vs. +6.1% in 3Q16). Based on current MSe we see 2017 sales up ~2% Y/Y vs. up 5% over 2016 and 36% above prior peak. Source: Company data, Morgan Stanley Research 55

56 Detailed End Market Updates Construction Equipment M O R G A N S T A N L E Y R E S E A R C H Construction Equipment sales were down 6% Y/Y in 4QCY16, which is slight improvement from the decline seen during 3Q. Outlook: Although some OEMs continue to point to NA Construction as a headwind for 2017e (e.g. CAT), we heard other OEMs express more positive sentiment on order trends and overall construction activity (e.g. DE, URI). Although some companies suggested the price of oil was not high enough to sustain incremental investment, others relayed some rumblings of increased activity and potential for a recovery in 2017e. Organic growth rates in Construction Equipment end markets accelerated in 4Q16, flat Y/Y in 4Q16 (vs. -8% in 3Q16). Construction equipment end markets are expected to accelerate significantly Y/Y, down just 1% in 2017 vs. -9.7% in Construction currently sits 24% below prior peak. Source: Company data, Morgan Stanley Research 56

57 Detailed End Market Updates Low Voltage Electrical Equipment M O R G A N S T A N L E Y R E S E A R C H Organic growth in the Electrical Equipment market remained largely flat Y/Y, with most companies in our comp group also posting stable sequential trends in 4QCY16. Outlook: Management teams see outlook for modest growth in 2017, led by a modest recovery in O&G as well as continued strength in resi construction (likely up MSD). On the other hand, growth in NA non-residential construction is expected to moderate to a LSD range, likely offset by some improvement in EMEA and China, while data center, T&D and Industrial markets are expecting similar trends from Overall, we expect the Electrical Equipment markets to see 2% growth in 2017, improving from a flattish year in Organic growth rates in Low Voltage Electrical Equipment end markets moved back in to positive territory in 4Q16, up 0.3% Y/Y in the quarter (vs. -0.1% in 3Q16) Electrical Equipment sales ended down 0.2% Y/Y and sits 1% below prior peak levels. We see 2017 sales up ~2% Y/Y. Source: Company data, Morgan Stanley Research 57

58 Detailed End Market Updates Elevator & Escalator M O R G A N S T A N L E Y R E S E A R C H Organic growth rates in Elevator & Escalator end markets accelerated modestly Q/Q in 4Q16, up 2.3% Y/Y (vs. just +1.0% in 3Q16). Company guidance to date suggests LSD growth in the market. Specifically, every company has highlighted continued headwinds in 2017 from China. Notably UTX, while still citing a China headwind, believes that pricing will improve (though still down MSD) Y/Y in the region. Organic growth rates in Elevator & Escalator end markets accelerated in the quarter, up 3.7% Y/Y in 4Q16 (vs. 1.0% in 3Q16). We see 2017 sales up ~1% Y/Y in Elevator & Escalator markets vs. up 2% in E&E sits 32% above prior peak. Source: Company data, Morgan Stanley Research 58

59 Detailed End Market Updates Fire & Security M O R G A N S T A N L E Y R E S E A R C H Organic growth in Fire & Security end markets modestly decelerated in 4Q16 to +0.5% Y/Y, driven by weak electronic markets. Going forward, company guidance to date suggests another year of organic growth in the low-single-digit zone with positive contribution from all major regions, particularly in the US (led by a recovery in the institutional verticals, albeit offset in part by some moderation in the commercial markets). Our view is consistent with an outlook for 3% growth in 2017, slightly below the 3.4% average growth rate reported through Organic growth in Fire & Security end markets declined slightly Q/Q to +0.5% Y/Y in 4Q (vs. +3.5% in 3Q16) Fire & Security sales ended up +3.0% Y/Y and sits 6% above prior peak levels. We see 2017 sales up ~3% Y/Y. Source: Company data, Morgan Stanley Research 59

60 Detailed End Market Updates Flow Control M O R G A N S T A N L E Y R E S E A R C H Organic growth rates in Flow Control end markets continued to be pressured in 4Q, down 4.4% Y/Y in 4Q16 (vs. -6.0% in 3Q16) with pressure in many end markets, especially O&G facing verticals. Guidance for 2017 is now looking to be down low-to-mid single digits next year, with the exception of Xylem, who expects to be up LSD next year is shaping up to be a transition year as mid/late cycle flow control business expect strong acceleration into Organic growth rates in Flow Control end markets improved sequentially in 4Q down 2.3% Y/Y in 4Q16 (vs. -6% in 3Q16). We see 2017 sales down ~2% Y/Y vs. down 3.5% in 2016 in Flow Control markets ended 7% below prior peak. Source: Company data, Morgan Stanley Research 60

61 Detailed End Market Updates Healthcare M O R G A N S T A N L E Y R E S E A R C H Organic growth rates in Healthcare end markets were flat Q/Q in 4Q16, at +3.0% Y/Y (vs. +3.0% in 3Q16). Company guidance to date suggests Healthcare should continue to be an above average end market in 2017, contributing steady MSD organic growth. Several companies have highlighted growing trepidation that changes to the ACA by the administration may have a negative impact in Healthcare capex in Organic growth rates in Healthcare end markets decelerated through the end of the year, up 2.1% Y/Y in 4Q16 (vs. 3.0% in 3Q16). We see 2016 sales up ~3.5% Y/Y in Healthcare markets. We forecast 3.5% growth in 2017 and we currently sit 30% above prior peak. Source: Company data, Morgan Stanley Research 61

62 Detailed End Market Updates HVAC & Refrigeration M O R G A N S T A N L E Y R E S E A R C H Organic growth in HVAC/R end markets accelerated modestly in 4Q16, up 3% Y/Y (flat Q/Q). Company guidance to date suggests low-single digit overall growth in HVAC and Refrigeration end markets next year (MSe of +2%). By vertical, Resi is expected to outperform, up MSD, with companies citing positive trends in new construction as well as replacement demand. Non-Resi will likely moderate Y/Y to LSD growth. Refrigeration should be flattish, as global headwinds in Food Retail and Transportation pressure growth, particularly in Europe, South America, and the Middle East. Organic growth in HVAC/R end markets accelerated modestly in 4Q16, up 3% Y/Y (flat Q/Q) HVAC & Refrigeration sales ended up 2% Y/Y and sits 7% above prior peak levels. We see 2017 sales up ~2% Y/Y. Source: Company data, Morgan Stanley Research 62

63 Detailed End Market Updates Industrial Automation M O R G A N S T A N L E Y R E S E A R C H Industrial Automation markets returned to growth during 4Q16, with organic sales of +1% (vs. -5.4% in 3Q), largely driven by short-cycle discrete markets, while process markets continue to lag. Looking ahead, companies that have provided 2017 guidance broadly guided for a better growth outlook vs Within the mix, Discrete is expected to see Y/Y improvement led by a recovery in China manufacturing activities, as well as continued solid momentum in the short-cycle industrial verticals. On the other hand, management teams broadly expect challenges in the key Process markets (O&G, mining) to persist into 1H17, albeit with moderating impact vs Organic growth rates in Industrial Automation end markets accelerated in 4Q16, up 0.9% Y/Y (vs. -5.4% in 3Q16). We see 2017 sales to be up 1% Y/Y in Industrial Automation markets vs. down 3% in We are currently ~6% below prior peak. Source: Company data, Morgan Stanley Research 63

64 Detailed End Market Updates Industrial Distributors M O R G A N S T A N L E Y R E S E A R C H Industrial Distributors posted 1% growth in 4Q16 vs. flat in 3Q. With regard to the outlook, 1QTD sales have come in better than expected, with FAST daily sales accelerating to ~6% in February vs. ~3% in 4Q16. However, MRO and manufacturing markets remain sluggish overall, with infrastructure and construction markets modestly positive. Overall, we see a LSD growth outlook for 2017, which compares to flat in Organic growth rates in Industrial Distributor end markets were up ~2% in 4Q16 and up almost 2ppts Q/Q Industrial Distributor sales ended up slightly Y/Y and sits 30% above prior peak levels. We see 2017 sales up ~2% Y/Y. Source: Company data, Morgan Stanley Research 64

65 Detailed End Market Updates Mining Equipment M O R G A N S T A N L E Y R E S E A R C H Mining Equipment sales were down 8% in 4QCY16, an acceleration from 3Q s 11% decline. Within the mix, OE commentary continues to be very weak, although we continue to see incremental signs of stabilization and improvement within A/M. Outlook: Although explicit guidance is difficult to come by, expectations are largely for a flat to slightly up year for mining equipment, with a majority of the strength driven by maintenance CapEx and A/M growth rather than OE orders. Organic growth rates in Mining Equipment end markets were down 8% in 4Q16, but up 3ppt Q/Q. Mining Equipment end markets are expected to be flattish in 2017 after declining 13.8% in Mining Equipment markets are 42% below prior peak levels. Source: Company data, Morgan Stanley Research 65

66 Detailed End Market Updates Power Generation M O R G A N S T A N L E Y R E S E A R C H Growth in the Power Generation market has been lumpy over the past two years, with 4Q16 representing a dip in recent growth, down 1.4% (+3.5% in 3Q vs. +6.6% in 2Q). The outlook for 2017 appears to reflect some of the performance we saw in 4Q (2017 MSe +2% vs. +4% in 2016), with most companies expecting flat to moderate end market growth and a few points of outgrowth above (ie GE +5%). On the renewables side, growth is expected to moderate Y/Y, but continue to remain at robust levels with growth driven by the Americas by favorable mix of larger units, offsetting US headwinds. Organic growth rates in Power Generation end markets decelerated in 4Q16, down 1.4% Y/Y in the quarter (vs. +3.5% in 3Q16) Power Generation sales ended up ~+4% Y/Y and sits 4% above prior peak levels. We see 2017 sales up ~2% Y/Y. Source: Company data, Morgan Stanley Research 66

67 Detailed End Market Updates Tools & Appliances M O R G A N S T A N L E Y R E S E A R C H Organic growth in Tool & Appliance end markets moderated slightly heading into 4Q, up ~2.8% during the quarter (vs. +1.5% in 3Q) nearly all companies within our tracker showed core growth. Outlook: Collectively, commentary for Tools & Appliances is pointing towards growth in the LSD to MSD range for 2017 driven by the continuation of robust construction trends. Organic growth in Tool & Appliance end markets continued to reflect solid residential and commercial demand trends, up ~2.8% during 4Q16 (vs. 1.5% in 3Q16) Tools & Appliances sales ended up +2.6% Y/Y and sits 4% above prior peak levels. We see 2017 sales up ~2% Y/Y. Source: Company data, Morgan Stanley Research 67

68 Detailed End Market Updates Transmission & Distribution M O R G A N S T A N L E Y R E S E A R C H Organic growth rates in Power T&D end markets expanded Q/Q in 4Q16, up 1.5% Y/Y (vs. +0.5% in 3Q15). Company commentary to date suggests T&D markets continue to be sluggish, with flat to LSD organic growth in 2017 (vs. 1% MSe). Specifically, companies are looking for growth in Europe, while the US, Middle East and Latam are more sluggish. Within the verticals, companies are looking for growth in utilities and T&D to data centers, along with moderate growth in O&G and Metals-related T&D. Organic growth rates in Transmission & Distribution end markets accelerated the end of the year, up 1.5% Y/Y in 4Q16 (vs. 0.5% in 3Q16). We see 2017 sales up ~1% Y/Y in Utility T&D markets vs. ~+1% in We are currently 0.1% above prior peak levels. Source: Company data, Morgan Stanley Research 68

69 Detailed End Market Updates Truck M O R G A N S T A N L E Y R E S E A R C H The global Truck market declined 6% Y/Y in 4QCY16, accelerating 6.5ppts from -12.5% in 3QCY16. After supporting growth for the past 5 years, NAFTA Class 8 industry production declined ~23% Y/Y, accounting for a large portion of the industry s weakness. Internationally, India continued to remain strong, while commentary around China and Brazil improved incrementally. Expectations for Europe were somewhat mixed, as resilient underlying demand trends were met with tepid management guidance for 2017e. OEMs implied a flattening trajectory for NAFTA Class 8 orders in 2017e, although there was some implication that conditions could improve in 2H17. Organic growth rates in Truck end markets accelerated in 4Q, down 6.0% Y/Y in 4Q16 (vs in 3Q16). We see 2017 sales flattish Y/Y in Truck end markets. Truck markets are currently ~15% off peak levels. Source: Company data, Morgan Stanley Research 69

70 Valuation 70

71 GE MMM AME FTV HON GWW S&P 500 WSO UTX DHR JCI ETN PNR Median DOV LII HUBB SWK EMR RBC ROK IR WCC HDS FLOW M O R G A N S T A N L E Y R E S E A R C H Industrials Continue to Outperform Sub-Sector 2017 YTD Performance Sub-Sector NTMe P/E EE/MI 8.0% Mechanicals 22.3 Machinery 7.8% Flow Control 21.4 US Cap Goods 7.1% US Cap Goods 21.2 International 6.9% S&P % Machinery 21.2 Mechanicals 4.9% EE/MI 20.9 Distributors 4.1% International 20.5 Flow Control 1.7% Distributors 19.3 Stock 2017 YTD Performance ROK SWK LII PNR AME DHR FTV ITW ETN MS Universe HON EMR RBC IR MMM S&P 500 DOV HUBB UTX FLOW JCI GE 0% 2% 4% 6% 8% 10% -5.9% 12.4% 11.7% 11.3% 11.0% 11.0% 9.8% 9.3% 9.1% 9.1% 8.0% 7.9% 7.3% 6.6% 6.4% 5.9% 3.5% 2.5% 1.7% 1.4% 15.8% 14.3% -12% -7% -2% 3% 8% 13% 18% 140% 120% 100% 80% 60% 40% 20% 0% 5.0x 10.0x 15.0x 20.0x 25.0x Stock LTM Performance Source: Priced as of March 16, 2017; Morgan Stanley Research, Thomson Reuters. 71

72 Multi-Industry Rallies and Corrections The EE/MI group has rallied as high as 40% from its January 20 lows - enough to surpass the traditional rally threshold of 20%, modestly surpassing a typical rally of 38%. The current rally has now lasted for 275 days - roughly 5 months longer than the long run median of 112 days, although more in tune with more recent rallies The group fell hard post-brexit, but did not quite cross the correction threshold of a ~10% decline. As such, the most recent correction (ending Jan 2016) saw the group down 22% vs. an 18% decline in an average correction. The most recent correction lasted 168 days, well above the median 58 day duration. Source: Priced as of February 27, 2017; Morgan Stanley Research, Thomson Reuters. 72

73 Trading Fundamentals By Stock ROK EMR MMM AME FTV ITW DOV DHR LII MS Universe HUBB FLOW SWK GE IR PNR HON UTX ETN RBC JCI NTM P/E Multiple by Stock x 5.0x 10.0x 15.0x 20.0x 25.0x 30.0x NTM EV/EBITDA Multiple by Stock DHR PNR FTV ROK ITW MMM LII AME ETN MS Universe HON DOV EMR JCI HUBB IR SWK FLOW UTX RBC x 2.0x 4.0x 6.0x 8.0x 10.0x12.0x14.0x16.0x18.0x Source: Priced as of March 16, 2017; Morgan Stanley Research, Thomson Reuters. Multiples on MSe 73

74 The Group Is Now At A Modest Premium To The S&P The group has rallied significantly post-election. Pre-election the group was trading at ~16.4x and has rallied ~3x to 19.7x on improved economic sentiment and upside from potential tax reform. Additionally, Industrials have outperformed the broader S&P index, and as such EE/MI names now trade at an 9.7% premium to the index. Source: Priced as of March 16, 2017; Morgan Stanley Research, Thomson Reuters. 74

75 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Stability in Consensus Estimates But Stocks Remain Expensive on Growth M O R G A N S T A N L E Y R E S E A R C H NTM EPS estimates now call for 6% growth Y/Y. FY17 EPS expectations are now down ~9% from initiation. 20.0x 18.0x 16.0x 14.0x 12.0x 25% 20% 15% 10% 5% 0% 5% 0% -5% -10% 10.0x -5% -15% NTM P/E (LHS) Consensus NTM EPS Growth (RHS) Baseline FY2013 FY2014 FY2015 FY2016 FY % Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Priced as of March 16, 2017; Morgan Stanley Research, Thomson Reuters. 75

76 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 M O R G A N S T A N L E Y R E S E A R C H Relative Valuations by Major Style Factors We've seen dispersion between Defensive and Cyclical names narrow from recent peaks to ~0.8x - in line with its long term trend, but still below the 1Y average of 1.6x 5x 4x Multiple Gap - Defensive vs. Cyclical 10 Yr Median 1Yr Median The premium for emerging market EE/MI exposure dipped following the election, but has since returned to near-peak levels. Note that EM exposure traded at a discount over 2012/ x 2x 1x 0x Multiple Gap - EM vs. Non-EM 1Yr Median 10Yr Median -1x -2x -3x -4x x -2 More recently, we've seen Oil & Gas exposed names rebound sharply through early 2017, from a 1.9x discount at the beginning of August-16 to a ~2.5x premium now on sentiment surrounding a potential Oil & Gas recovery and increased energy investment under Trump. 5 We still view Construction exposure as cheap - with highexposure names sitting at a 3.3x discount to nonconstruction stocks. 2x 1x Multiple Gap - Construction vs. Non-Construction 10Yr Median 1Yr Median 4 3 Multiple Gap - Oil & Gas vs. Non-Oil & Gas 10Yr Median 1Yr Median 0x -1x 2-2x 1-3x x -5x x Source: Priced as of March 16, 2017; Morgan Stanley Research, Thomson Reuters. 76

77 2017 Outlook Too Rich to Be Attractive: Factor Analysis 77

78 2017 Outlook Too Rich to Be Attractive: Factor Analysis We summarize each factor s T1-T3 spread over the past 10 years. A positive return spreadsuggests that the factor was associated with share price outperformance during that year. This analysis proves to be helpful in order to determine which factors are in vogue at different periods, as well those factors that are consistently driving over/underperformance Source: Morgan Stanley Research 78

79 2017 Outlook Too Rich to Be Attractive: Factor Analysis 2016 Factor performance spreads led by momentum and valuation metrics, P/E ratio, prior year mean reversion, and beginning of year EV/EBITDA vs. 1Y average Source: Morgan Stanley Research 79

80 2017 Outlook Too Rich to Be Attractive: Factor Analysis 2016 factor performance spreads over the 10Y average led by prior year mean reversion, P/E ratio, and change in dividend payout Source: Morgan Stanley Research 80

81 EE/MI COMPANY MODELS 81

82 Price Target (Feb-18) Historical Stock Performance Current Stock Price 3M Company (MMM): Underweight, $168 Price Target $ $ $ (+17%) $ (-6%) $ (-34%) 0 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Why Underweight? M O R G A N S T A N L E Y R E S E A R C H High quality company. 3M is one of the highest quality companies under coverage, given a combination of above average secular organic growth and cross-cycle margin stability. While we expect 3M organic sales to accelerate into 3-5% range during 2017/18, we believe the market will seek to play an IPrelated related recovery in higher beta names. Limited scope for operating leverage. Recent margin strength have largely resulted from currency hedge gains and raw material benefits that could reverse. As such, we see limited scope for margin expansion beyond We see risk of multiple compression. 3M is trading at a premium to historical norms and could be vulnerable to multiple compression with EPS growth likely to decelerate. Price Target $168 Aligned with Base Case. Bull $209 Base $168 Bear $119 21x Bull Case NTM EPS of $ x Base Case NTM EPS of $ x Bear Case NTM EPS of $7.91 WARNINGDONOTEDIT_RRS4RL~MMM.N~ Assuming a short-cycle rebound post-mid-cycle slowdown, we believe 3M will see core growth accelerate modestly from flat Y/Y in 2016e to 4% in 2017e, driven by continued strength in Healthcare and recovery in electronic markets. We embed 140bps margin expansion over 2017/18e, largely driven by volume leverage, structural cost savings price/raws tailwinds. Our 21x multiple assumes partial revision to 1Y highs. Assuming modest acceleration into 2017, we model ~3% organic growth in 2017e vs. -0.5% Y/Y in 2016e. We expect core operating margins to expand by 60bps in 2017/18e, largely driven by volume leverage and benefits from business transformation. Our 18.5x multiple assumes partial conversion to 3M s 1Y median multiple, which represents a contraction vs. its current valuation, but still a modest premium to the group average. Assuming a downturn one-third as bad as 2009 yields a 3% organic decline for 3M in 2017e (vs. -0.1% in 2016e). We model 30% decremental margins in this scenario, since 3M has proven its ability to maintain margin in prior downcycles (23.5% core operating margin embedded in our Bear Case). Our 15.0x multiple is slightly below MMM's 15.5x long term average, but still above its 5Y lows of 11x. Potential Downside Catalysts USD strength. As a global company and significant US exporter, a strong USD represents both transactional and translational risks. Raw material inflation. About half of 3M's total COGS are tied to raw material/ purchases finished goods, with ~9% of which related to crude oil prices. As such, a sharper than expected increase in commodity prices will put significant pressure on margins. Potential Upside Risks Balance sheet optionality. While 3M has been significantly increasing leverage, there is still ample dry powder to deploy and this could help support earnings. Safe haven status. As a low beta industrial, 3M could remain expensive if investors start to become skeptical of the postelection rally. Source: Morgan Stanley Research, Thomson Reuters. 82

83 3M: Key Financial Statistics Revenue breakdown by geography Revenue breakdown by end market Europe 18% LatAm / Canada 10% MEA 2% US 40% Transportation 10% Industrial 23% Consumer 14% Gov't Infrastructure 5% Resi/ Comm Construction 15% China 9% APAC ex. China 21% Electronics & Tech 16% Healthcare 17% Healthcare Michael Vale Industrial Michael Roman Consumer Joaquin Delgado Safety & Graphics Frank Little Electro & Energy James Bauman 2016 Revs 2016 OP CEO: Inge Thulin CFO: Nicholas Gangestad Division Est. Revs % of Seg % total Key Products & Services 5,527 1,754 Infection Prevention $ 1,603 29% 5% Surgical drapes, masks and preps, sterilization assurance equipment 18% 23% Oral Care 1,326 24% 4% Orthodontic Appliances, Dental Fillings, Impression Materials Critical Chronic Care 1,216 22% 4% Medical tapes, dressings, wound closure products, orthopedic casting materials and electrodes Drug Delivery 497 9% 2% Trans-dermal drug delivery systems Health Information Systems % 2% Medicare reimbursement solutions Food Safety 221 4% 1% Testing & monitoring equipment for food processors 10,313 2,238 Adhesives & Tapes 3,919 38% 13% Adhesives, Bonding Tapes, Packaging Tapes, Converter Markets 33% 30% Auto & Auto A/M 3,094 30% 10% Body Repair, Painting & Paint Finishing, Mechanical Repair & Maintenance, Body Structures Abrasives 1,444 14% 5% Fiber Discs, Cubitron Ceramic Grain, Coated Abrasive Belts, Super Abrasives Advanced Materials 1,238 12% 4% Membrane Elctrd Assemblies, Lithium Ion mtls, Polymers, Fluoromtls, Nanomtls Liquid Filtration 619 6% 2% Filtration for beer/wine distilleries, Semiconductor fabrication, Drug Manufacturing 4,482 1,064 Office & Stationery 1,524 34% 5% Post-it Products, Scotch Tapes, White Boards, Overhead Projectors 15% 14% DIY 1,524 34% 5% Home Care 1,031 23% 3% Scotch Brite: Tub & Tile Cleaners, Pads, Scotch Guard, O-Celo Sponges Prot. Mtrls & Consumer HC 403 9% 1% Nexcare Bandages, Nexcare Ankle, Elbow, & Knee Braces 5,660 1,390 Personal Protection Equipment 2,377 42% 8% Respirators, Eye & Ear Protection Prods, Reflective Material for Apparel 18% Traffic Safety & Security Systs 19% 1,528 27% 5% Reflective sheeting for highway signs, vehicle license plates, construction work-zone devices; pavement marking systems; electronic surveillance products; films that protect against counterfeiting; finger, palm, face and iris biometric systems; remote people-monitoring technologies Commercial Graphics % 2% Graphics for: Buildings, Transportation, Food & Beverage, Banking Building Solutions % 2% Bomb blast resistant window films, Fire Mitigation Products Industrial Minerals 283 5% 1% Roofing Granules 283 5% 1% Roofing Granules, Algae Block system for asphalt shingles, pool linings 4,826 1,042 Display Systems 1,834 38% 6% Optical Films for: Computer Monitors, Televisions, Consumer Electronics 16% 14% Electronic Market Materials / Solution 1,158 24% 4% Packaging and interconnection devices, touch systems Electrical Mkts 1,110 23% 4% Sealing & Insulating Tubes & Tapes, Heat Shrink, Vinyl & Mastic Tapes, Connectors, Cable Accessories Telecom & Other 386 8% 1% Copper Cabling, Fiber Optic: Cabling, Closures, Splices, DSL Test Equip Renewable Energy 338 7% 1% Adhesives and tapes for Solar panels Source: Company data, Morgan Stanley Research. 83

84 3M Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 30,871 31,821 30,273 7,409 7,662 7,709 7,329 30,109 7,449 7,681 7,766 7,450 30,345 31,596 YoY total revenue growth 3% 3% -5% -2% 0% 0% 0% -1% 1% 0% 1% 2% 1% 4% YoY organic revenue growth 3% 5% 1.3% -1% 0% -1% 2% 0% 2% 3% 4% 3% 3% 4% Cost of sales 16,106 16,447 15,383 3,678 3,799 3,847 3,716 15,040 3,694 3,718 3,789 3,799 14,999 15,563 Gross Profit 14,765 15,374 14,890 3,731 3,863 3,862 3,613 15,069 3,755 3,963 3,977 3,651 15,346 16,033 Margin 47.8% 48.3% 49.2% 50.4% 50.4% 50.1% 49.3% 50.0% 50.4% 51.6% 51.2% 49.0% 50.6% 50.7% SG&A 6,384 6,469 6,182 1,493 1,560 1,531 1,527 6,111 1,501 1,564 1,542 1,552 6,159 6,413 Research development and related expenses 1,715 1,770 1, , ,783 1,896 Gain or loss from sale of business and others Other Operating Expenses Reported Operating Income 6,666 7,135 6,945 1,788 1,866 1,904 1,665 7,223 1,794 1,954 1,993 1,663 7,404 7,724 Margin 21.6% 22.4% 22.9% 24.1% 24.4% 24.7% 22.7% 24.0% 24.1% 25.4% 25.7% 22.3% 24.4% 24.4% Exceptional Items - - (127) (30) 10 - (36) (56) (20) (20) - Core Operating Income 6,666 7,135 6,818 1,758 1,876 1,904 1,629 7,167 1,774 1,954 1,993 1,663 7,384 7,724 Margin 21.6% 22.4% 22.5% 23.7% 24.5% 24.7% 22.2% 23.8% 23.8% 25.4% 25.7% 22.3% 24.3% 24.4% D&A 1,349 1,408 1, , ,403 1,409 Core EBITDA 8,015 8,543 8,253 2,114 2,242 2,272 2,013 8,641 2,125 2,304 2,344 2,014 8,787 9,133 Margin 26.0% 26.8% 27.3% 28.5% 29.3% 29.5% 27.5% 28.7% 28.5% 30.0% 30.2% 27.0% 29.0% 28.9% Other Income/(Expenses) Net Interest (104) (109) (123) (42) (31) (42) (55) (170) (52) (57) (59) (60) (228) (265) Income before Tax 6,562 7,026 6,822 1,746 1,835 1,862 1,610 7,053 1,742 1,897 1,934 1,603 7,176 7,459 Taxes 1,841 2,028 1, , ,045 2,089 Effective Rate 28.1% 28.9% 29.1% 26.8% 29.5% 28.5% 28.2% 28.3% 28.5% 28.5% 28.5% 28.5% 28.5% 28.0% Continuing Income 4,659 4,956 4,832 1,275 1,291 1,329 1,155 5,050 1,242 1,354 1,381 1,145 5,122 5,361 Adjustments Headline Income 4,659 4,956 4,832 1,275 1,291 1,329 1,155 5,050 1,242 1,354 1,381 1,145 5,122 5,361 DWAC Headline EPS Yoy 6% 11% 1% 11% 3% 5% 13% 8% -1% 8% 7% 2% 4% 8% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 84

85 3M Segment Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Industrial 10,657 10,990 10,299 2,599 2,654 2,603 2,543 10,399 2,699 2,713 2,661 2,594 10,667 11,093 Safety & Graphics 5,584 5,732 5,515 1,477 1,561 1,500 1,343 5,881 1,452 1,507 1,462 1,355 5,776 6,007 Electronics & Energy 5,393 5,604 5,249 1,089 1,129 1,250 1,175 4,643 1,073 1,112 1,256 1,159 4,600 4,830 Health Care 5,334 5,572 5,420 1,391 1,414 1,371 1,390 5,566 1,403 1,453 1,436 1,444 5,735 5,965 Consumer 4,435 4,523 4,422 1,050 1,130 1,210 1,094 4,484 1,038 1,111 1,167 1,115 4,431 4,563 Corporate and Others Elimination (540) (604) (632) (197) (229) (227) (218) (871) (218) (218) (218) (218) (871) (871) Sales 30,871 31,821 30,273 7,409 7,662 7,709 7,329 30,109 7,449 7,681 7,766 7,450 30,345 31,596 Industrial 7% 3% -6% -2% 1% 2% 4% 1% 4% 2% 2% 2% 3% 4% Safety & Graphics 2% 3% -4% 8% 9% 6% 4% 7% -2% -3% -3% 1% -2% 4% Electronics & Energy -1% 4% -6% -18% -14% -11% -4% -12% -1% -1% 0% -1% -1% 5% Health Care 4% 4% -3% 5% 4% 2% 1% 3% 1% 3% 5% 4% 3% 4% Consumer 1% 2% -2% 0% 2% 4% -1% 1% -1% -2% -4% 2% -1% 3% Sales YoY 3% 3% -5% -2% 0% 0% 0% -1% 1% 0% 1% 2% 1% 4% Industrial 2,679 2,772 2, , ,867 2,994 Safety & Graphics 1,482 1,530 1, , ,690 1,758 Electronics & Energy 1,214 1,386 1, , ,251 1,323 Health Care 1,843 1,905 1, , ,051 2,098 Consumer 1,051 1,103 1, , ,172 1,212 Corporate & Others (136) (20) (8) (13) (13) (13) (13) (50) (50) EBITDA 8,015 8,543 8,537 2,114 2,242 2,272 2,013 8,641 2,125 2,304 2,344 2,014 8,787 9,133 Industrial 3% 3% -5% 0% 3% 3% 10% 4% 5% 7% 7% 1% 5% 4% Safety & Graphics 5% 3% 1% 7% 15% 14% -2% 9% 0% 0% 0% 0% 0% 4% Electronics & Energy -7% 17% 4% -31% -22% -12% 61% -10% -2% 1% 1% -8% -2% 8% Health Care 2% 3% 0% 11% 4% 0% -7% 2% 3% 5% 9% 7% 6% 2% Consumer 0% 5% 5% 0% 8% 8% -8% 2% 0% -2% -2% 3% -1% 3% EBITDA YoY 3% 7% 0% 1% 3% 2% -1% 1% 1% 3% 3% 0% 316% 307% Industrial 2,307 2,389 2, , ,456 2,578 Safety & Graphics 1,227 1,296 1, , ,443 1,487 Electronics & Energy 954 1,115 1, , ,017 1,094 Health Care 1,672 1,724 1, , ,875 1,921 Consumer , , ,057 1,097 Corporate & Others (439) (384) (340) (83) (135) (115) (131) (464) (106) (114) (113) (111) (444) (452) Operating Income 6,666 7,135 7,288 1,788 1,866 1,904 1,665 7,223 1,794 1,954 1,993 1,663 7,404 7,724 Industrial 3% 4% -2% 4% 2% 3% 18% 2% 0% 8% 8% -6% 3% 5% Safety & Graphics 1% 6% 2% 7% 16% 15% -4% 7% 6% 0% 0% 0% 1% 3% Electronics & Energy -7% 17% 4% -31% -22% -12% 61% -10% -2% 1% 1% -8% -2% 8% Health Care 2% 3% 1% 12% 5% 0% -7% 1% 3% 5% 10% 8% 6% 2% Consumer 0% 5% 6% -1% 8% 8% -10% 1% 0% -2% -3% 3% -1% 4% Segment Income YoY 1% 6% 1% 0% 3% 2% 8% 1% 2% 3% 4% -1% 2% 4% Operating Income YoY 3% 7% -3% 3% 1% 1% 11% 4% 0% 5% 5% 0% 314% 314% Industrial 21.6% 21.7% 22.8% 23.9% 23.4% 22.9% 21.9% 23.0% 23.1% 24.6% 24.1% 20.2% 23.0% 23.2% Safety & Graphics 22.0% 22.6% 24.1% 24.3% 27.0% 24.8% 20.2% 24.2% 26.1% 27.9% 25.4% 20.0% 25.0% 24.8% Electronics & Energy 17.7% 19.9% 22.1% 17.9% 19.2% 24.3% 27.7% 22.4% 17.7% 19.7% 24.5% 25.9% 22.1% 22.6% Health Care 31.3% 30.9% 32.2% 32.9% 32.7% 31.4% 29.7% 31.7% 33.5% 33.4% 33.1% 30.8% 32.7% 32.2% Consumer 21.3% 22.0% 23.8% 22.7% 24.9% 26.2% 20.9% 23.8% 22.9% 24.7% 26.5% 21.2% 23.9% 24.0% Segment Margin 23.0% 23.6% 25.2% 25.3% 26.1% 26.2% 24.5% 25.5% 25.5% 26.9% 27.1% 23.8% 25.9% 25.9% Operating Margin 21.6% 22.4% 24.1% 24.1% 24.4% 24.7% 22.7% 24.0% 24.1% 25.4% 25.7% 22.3% 24.4% 24.4% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 85

86 3M Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Net Income 4,659 4,956 4,832 1,275 1,291 1,329 1,155 5,050 1,242 1,354 1,381 1,145 5,122 5,361 Depreciation & Amortization 1,349 1,408 1, , ,403 1,409 Working Capital (318) (100) (46) (398) (120) (73) 548 (43) (585) (35) (138) 607 (152) (247) Other (270) (102) Operating Cash Flow 5,817 6,626 6,420 1,260 1,285 1,908 2,209 6, ,627 1,912 1,925 6,449 6,383 Capex (1,665) (1,493) (1,461) (314) (323) (347) (436) (1,420) (357) (357) (357) (357) (1,426) (1,469) Free Cash Flow 4,152 5,133 4, ,561 1,773 5, ,271 1,555 1,569 5,023 4,914 FCF Margin 13.4% 16.1% 16.4% 12.8% 12.6% 20.2% 24.2% 17.4% 8.4% 16.5% 20.0% 21.1% 16.6% 15.6% Acquisitions - (94) (2,914) (4) - (13) 1 (16) Disposals Other , (83) (127) 63 (109) Cash Flow Pre Financing 4,961 6,030 3, ,421 1,923 5, ,271 1,555 1,569 5,023 4,914 Equity issuance 1, Stock repurchase (5,212) (5,652) (5,238) (1,227) (828) (774) (924) (3,753) (1,157) (1,180) (1,204) (1,039) (4,580) (4,809) Dividends (1,730) (2,216) (2,561) (672) (672) (670) (664) (2,678) (688) (683) (678) (674) (2,724) (2,741) Other (830) (772) (1,006) (183) Movement on Net Debt (1,202) (1,642) (4,567) (745) (258) (91) (1,000) (375) (110) 73 (1,413) (1,698) Cash 3,337 2,523 1,916 1,513 1,865 2,666 2,678 2,678 2,178 2,303 2,693 3,265 3,265 3,068 Gross Debt (6,009) (6,837) (10,797) (11,139) (11,749) (12,361) (11,650) (11,650) (12,150) (12,650) (13,150) (13,650) (13,650) (15,150) Net Debt (2,672) (4,314) (8,881) (9,626) (9,884) (9,695) (8,972) (8,972) (9,972) (10,347) (10,457) (10,385) (10,385) (12,082) Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 86

87 Mar Jun Sep Dec NTM P/E 1Y Median 5Y Median 2009 Mar Jun Sep Dec Mar Mar Jun Sep Dec Mar Jun Sep Dec Mar M O R G A N S T A N L E Y R E S E A R C H 3M: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median 23 50% Premium/Discount vs. sector median 1Y Median 5Y Median % 30% 19 20% 18 10% 17 0% % 14-20% Organic Growth vs. EE/MI (2004/15) Core Operating Margins vs. EE/MI (2004/15) 20% 15% 10% 5% 0% -5% -10% -15% -20% Organic Growth EE/MI Median 25% 20% 15% 10% 5% Core Operating Margin EE/MI Median 0% Source: Company data, Morgan Stanley Research estimates. 87

88 Price Target (Feb-18) Historical Stock Performance Current Stock Price M O R G A N S T A N L E Y R E S E A R C H Ametek (AME): Equal-weight, $57 Price Target Price Target $57 Aligned with Base Case. Bull $71 $ x Bull Case NTM EPS of $3.28 $53.52 $71.00 (+33%) $57.00 (+7%) $40.00 (-25%) 0 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 WARNINGDONOTEDIT_RRS4RL~AME.N~ Assuming core acceleration, we model 5% organic growth in 2017e and additional M&A. We model ~25% incremental margins, which assumes continued Operational Excellence and volume leverage, partially offset by M&A dilution. Our 21.7x multiple assumes that AME returns to its long-term premium. Why Equal-weight? Quality Industrial: Ametek boasts among the highest margins across the global industrial universe with superior FCF conversion and a proven track record of deploying capital. Subdued core growth outlook. We view Ametek as a capex story that is more levered to global growth, particularly via its above-average exposure to heavy industries such as Oil & Gas. This will likely place more pressure on the company to drive the acquisition pipeline. Peak Margin? Operating margins reached new peaks in it is an open question how much further OMs can expand in a low growth world, with SG&A already at depressed levels. Premium multiple warranted for now. We are prepared to pay a premium, but are mindful that EPS deceleration through 2014/15 could lead to multiple compression over time. Potential Upside Catalysts M&A announcements. We believe incremental M&A is key to EPS momentum from here and an uptick in announcements would generally be viewed favorably by investors. Stable consensus. We believe that consensus estimates can be met, which could help support the stock in the current market environment. Mgmt has an excellent track record. Base $57 Bear $ x Base Case NTM EPS of $ x Base Case NTM EPS of $2.34 We model 2% organic growth in 2017e. Our model embeds 40bps core margin expansion through 2018 driven by organic volumes and payback on realignment initiatives. Our 20.5x assumes de-rating vs. cycle average. We have assumed a downturn roughly one-third as sharp as that observed during 2008/09; this would imply a ~1% organic decline for AME in 2017e. We have assumed flat margin through Our 17.0x multiple assumes reversion below the 10Y median. Potential Downside Risks Oil & Gas. Ametek has seen pressure in the Oil & Gas business over the last year, with the upstream business down ~60% and mid/downstream down 20%. A delayed or longer than expected O&G recovery could pressure consensus estimates into Source: Morgan Stanley Research, Thomson Reuters. 88

89 Ametek: Key Financial Statistics Revenue breakdown by geography EMEA 22% Revenue breakdown by end market Healthcare Power 9% Generation 5% Metals & Mining 11% IT/Electronics 4% Oil & Gas 10% Appliances 8% North America 52% Asia Pacific 20% Defense 10% RoW 6% Commercial Aerospace 16% General Industrial 27% 2016 Revs 2016 Op. Profits Geographic Brekdown CEO: David A. Zapico Sub-segment Electronic Instruements Group $2,360 $578 US 40% Process & Analytical $ 1,600 68% Chemical/Petrochemical John Hardin, Thomas Marecic & Ronald Oscher 61% 68% Int'l 60% Instrumentation Oil & Gas Production Research/Laboratories Medical Power and Industrial Instrumentation Aerospace Instrumentation 2016 Rev CFO: William J. Burke % of Seg. Revs End Markets Key Products & Services $ % Power T&D Heavy Trucks Food Services Construction, Ag. & Military Vehicles $ 200 8% Large comm. aircraft Biz & regional aircraft Military Analytical and emission monitoring instrumentation, drilling and completion instruments, level measurement, pressure gauges, material analysis, transducers and seals, and radiation measurement. UPS, power quality monitoring instrumentation, programmable power systems, dash panel instruments, food service instruments Airframe & engine monitoring systems, engine sensors, avionics (for small aircraft), fluid gauging systems, pressure transducers and acceleratmeters Electromechanical Group $1,480 $278 US 53% Technical Motors & $ % Timothy Jones 39% 32% Int'l 47% Sys. Aerospace & Defense, Medical, Industrial, Biz machine & computer equip. AC and brushless DC motors, blowers & pumps, high-precision motion control products. EMG also serves the comm.& military aerospace 3rd party MRO market Engineered Materials, Interconnects & Packaging $ % Medical/Surgical, Automotive, Appliance, Aerospace, Telecom Specialized metal powder, strip, wire & bonded products; highly engineered hermetic (moisture-proof) connectors, terminals and headers and microelectronic packages Floorcare & Specialty Motors $ % Vacuum cleaners, Comm. floorcare equip., Air-moving electric motors, motor/blower systems and a variety Outdoor power equip., Small houshold of specialty motors appiances Source: Company data, Morgan Stanley Research. 89

90 Ametek Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Sales 3,594 4,022 3, , ,027 1,011 1,031 4,030 4,240 4,420 YoY total revenue growth 7.8% 11.9% -1.2% -4.0% -2.6% -5.4% -1.5% -3.4% 1.7% 5.1% 7.0% 6.0% 5.0% 5.2% 4.3% YoY organic revenue growth 1.7% 3.1% -1.5% -8.4% -6.8% -7.7% -3.8% -6.7% 0.2% 1.6% 3.4% 3.3% 2.1% 4.6% 4.3% Cost of sales, including depreciat 2,324 2,597 2, , ,602 2,706 2,798 Gross Profit 1,270 1,425 1, , ,428 1,534 1,623 Margin 35.3% 35.4% 35.9% 35.9% 36.4% 35.2% 31.9% 34.8% 35.4% 35.9% 34.8% 35.7% 35.4% 36.2% 36.7% Selling, general and administrativ Reported Operating Income ,013 Margin 22.7% 22.3% 22.8% 22.1% 22.4% 21.3% 17.8% 20.9% 21.4% 21.7% 21.0% 21.7% 21.5% 22.3% 22.9% Exceptional Items Core Operating Income ,013 Margin 22.7% 22.8% 23.7% 22.1% 22.4% 21.3% 21.7% 21.9% 21.4% 21.7% 21.0% 21.7% 21.5% 22.3% 22.9% D&A Core EBITDA 934 1,056 1, , ,032 1,111 1,176 Margin 26.0% 26.3% 27.5% 26.3% 26.6% 25.7% 26.0% 26.2% 25.7% 25.8% 25.1% 25.8% 25.6% 26.2% 26.6% Yoy 9.6% 13.1% 3.5% -8.6% -6.3% -11.7% -5.6% -8.1% 2.7% 7.6% 5.9% 0.0% 2.7% 7.6% 5.9% Other Income/(Expenses) (17) (14) (10) (2) (5) (3) (4) (14) (2) (2) (2) (2) (8) (8) (8) Net Interest (74) (80) (92) (23) (24) (24) (24) (94) (25) (25) (25) (26) (101) (106) (112) Income before Tax Taxes Effective Rate 28.7% 27.4% 26.7% 26.7% 27.5% 25.0% 24.9% 26.1% 27.0% 27.0% 27.0% 27.0% 27.0% 27.0% 27.0% Continuing Income Adjustments Headline Income DWAC Headline EPS Yoy 11.7% 15.3% 5.3% -10.2% -7.8% -13.4% -7.7% -9.4% -0.3% 6.1% 5.8% 8.6% 4.6% 12.8% 10.2% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 90

91 Ametek Segment Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Electronic Instruments 2,035 2,422 2, , ,523 2,672 2,806 Electromechanical 1,560 1,600 1, , ,508 1,568 1,615 Sales 3,594 4,022 3, , ,027 1,011 1,031 4,030 4,240 4,420 Electronic Instruments 8.7% 19.0% -0.2% -4.2% -0.1% -3.2% -2.0% -2.4% 2.0% 6.9% 9.5% 8.9% 6.9% 5.9% 5.0% Electromechanical 6.7% 2.6% -2.7% -3.8% -6.3% -8.6% -0.7% -5.0% 1.3% 2.2% 3.0% 1.0% 1.9% 4.0% 3.0% Sales YoY 7.8% 11.9% -1.2% -4.0% -2.6% -5.4% -1.5% -3.4% 1.7% 5.1% 7.0% 6.0% 5.0% 5.2% 4.3% Electronic Instruments Electromechanical Corporate and Others (45) (48) (49) (12) (11) (10) (11) (44) (16) (16) (16) (16) (64) (67) (70) EBITDA 934 1,056 1, , ,032 1,111 1,176 Electronic Instruments 11.4% 16.0% 4.9% -9.1% -5.3% -9.7% -3.3% -6.8% 1.0% 3.3% 7.7% 8.2% 5.1% 8.1% 6.7% Electromechanical 6.5% 7.5% 0.8% -8.9% -8.8% -15.1% -9.4% -10.6% 1.5% 4.0% 5.0% 2.1% 3.2% 6.3% 4.0% EBITDA YoY 9.6% 13.1% 3.5% -8.6% -6.3% -11.7% -5.6% -8.1% -0.5% 2.0% 4.6% 4.9% 2.7% 7.6% 5.9% Electronic Instruments Electromechanical Corporate and Others (46) (49) (50) (13) (13) (13) (15) (54) (16) (16) (16) (16) (64) (67) (70) Operating Income ,013 Electronic Instruments 11.1% 11.0% 4.3% -6.2% -7.2% -12.2% -12.7% -9.6% -1.0% 1.9% 6.8% 23.9% 7.8% 9.6% 7.8% Electromechanical 5.9% 8.3% -5.1% -3.1% -10.1% -17.6% -22.4% -12.6% 2.1% 5.1% 6.5% 39.1% 10.3% 7.9% 5.0% Segment Income YoY 9.1% 10.0% 1.0% -5.1% -8.2% -14.1% -15.4% -10.6% 0.1% 3.0% 6.7% 27.7% 8.6% 9.0% 6.9% Electronic Instruments 27.1% 25.3% 26.5% 24.9% 25.5% 24.6% 22.9% 24.5% 24.2% 24.3% 24.0% 26.1% 24.7% 25.5% 26.2% Electromechanical 19.8% 20.9% 20.4% 21.2% 21.0% 19.5% 13.1% 18.8% 21.3% 21.6% 20.2% 18.0% 20.3% 21.1% 21.5% Segment Margin 24.0% 23.6% 24.1% 23.4% 23.8% 22.7% 19.3% 22.3% 23.1% 23.3% 22.6% 23.3% 23.1% 23.9% 24.5% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 91

92 Ametek Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Net Income Depreciation & Amortization Working Capital 11 (42) (39) (32) 6 (1) (24) (13) 10 (21) (36) (31) Other (29) 9 4 (3) 5 16 (73) (20) (5) 84 (13) 5 5 Operating Cash Flow Capex (63) (71) (69) (11) (14) (15) (11) (51) (13) (13) (13) (13) (53) (56) (58) Free Cash Flow FCF Margin 16.6% 16.3% 15.2% 14.9% 17.9% 16.3% 24.3% 18.4% 9.6% 12.4% 14.4% 25.8% 15.7% 16.2% 16.5% Acquisitions (414) (574) (356) (295) 1 (67) (32) (392) (340) (340) - - Disposals Other 18 3 (0) Cash Flow Pre Financing (154) (248) Equity issuance Stock repurchase (8) (245) (435) (117) (19) (101) (95) (331) (94) (96) (98) (100) (387) (418) (452) Dividends (58) (81) (86) (21) (21) (21) (21) (83) (21) (22) (22) (22) (87) (86) (88) Other (12) Movement on Net Debt 176 (217) (225) (270) 145 (23) 85 (63) (359) (168) Cash Gross Debt 1,415 1,714 1,942 2,218 2,142 2,154 2,342 2,342 2,342 2,342 2,342 2,342 2,342 2,342 2,342 Net Debt 1,120 1,336 1,561 1,831 1,686 1,709 1,624 1,624 1,983 1,970 1,940 1,792 1,792 1,596 1,389 Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 92

93 Mar Jun Sep Dec NTM P/E 1Y Median 5Y Median Mar Jun Sep Dec Mar Mar Jun Sep Dec Premium/Discount vs. sector median 1Y Median 5Y Median 2009 Mar Jun Sep Dec Mar M O R G A N S T A N L E Y R E S E A R C H Ametek: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median 60% 50% 40% 30% 20% 10% 0% -10% -20% 14 Organic Growth vs. EE/MI (2004/16) Core Operating Margins vs. EE/MI (2004/16) 20% Organic Growth EE/MI Median 25% Core Operating Margin EE/MI Median 15% 10% 5% 20% 15% 0% -5% -10% 10% 5% -15% -20% 0% -25% Source: Company data, Morgan Stanley Research estimates. 93

94 Price Target (Feb-18) Historical Stock Performance Current Stock Price M O R G A N S T A N L E Y R E S E A R C H Dover (DOV): Equal-weight, $85 Price Target Price Target $85 Aligned with our Base Case scenario Bull $99 $ x Bull Case NTM EPS of $5.21 $79.28 $99.00 (+25%) $85.00 (+7%) $47.00 (-41%) 0 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 WARNINGDONOTEDIT_RRS4RL~DOV.N~ Assuming a mid-cycle re-acceleration and robust recovery in Energy, we believe DOV will see 7% organic growth in 2017e and +7% in 2018e, driven by a recovery in NA Energy & Fluids. We model 340bps cumulative margin expansion over 2017/18e, mainly on restructuring payback and volume recovery. Our 19.0x multiple assume partial contraction from current 10Y highs, but is largely in line with EE/MI peer average. Why Equal-weight? Dover is an energy proxy. While the Energy revenue mix has now declined to ~20%, the high cyclicality of the North American energy market means that stock sentiment will continue to be heavily dictated by the direction of rig counts and WTI prices. EPS is likely at trough levels, following >50% cumulative decline in its Energy revenues since Given the expectation for a recovery in the North American Energy market in 2017 (as per management team and Morgan Stanley's oil services team), we see scope for ~20% EPS growth. Dover now trades at a premium to the group on forward EPS vs. an average 5% discount over L5Y, which largely reflects its premium EPS growth outlook over the next two to three years, while valuation on a FCF basis looks more reasonable. Potential Upside Catalysts Rebound in crude oil prices and increasing rig counts. This is the key driver of DOV s Energy business and acceleration could drive positive EPS momentum and hence multiple expansion. Stable earnings outlook: If the company can meet EPS expectations through 1H16, then there is some scope for multiple expansion. Base $ x Base Case NTM EPS of $4.50 Assuming a modest mid-cycle reacceleration scenario with double digit growth in Energy, we expect DOV to post 4% organic growth in 2017e vs. -6% in 2016 largely driven by recovery in NA Energy and Fluids. We model 100bps Y/Y of margin expansion over 2017/18e following ~120bps decline in Our 19.0x multiple assumes contraction from the current 21.8x level, which represents a trough earnings multiple. Risks to Achieving Price Target Energy margin compression. If Energy margins continue to compress, then we believe that stock sentiment would deteriorate sharply. Weak backlog trends particularly in the Fluids segment, where the outlook for modest organic growth in 2016 could be vulnerable. Bear $ x Bear Case NTM EPS of $3.36 Assuming a recession one third as severe as 2009, we embed flat organic sales for DOV in 2017/2018. Our Bear Case model assumes 100bps margin contraction vs Our 14.0x multiple assumes contraction towards 1Y lows. Source: Morgan Stanley Research, Thomson Reuters. 94

95 Dover - Key Financial Statistics Revenue breakdown by geography Other Americas 10% Asia 9% ROW 5% Revenue breakdown by end market Consumer & Retail 4% Other Process 8% Chemicals 8% Power Gen CommAero 3% 2% Retail Refrig & Food Prep 25% Europe 16% US 60% FMCG 8% General Industrial 24% Oil & Gas 19% Energy S. Soma Somasundaram ES - PID C. Anderson Fincher ES - Industrial C. Anderson Fincher Fluids William Spurgeon Jr. Ref. & Food Equipment William Johnson 2016 Revs 2016 Profits Rev by Geography % of Rev CEO: Robert Livingston CFO: Brad Cerepak Operating Companies Products End-markets Competitors $ 1,108 $55 NA 81% Dover Artificial Lift Rod lifts, plunger lifts, reciprocating pumps, well site controls, analytic tools O&G development & production 16% 6% Europe 6% Energy Automation Productivity tools and performance management software O&G drilling, production and transmission Asia 3% Process Systems Fluid separation and processing equipment O&G production, transportation, refining ROW 10% US Synthetic Diamond inserts for applications in down-hole drilling tools O&G exploration Waukesha Bearings Highly engineered bearings and magnetic bearing systems O&G, Power Gen Quartzdyne Quartz pressure transducer for the downhole O&G industry O&G exploration, development, production Cook Compression Compressor valves, pistons and other products; monitoring solutions Natural gas production, refining & distribution Tulsa Winch Standard and engineered winch, gearbox and load information systems Energy, infrastructure $ 2,366 $392 NA 57% OK International Soldering and fluid dispensing tools Electronic assembly and industrials markets 35% 42% Europe 23% Markem-Imaje Inkjet, thermal transfer, laser, print and other product marketing equip., Consumer goods, pharmaceuticals, industrials Asia 11% MS Printing Solns Digital ink jet printing systems and associated consumables Textile and specialty material ROW 9% Warn Off-road equipment & accessories, winches, hoists, powertrain components Consumer, industrial, military & transportation De-Sta-Co Clamping, indexing, transferring and robotic tooling for workplace automation. General industrial, auto & aerospace A/M 35% Environmental Soln. Refuse collection vehicles, waste compacting and recycling equipment Municipalities, waste management Equipment 65% VSG Vehicle lifting and collision repair equipment Auto repair, dealerships, service centers Performance Motorsports Piston and other engine related components Automotive, powersports, marine Microwave Prod. RF and microwave filters and switches Telecom, defense, aerospace & semi $1,700 $201 NA 52% Finder Engineered and semi-engineered pumps and systems O&G and heavy duty industrial markets 25% 22% Europe 19% Pump Soln. Group Specialty industrial pumps and supporting technologies Chemical, petroleum, pharma, F&B, Industrial Asia 13% Maag Pumps, filtration sytems and pelletizing equipment Chemical & polymers ROW 16% OPW High hazard gauging and monitoring systems; above ground fueling systems Transportation, energy, chemical & industrial A/M 29% HydroSystems Chemical proportioning and specialty liquid dispensing systems Food services, food processing, industrial Equipment 71% Colder Products Quick disconnect couplings Industrials, life sciences and chemicals $1,620 $283 NA 70% Hill Phoenix Refrigeration cases & systems and specialty cases Supermarkets, food retailers 24% 30% Europe 14% Unified Brands Cooking equipment and other food preparation equipment Restaurants, food services, govt. & muni. DeBeers Group (Element Six), Schlumberger, Weatherford, General Electric (Lufkin), Baker Hughes, BORETS and Novomet Compression Products International, Hoerbiger Holdings, John Crane, Kingsbury Danaher Corp. (Videojet), Brother Industries (Domino Printing), Electronics for Imaging Oshkosh Corp. (McNeilus), Siemens AG (Weiss GmbH), Challenger Lifts, Labrie Enviroquip Group, etc. IDEX Corp, Ingersoll Rand, ITT, SPX Flow Danaher Corp. (Gilbarco Veeder- Root), Franklin Electric, Gardner Denver (Emco Wheaton), Wayne Panasonic (Hussman Corp.), Lennox International (Kysor/Warren), Alfa Laval Asia 9% Belvac Beverage can production equipment Food and beverage ROW 7% Swep Compact brazed heat exchangers Industrial and climate control Manitowoc, Illinois Tool, Middleby Source: Company data, Morgan Stanley Research. 95

96 Dover Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 7,516 7,753 6,956 1,622 1,686 1,707 1,778 6,794 1,766 1,903 1,960 2,009 7,639 8,087 YoY total growth 8% 3% -10% -5% -4% -4% 5% -2% 9% 13% 15% 13% 12% 6% YoY organic growth 2% 4% -10% -7% -7% -7% -1% -6% 1% 4% 6% 5% 4% 6% Cost of sales 4,604 4,778 4,388 1,033 1,055 1,076 1,158 4,322 1,122 1,168 1,207 1,277 4,774 4,962 Gross profit 2,911 2,974 2, , ,865 3,125 Margin 38.7% 38.4% 36.9% 36.3% 37.4% 37.0% 34.9% 36.4% 36.5% 38.6% 38.4% 36.5% 37.5% 38.6% SG&A 1,692 1,759 1, , ,940 2,017 Reported Operating Income 1,219 1, ,108 Margin 16.2% 15.7% 13.2% 9.0% 11.5% 12.3% 9.2% 10.5% 9.2% 13.1% 14.4% 11.5% 12.1% 13.7% Exceptional Items Core Operating Income 1,219 1, ,118 Margin 16.2% 16.2% 14.0% 9.9% 12.7% 12.7% 15.9% 12.8% 10.5% 13.4% 14.5% 11.8% 12.6% 13.8% D&A EBITDA 1,509 1,564 1, , ,349 1,515 Margin 20.1% 20.2% 18.7% 15.3% 17.9% 17.7% 21.3% 18.1% 16.0% 18.4% 19.4% 16.6% 17.7% 18.7% Net Interest Other Income/Expense Pre-Tax Income 1,100 1, Taxes Effective Rate 24.2% 29.9% 25.6% 22.1% 28.1% 28.3% 25.4% 26.2% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% Minority Interest Continuing Income Adjustments (83) (11) (18) Headline Income DWAC Headline EPS Yoy 19% 3% -19% -11% -22% -27% 26% -11% -8% 31% 37% -12% 11% 24% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 96

97 Dover Segment Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Energy 1,854 2,017 1, , ,290 1,565 Engineered Systems 2,539 2,386 2, , ,519 2,569 Fluids 1,237 1,431 1, , ,276 2,367 Ref & Food Equipment 1,888 1,921 1, , ,556 1,587 Other (1) (2) (1) (0) (0) (0) (1) (1) (0) (0) (0) (0) (1) (2) Sales 7,516 7,753 6,956 1,622 1,686 1,707 1,778 6,794 1,766 1,903 1,960 2,009 7,639 8,087 Energy 4% 9% -26% -34% -29% -25% -9% -25% 6% 17% 24% 19% 16% 21% Engineered Systems 2% -6% -2% 1% 0% -2% 5% 1% 5% 8% 10% 3% 6% 2% Fluids 14% 16% -2% 17% 15% 17% 36% 21% 32% 36% 37% 31% 34% 4% Ref & Food Equipment 17% 2% -10% -2% -4% -8% -10% -6% -8% -6% -4% 3% -4% 2% Sales YoY 8% 3% -10% -5% -4% -4% 5% -2% 9% 13% 15% 13% 12% 6% Energy Engineered Systems Fluids Ref & Food Equipment Other (128) (119) (109) (29) (24) (26) (30) (108) (35) (29) (29) (29) (122) (126) EBITDA 1,509 1,523 1, , ,349 1,515 Energy 1% 3% -45% -41% -37% -37% -13% -32% 24% 40% 55% 37% 39% 34% Engineered Systems 6% -5% -3% 9% 8% -2% 9% 6% 0% 5% 7% 3% 4% 4% Fluids 22% 14% 2% 4% -3% -1% 22% 5% 38% 35% 38% 0% 27% 10% Ref & Food Equipment 28% -8% -7% 6% -3% -14% -15% -7% -21% -2% 10% 23% 2% 4% EBITDA YoY 11% 1% -18% -9% -9% -14% 30% -1% 14% 16% 26% -12% 9% 12% Energy (0) Engineered Systems Fluids Ref & Food Equipment Segment Income 1,351 1,339 1, ,088 1,248 Other (137) (137) (137) (137) (137) (137) (137) (137) (137) (137) (137) (137) (137) (137) Operating Income 1,214 1, ,111 Energy -2% 0% -62% -79% -100% -73% -1% -68% 165% NM 237% 76% 189% 60% Engineered Systems 8% -3% -3% 6% 8% -5% 8% 4% -2% 4% 7% 2% 4% 4% Fluids 23% 12% 4% -16% -23% -12% -44% -23% 9% 48% 38% 80% 57% 13% Ref & Food Equipment 20% -11% -7% 5% -4% -16% 176% 28% -29% -4% 11% -62% -28% 4% Segment Income YoY 9% -1% -23% -18% -19% -21% 24% -10% 5% 27% 29% -7% 17% 15% Operating Income YoY 10% -1% -25% -45% -38% -38% 62% -11% 19% 70% 68% -14% 20% 17% Energy 24.8% 22.9% 11.7% 4.0% 0.0% 4.9% 10.5% 5.0% 10.0% 10.1% 13.2% 15.6% 12.4% 16.4% Engineered Systems 15.7% 16.2% 16.1% 16.2% 17.6% 17.0% 15.5% 16.6% 15.1% 16.8% 16.6% 15.4% 16.3% 16.5% Fluids 18.2% 17.6% 18.7% 11.5% 13.3% 16.0% 7.2% 11.8% 9.5% 14.5% 16.2% 9.9% 13.8% 15.0% Ref & Food Equipment 14.2% 12.4% 12.8% 10.5% 14.7% 14.2% 31.4% 17.5% 8.1% 15.1% 16.5% 11.6% 13.1% 13.3% Segment Margins 18.0% 17.3% 14.9% 11.7% 13.1% 14.1% 15.8% 13.7% 11.3% 14.7% 15.9% 13.0% 14.2% 15.4% Operating Margins 16.1% 15.5% 12.9% 3.2% 5.0% 6.1% 8.0% 11.7% 3.5% 7.5% 8.9% 6.1% 12.4% 13.7% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 97

98 Dover Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Net Income Depreciation & Amortization Working Capital (197) (140) 100 (24) (11) (194) (57) 156 (292) (388) 158 Other (56) (31) 12 4 (86) (101) (175) (180) Operating Cash Flow 1, ,028 1,076 Capital Expenditure (146) (156) (154) (37) (35) (43) (49) (165) (47) (47) (47) (47) (187) (192) Free Cash Flow FCF Margin 12.0% 10.6% 11.4% 5.9% 10.2% 11.0% 13.5% 10.3% 0.9% 11.4% 10.6% 19.9% 11.0% 10.9% Acquisitions (323) (802) (568) (436) (39) (27) (1,060) (1,562) Disposals Other 20 (20) (2) (0) - (1) - (1) Cash Flow Pre Financing (292) (653) (642) Equity issue Stock repurchase (458) (601) (600) (9) (10) (10) (10) (39) (169) Dividends (248) (258) (258) (66) (65) (69) (69) (268) (69) (69) (75) (75) (288) (314) Other (125) (10) 2 (17) Movement on Net Debt (25) (325) (57) (367) (659) (866) (58) Cash ,075 Gross Debt 2,828 3,031 2,768 3,017 2,951 3,128 3,621 3,621 3,707 3,607 3,507 3,407 3,407 3,407 Net Debt 2,025 2,349 2,406 2,773 2,696 2,613 3,272 3,272 3,330 3,188 3,061 2,744 2,744 2,331 Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 98

99 Mar Jun Sep Dec NTM P/E 1Y Median 5Y Median Mar Jun Sep Dec Mar Mar Jun Sep Dec Mar Jun Sep Dec Mar-17 M O R G A N S T A N L E Y R E S E A R C H Dover: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median 24 20% Premium/Discount vs. sector median 1Y Median 5Y Median 22 15% 20 10% 18 5% 16 0% 14-5% 12-10% 10 Organic Growth vs. EE/MI (2004/16) Core Operating Margins vs. EE/MI (2004/16) 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Organic Growth EE/MI Median 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Core Operating Margin EE/MI Median Source: Company data, Morgan Stanley Research estimates 99

100 Price Target (Feb-18) Historical Stock Performance Current Stock Price WARNINGDONOTEDIT_RRS4RL~EMR.N~ Emerson Electric (EMR): Equal-weight, $63 Price Target $ $63.26 $71.00 (+12%) $58.00 (-8%) $31.00 (-51%) 0 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Why Equal-weight? M O R G A N S T A N L E Y R E S E A R C H Oil Proxy. EMR is one of the most levered to O&G capex within our universe - we expect the positive impact of recovering upstream O&G markets to drive a recovery in organic growth through V&C Closure and Integration. The closure of PNR's V&C business is material to the EMR story, with acquisitions representing ~40c of EPS through Closing the deal and integration remain key guideposts in the EMR story. Margins. Margin improvement is key to the EMR story. As such, while we view Automation segment margin targets of ~20% as reasonable, we believe CR&S margins look capped. Valuation. At a ~20% premium to the group (vs. parity historically), we view the stock as expensive at these levels. Given favorable end market exposures, we don't believe the stock should trade at parity with the group, but believe a more modest premium is warranted. Price Target: $63 Aligned with our Base Case Scenario. Bull $84 Base $ x Bull Case Tax- Adj EPS of $ x Base Case Tax Adj EPS of $3.40 Assuming a sharp recovery in the O&G market, we model an ~7% core revenue growth in 2018e vs. 0.7% in We have also baked in +340bps OM expansion vs on a pro forma basis, driven by volume leverage and restructuring payback. We also adjust our headline EPS for a lower normalized tax rate at 24% (vs. 31% GAAP ETR), reflecting probable benefits from US tax reform. Our 20.0x multiple assume EMR's current valuation is sustainable and represents a modest premium to the peer group. Assuming modest growth in industrial spending, we model a 1% core decline for EMR in 2017e and +5% growth in 2018e. We expect op margin to expand by ~210bps over 2016/18e, with restructuring savings and volume leverage more than offsetting V&C related dilution. We also adjust our headline EPS for a lower normalized tax rate at 27% (vs. 31% GAAP ETR), reflecting probable benefits from US tax reform. Our 18.5x multiple is above EMR's 1yr & 5yr average of ~15x, reflecting higher profitability, and this also represents a modest premium to the peer group given EMR's trough earnings profile. Potential Upside Catalysts Order and/or oil price rebound. A sustainable recovery in order trends or a sharp upward move in crude prices could lead to multiple re-rating. Evidence of inflection in Process margins: If EMR provides evidence that it can support Process margins in the high teens, this would likely lower perceived EPS risks. Investment Risks to Price Target O&G Capex. A further decline in global O&G capex will likely lead to more downside order pressure and industry price deflation. Non-O&G slow-down. A potential slow-down in the Commercial and Residential businesses could drive downside to forecasts. Source: Morgan Stanley Research, Thomson Reuters. Bear $ x Bear Case Tax- Adj EPS of $2.71 Assuming further weakness in the industrial and O&G markets, we forecast 3% organic decline for EMR in 2017e, followed by +2% growth in 2018e. We have assumed ~190bps margin expansion vs We also assume GAAP ETR remains unchanged at 31%. Our 14.0x multiple is largely in line with EMR s 1Y lows. 100

101 Emerson Electric - Key Financial Statistics Revenue breakdown by geography Asia 15% LatAm 7% MEA 9% US 45% Revenue breakdown by end market C-HVAC 3% R-HVAC 9% Refining 7% Tools 8% Appliances 3% Comm Refrig. 5% Oil & Gas 24% General Industrial 11% Europe 25% Chemicals 13% Power Generation 8% Other Process 10% CEO: Dave Farr CFO: Frank Dellaquila COO: Edgar Purvis FY15 Revs FY15 Op. Profits End Markets % of Seg. Revs Geographies Automation Solutions* $12,076 $2,591 Oil & Gas 34% US & Canada 38% Michael H. Train 69% 68% Chemical 19% Asia Pacific 27% Power 12% Europe 17% Refining 10% LatAm 7% Other 26% MEA 11% % of Seg. Revs Key Products & Services Key Brands Competitors Process control systems, analytical instrumentation and measurement products, valves, actuators, regulators, fluid control, industrial electrical power and materials joining equipment. PlantWeb digital plant architecture collects and analyzes plant asset and process data. AMS Suite, CSI, DeltaV, Ovation, PlantWeb, Daniel, Micro Motion, Rosemount, Baumann, Bettis, Fisher, ASCO Numatics, Browning, Crosby, Anderson-Greenwood, Vanessa, Keystone ABB, Honeywell, Schneider, Yokogawa, Siemens Commercial & Residential $5,300 $1,200 R-HVAC 30% US & Canada 61% Solutions 31% 32% Comm Refrig. 13% Asia Pacific 19% Bob Sharp C-HVAC 10% Europe 10% Resi Construction 19% LatAm 6% Non-resi Const. 4% MEA 4% Transport 3% Other Comm/ Ind'l 21% Air conditioning compressors, thermostats, monitoring equipment, heating system electronic controls, gas valves for furnaces and water heaters, temperature sensors and, facility monitoring services and energy modeling and consulting. Hand and power tools, pipe working tools, food service equipment, food waste disposers, ceiling fans, and hot water dispensers. Copeland, Vilter, Fusite, White- Rodgers, Emerson Climate Technologies, Dixell, Computer Process Controls, RIDGID, Emerson Tool Company, Flo Healthcare, InSinkErator, Emerson Appliance Solutions Johnson Controls, Ingersoll Rand, Carrier (UTC), Eaton, Stanley Black & Decker, Snap-on Source: Company data, Morgan Stanley Research. 101

102 Emerson Electric Income Statement Estimates YE 30 September ($m) Q17 2Q17E 3Q17E 4Q17E 2017E 1Q18E 2Q18E 1Q18E 2Q18E 2018E 2019E Sales 22,304 20,232 3,216 3,492 3,980 4,180 14,869 3,598 3,947 4,195 4,468 16,208 17,343 YoY total growth -9% -9% -32% -29% -22% -24% -27% 12% 13% 5% 7% 9% 7% YoY organic growth -2% -6% -3% -1% 1% 0% -1% 2% 4% 5% 7% 5% 7% Cost of sales 13,256 11,976 1,851 2,025 2,319 2,435 8,630 2,070 2,309 2,419 2,578 9,376 9,897 Gross profit 9,048 8,256 1,365 1,468 1,661 1,745 6,239 1,528 1,638 1,776 1,890 6,832 7,446 Margin 40.6% 40.8% 42.4% 42.0% 41.7% 41.7% 42.0% 42.5% 41.5% 42.3% 42.3% 42.2% 42.9% SG&A 5,184 4, , ,759 3,982 Core Operating Income 3,864 3, , ,073 3,464 Margin 17.3% 16.9% 16.9% 17.8% 18.7% 20.3% 18.6% 17.2% 17.5% 19.6% 21.1% 19.0% 20.0% Other Deductions GAAP Operating Income 4,332 2, , ,645 3,191 Margin 19.4% 14.4% 15.9% 16.8% 15.1% 16.8% 16.1% 13.5% 14.8% 17.0% 19.3% 16.3% 18.4% D&A Core EBITDA 4,329 3, ,000 3, ,091 3,664 4,048 Margin 19.4% 19.2% 20.6% 21.3% 22.5% 23.9% 22.2% 21.3% 21.3% 23.1% 24.4% 22.6% 23.3% Interest & Other Income/Expense Interest Expense (200) (217) (52) (46) (46) (46) (189) (47) (47) (48) (48) (189) (193) Income before Tax 4,161 2, , ,492 3,052 Taxes 1,428 1, Effective Rate 34.3% 38.9% 20.3% 31.0% 31.0% 31.0% 28.8% 31.0% 31.0% 31.0% 31.0% 31.0% 31.0% Continuing Income 2,710 1, , ,686 2,065 Adjustments (560) 297 (3) Headline Income 2,150 1, , ,755 2,065 DWAC Headline EPS Yoy -16% -6% -1% -14% -18% -20% -14% -7% 5% 11% 13% 6% 18% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 102

103 Emerson Electric Segment Estimates YE 30 September ($m) Q17 2Q17E 3Q17E 4Q17E 2017E 1Q18E 2Q18E 1Q18E 2Q18E 2018E 2019E Process Management 8,516 7, Industrial Automation 4,121 3, Network Power 4,441 4, Climate Technologies 4,011 3, Commercial & Residential 1,924 1, Industrial Automation 1,967 2,028 2,465 2,765 9,226 2,398 2,526 2,638 3,014 10,576 11,514 Comm'l & Residential Solutions 1,252 1,467 1,518 1,418 5,655 1,203 1,424 1,560 1,457 5,644 5,841 Eliminations (709) (643) (3) (3) (3) (3) (12) (3) (3) (3) (3) (12) (12) Sales 22,304 20,232 3,216 3,492 3,980 4,180 14,869 3,598 3,947 4,195 4,468 16,208 17,343 Process Management -7% -12% Industrial Automation -17% -16% Network Power -12% -1% Climate Technologies -2% -2% Commercial & Residential 0% -16% Industrial Automation 0% -16% -9% -8% 13% 13% 3% 22% 25% 7% 9% 15% 9% Comm'l & Residential Solutions 0% -16% 6% 6% 1% -5% 2% -4% -3% 3% 3% 0% 3% Sales YoY -9% -9% -32% -29% -22% -24% -27% 12% 13% 5% 7% 9% 7% Process Management 1,858 1,481 Industrial Automation Network Power Climate Technologies Commercial & Residential Industrial Automation , ,356 2,716 Comm'l & Residential Solutions , ,503 1,526 Other (71) (142) (49) (49) (49) (49) (194) (49) (49) (49) (49) (194) (194) EBITDA 4,319 3, ,000 3, ,091 3,664 4,048 Process Management -15% -20% Industrial Automation -22% -18% Network Power -30% 26% Climate Technologies -4% 6% Commercial & Residential -3% -9% Industrial Automation -3% -9% -6% -9% 10% 12% 2% 26% 25% 14% 14% 19% 15% Comm'l & Residential Solutions -3% -9% 12% 6% 2% -2% 4% -2% -2% 0% 0% -1% 2% EBITDA YoY -13% -10% -16% -17% -13% -15% -15% 15% 13% 8% 9% 11% 10% Process Management 1,582 1,205 Industrial Automation Network Power Climate Technologies Commercial & Residential Industrial Automation , ,695 2,156 Comm'l & Residential Solutions , ,350 1,380 Segment Income 3,631 3, Restructuring (211) (108) (11) (13) (22) (27) (74) (35) (35) (35) (35) (140) (85) Other 912 (279) (65) (65) (65) (65) (260) (65) (65) (65) (65) (260) (260) Operating Income 4,332 2, , ,645 3,191 Process Management 18.6% 16.1% Industrial Automation 15.1% 14.5% Network Power 6.6% 9.9% Climate Technologies 17.9% 19.6% Commercial & Residential 21.5% 24.0% Industrial Automation 16.9% 15.8% 11.9% 15.6% 14.9% 14.0% 13.7% 15.7% 19.9% 16.0% 18.7% Comm'l & Residential Solutions 20.3% 23.4% 26.1% 25.5% 24.0% 20.8% 23.8% 25.5% 24.9% 23.9% 23.6% Segment Margins ex-items 15.8% 15.8% 18.2% 19.0% 17.3% 19.0% 18.4% 16.3% 17.3% 19.4% 21.5% 18.8% 20.4% Operating Margins 19.4% 14.4% 15.9% 16.8% 15.1% 16.8% 16.1% 13.5% 14.8% 17.0% 19.3% 16.3% 18.4% Process Management -18% -24% Industrial Automation -23% -20% Network Power -38% 47% Climate Technologies -4% 8% Commercial & Residential -3% -7% Industrial Automation -5% -9% -20% -10% -11% 1% 8% 42% 39% 23% 27% Comm'l & Residential Solutions 15% 7% 3% -1% 5% -2% -1% 1% 0% 0% 2% Segment Income ex-items YoY -17% -9% -11% -12% -20% -22% -17% 0% 3% 18% 21% 11% 16% Operating Income YoY 22% -33% -7% -10% -24% -23% -17% -5% 0% 19% 23% 10% 21% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 103

104 Emerson Electric Cash Flow Estimates YE 30 September ($m) E 2017E 2017E 2017E 2017E 2017E 2017E 2017E 2017E 2018E 2018E Net Income 2,150 1, , ,755 2,065 Depreciation & Amortization Working Capital (142) 93 (138) (203) (359) 263 (437) 17 (256) (184) 235 (187) (205) Other (241) 139 (76) (1,014) 577 (26) (539) (23) (247) Operating Cash Flow 2,582 2, (313) , ,443 2,656 Capital Expenditure (685) (523) (100) (100) (100) (166) (466) (137) (137) (137) (137) (547) (571) Free Cash Flow 1,897 2, (413) , ,897 2,085 FCF Margin 8.5% 12.0% 4.3% -11.8% 17.3% 17.1% 7.6% 10.8% 11.8% 10.4% 13.6% 11.7% 12.0% Acquisitions (324) (132) (16) (3,150) - - (3,166) Disposals 1,812-3,894 1, , Cash Flow Pre Financing 3,385 2,292 4,016 (2,363) , ,897 2,085 Equity issue Stock repurchase (2,501) (601) - (60) (61) (62) (184) (64) (66) (67) (68) (265) (286) Dividends (1,269) (1,227) (311) (311) (311) (311) (1,245) (321) (321) (320) (320) (1,282) (1,341) Other (528) (140) (159) (159) Movement on Net Debt (913) 324 3,546 (2,734) , Cash 3,054 3,182 4,151 1,417 1,734 2,356 2,356 2,361 2,440 2,488 2,705 2,705 3,164 Gross Debt 6,842 6,646 4,069 4,069 4,069 4,069 4,069 4,069 4,069 4,069 4,069 4,069 4,069 Net Debt 3,788 3,464 (82) 2,652 2,335 1,713 1,713 1,708 1,629 1,581 1,364 1, Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 104

105 Feb May Aug Nov NTM P/E 1Y Median 5Y Median 2009 Feb May Aug Nov Feb Mar Jun Sep Dec Mar Jun Sep Dec Mar-17 M O R G A N S T A N L E Y R E S E A R C H Emerson Electric: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median % 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% Premium/Discount vs. sector median 1Y Median 5Y Median Organic Growth vs. EE/MI (2004/16) Core Operating Margins vs. EE/MI (2004/16) Organic Growth Core Operating Margin EE/MI Median 20% 15% 10% 5% 0% -5% -10% -15% -20% EE/MI Median 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -25% 105 Source: Company data, Morgan Stanley Research estimates, Thomson Reuters.

106 Eaton (ETN): Overweight, $83 Price Target Price Target $83 Aligned with Base Case Why Overweight? Complex portfolio. ETN remains a Multi-Industry and Machinery hybrid with the elevated cyclicality of the Hydraulics and Truck businesses continuing to overwhelm the higher quality Electrical and Aerospace businesses. This is the proximate cause of elevated earnings pressure and the sharp P/E discount. Balance sheet optionality: With the company now targeting an A- long-term credit rating, we calculate ~$7bn of cumulative surplus capital over 2016/18, which could drive >$1 EPS accretion over the next three years - assuming all excess cash flow will be deployed for share repurchases. Potential for re-rating. P/E is the right valuation metric for ETN, given its sustainably lower tax rate. The stock is currently trading at a steep discount to peers and we see a strong case for re-rating when estimates bottom and as management start redeploying surplus capital. Bull $92 Base $83 Bear $ x Bull Case NTM EPS of $5.11 (at 11% tax rate) 16.5x Base Case NTM EPS of $5.05 (at 13% tax rate) 11.0x Bear Case NTM EPS of $3.86 (at 18% tax rate) Driven by continued strength in non-residential construction and a sharp recovery in the O&G and Industrial markets, ETN could see core growth accelerate to 3-4% p.a. through 2018e. We model core OM expansion of 100bps over 2017e driven by Aero A/M mix and restructuring savings. We embed multiple expansion to 18.0x, in line with ETN's 1Y max valuation, but still below group average - driven by upside to estimates and above average earnings growth. Assuming moderating growth in non-resi and re-acceleration in global industrial production, we model flat core growth over 2017 and 4% core growth in 2018e. We also adjust our EPS estimate for a higher normalized tax rate at 15% (vs. 11% GAAP ETR in 2018e), reflecting potential headwinds from proposed border adjustability measures. Our 16.5x multiple assumes some expansion from current multiple on higher tax rate. Assuming a modest recession in 2016, we model a -1% organic decline in We model 20bps margins contraction vs Our 11.0x multiple implies partial reversion to ETN s 1Y norms as EPS expectations ratchet lower. We also adjust our EPS estimate for a 18% tax rate (vs. ~11% GAAP ETR in 2018e), reflecting potential headwinds from proposed border adjustability measures. Potential Upside Catalysts More aggressive FCF deployment as management has now guided for A- long term credit rating (vs. A previously) and 4-5% p.a. return to shareholders. Signs of stability in short cycle industrial markets and visibility on the degree to which restructuring benefits can offset decremental margins in Hydraulics and Vehicle segments. Investment Risks to Price Target Upward pressure on the tax rate from US tax reform or measures by international organizations to limit re-domiciling, transfer pricing and other inter-company transactions. However, we believe this risk is largely priced in. Broader industrial market sell-off since Eaton has aboveaverage Beta. Source: Morgan Stanley Research, Thomson Reuters. 106

107 Eaton - Key Financial Statistics Revenue breakdown by geography Europe 22% Latin America 9% Asia Pacific 12% Canada 5% United States 52% Revenue breakdown by end market Defense 3% Comm Aerospace 5% Resi Construction 6% Oil & Gas 6% Auto OEM 0% T&D 7% IT/Electronics 9% Other 3% Other Process 1% Heavy Truck/Trailer 19% General Industrial 22% Non-Resi Construction 19% 2016 Revs 2016 Op. Profits End Markets COO, Electrical Sector, Revathi Advaithi Electrical Products $6,957 $1,240 Data Center/IT 15% Jim McGill & Frank Campbell 35% 42% Residential 9% Commercial 17% Electrical Systems & Services $5,662 $711 Institutional/ Gov't 8% Jim McGill & Frank Campbell 29% 24% Infrastructure 5% COO, Industrial Sector, Uday Yadav Utility 12% Industrial 23% Machine Builders 11% Hydraulics $2,222 $198 Construction & Mining 22% Curtis Hutchins 11% 7% Agriculture 15% O&G/Energy 10% Comm Vehicle 10% Manufacturing 10% Processing 10% Other 16% Material Handling 7% Aerospace $1,753 $335 Aerospace 65% Nanda Kumar 9% 11% Defense 35% CEO: Craig Arnold CFO: Richard Fearon % of Seg. Revs Key Products & Services Key Brands Competitors Circuit breakers, switchgear, UPS systems, power distribution units, panelboards, loadcenters, motor controls, meters, sensors, relays and inverters, lighting fixtures and controls, enclosures, wiring devices, plugs, recepticals, switches, emergency lighting, fire detection and mass notification systems, cable glands/boxes. Pumps, motors and hydraulic power units, controls and sensing products, valves, cylinders, industrial and hydraulic hose, fittings, assemblies, thermoplastic hose and tubing, couplings, connectors, assembly equipment, filtration systems solutions, heavyduty drum and disc brakes, and golf grips. Pumps, motors, hydraulic power units, hose and fittings, electro-hydraulic pumps and power and load management systems for use in aerospace applications, controls and sensing products, fluid conveyance products, and fuel systems including fuel pumps, sensors, valves, adapters and regulators. Eaton, Cyme, FR3, CL-6, Yukon, Mforce, Crouse- Hinds, MTL, CEAG, Nortem, Halo, Metalux, Neo-Ray, Lumark, Bussmann, Fusetron, Magnum, Edison, KwikWire, Aspire Aeroquip, Airflex, Arrow, Boston, Char-Lynn, Dynapower, Everflex, Hansen and Gromelle, Hydrokraft, Hydro-Line, Hydrowa, Integrated Hydraulics, Synflex, Ultronics, Vickers, Weatherhead Aeroquip, Argo-Tech, Carter, Vickers, Centurion Emerson Network Power, Schneider, Siemens, Regal Beloit, Hubbell, Legrand, ABB, Areva, GE, Acuity Brands, Philips Parker Hannifin, Sauer Danfoss, Bosch Rexroth, Dongyang Mechatronics, Sun Hydraulics, SPX, Zhenjiang Hydraulics Components, Siemens Parker Hannifin, UTX, Honeywell, Rockwell Collins, GE Aviation, BAE Systems, Moog, Safran Vehicle $3,153 $474 Passenger 35% Kenneth Davis 16% 16% Line Haul 34% Vocational 12% Pickup & Delivery 8% Ag/Off Highway 4% Other 7% Transmissions, clutches and hybrid power systems for OEM and after-market customers of heavy-, medium-, and light-duty trucks and passenger cars. Superchargers, engine valves and valve actuation systems, cylinder heads, locking and limited slip differentials, transmission and engine controls, fuel vapor components, compressor control clutches for mobile refrigeration, fluid connectors and hoses, underhood plastic components, fluid conveyance & sealing products. EverTough, Fuller, Roadranger Aeroquip, Fuller Dana, Meritor, Wabco, Cummins, Allison Transmission Borg Warner, Johnson Controls, Lear, Autoliv Source: Company data, Morgan Stanley Research. 107

108 Eaton Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 22,046 22,552 20,855 4,813 5,080 4,987 4,867 19,747 4,669 4,952 4,954 4,939 19,514 20,391 YoY total revenue growth 35.2% 2.3% -7.5% -7.8% -5.4% -4.2% -3.8% -5.3% -3.0% -2.5% -0.7% 1.5% -1.2% 4.5% YoY organic revenue growth 0.1% 4.1% -1.9% -5.8% -3.9% -3.3% -2.8% -4.1% -1.9% -0.7% 1.5% 2.3% 0.3% 4.5% Cost of sales 15,369 15,646 14,292 3,291 3,419 3,371 3,319 13,400 3,173 3,321 3,311 3,261 13,065 13,405 Gross Profit 6,677 6,906 6,563 1,522 1,661 1,616 1,548 6,347 1,496 1,631 1,643 1,678 6,449 6,987 Margin 30.3% 30.6% 31.5% 31.6% 32.7% 32.4% 31.8% 32.1% 32.1% 32.9% 33.2% 34.0% 33.0% 34.3% SG&A 3,886 3,810 3, , ,440 3,595 R&D Reported Operating Income 2,147 1,805 2, , ,427 2,784 Margin 9.7% 8.0% 11.2% 10.0% 12.1% 12.4% 11.1% 11.4% 10.4% 12.5% 13.3% 13.4% 12.4% 13.7% Exceptional Items Core Operating Income 2,310 2,603 2, , ,427 2,784 Margin 10.5% 11.5% 11.5% 10.0% 12.1% 12.4% 11.1% 11.4% 10.4% 12.5% 13.3% 13.4% 12.4% 13.7% D&A Core EBITDA 3,287 3,586 3, , ,346 3,692 Margin 14.9% 15.9% 15.9% 14.9% 16.7% 17.1% 15.8% 16.1% 15.3% 17.2% 17.9% 18.1% 17.1% 18.1% Yoy 41.1% 9.1% -7.6% -9.9% -3.8% 8.4% -9.5% -3.9% 5.0% 10.3% 6.4% 0.0% 5.0% 10.3% Other (Income)/Expenses (8) (183) (35) (18) 5 (15) (79) (107) Net Interest Pre-Tax Income 1,884 1,761 2, , ,188 2,554 Income before Tax 1,884 1,761 2, , ,188 2,554 Taxes 11 (42) Effective Rate 0.6% -2.4% 7.6% 8.8% 11.0% 8.9% 9.1% 9.5% 6.5% 10.5% 10.5% 10.5% 9.7% 11.2% Non-controlling interest & Others Continuing Income 1,861 1,793 1, , ,972 2,265 Adjustments Headline Income 1,971 2,231 2, , ,972 2,265 DWAC Headline EPS Yoy 4.8% 13.2% -8.0% -12.9% -7.3% 18.2% -4.5% -1.6% 0.5% 4.3% 5.0% 8.9% 4.3% 16.7% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 108

109 Eaton Segment Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Electrical Products 7,026 7,254 6,976 1,680 1,784 1,767 1,726 6,957 1,672 1,781 1,800 1,765 7,018 7,229 Electrical Systems & Services 6,430 6,457 5,931 1,342 1,429 1,436 1,455 5,662 1,259 1,347 1,382 1,431 5,419 5,636 Hydraulics 2,981 2,975 2, , ,202 2,422 Aerospace 1,774 1,860 1, , ,770 1,806 Vehicle 3,835 4,006 3, , ,105 3,299 Sales 22,046 22,552 20,855 4,813 5,080 4,987 4,867 19,747 4,669 4,952 4,954 4,939 19,514 20,391 Electrical Products 82.7% 3.2% -3.8% -0.7% 0.0% -0.2% -0.2% -0.3% -0.4% -0.1% 1.9% 2.2% 0.9% 3.0% Electrical Systems & Services 66.1% 0.4% -8.1% -7.3% -4.9% -3.4% -2.6% -4.5% -6.2% -5.8% -3.8% -1.6% -4.3% 4.0% Hydraulics 0.7% -0.2% -17.3% -17.1% -8.4% -6.2% -5.8% -9.6% -2.9% -1.8% -0.8% 2.0% -0.9% 10.0% Aerospace 3.2% 4.8% -2.8% -4.1% -1.5% -2.9% -3.4% -3.0% -1.7% 1.0% 2.0% 2.7% 1.0% 2.0% Vehicle -2.0% 4.5% -8.1% -16.8% -16.0% -12.4% -11.9% -14.4% -3.8% -4.4% -2.1% 4.8% -1.5% 6.2% Sales YoY 35.2% 2.3% -7.5% -7.8% -5.4% -4.2% -3.8% -5.3% -3.0% -2.5% -0.7% 1.5% -1.2% 4.5% Electrical Products 1,134 1,250 1, , ,312 1,383 Electrical Systems & Services Hydraulics Aerospace Vehicle Corporate & Others (985) (838) (794) (188) (164) (182) (171) (705) (183) (162) (174) (170) (690) (665) Operating Income Ex-Items 2,310 2,603 2, , ,427 2,784 Electrical Products 76.1% 10.2% -4.9% 1.9% 14.5% 1.5% 1.0% 4.5% 1.2% 3.9% 5.8% 10.8% 5.6% 5.4% Electrical Systems & Services 111.9% -3.5% -11.5% -15.3% -21.6% 18.0% -14.9% -10.0% -9.3% -5.5% 0.1% 16.7% 0.7% 10.6% Hydraulics 1.6% -3.1% -34.6% -38.8% -21.3% 38.6% -40.3% -20.2% 32.0% 17.1% 16.2% 58.7% 27.7% 41.0% Aerospace 18.3% 8.3% 13.6% 3.9% 7.8% 11.4% 9.1% 8.1% 4.6% 2.9% -0.9% 9.4% 4.0% 2.0% Vehicle 3.9% 9.0% 0.0% -28.0% -27.9% -10.3% -37.4% -26.5% -7.1% -9.2% 4.1% 29.7% 2.7% 15.3% Segment Income YoY 33.4% 12.7% -8.2% -15.1% -5.2% 11.8% -12.5% -5.5% 0.3% 0.7% 6.7% 22.7% 7.5% 14.7% Electrical Products 16.1% 17.2% 17.0% 16.1% 18.1% 18.8% 18.4% 17.9% 16.4% 18.8% 19.5% 19.9% 18.7% 19.1% Electrical Systems & Services 14.4% 13.8% 13.3% 11.9% 12.5% 13.7% 12.2% 12.6% 11.5% 12.5% 14.3% 14.4% 13.2% 14.1% Hydraulics 13.1% 12.7% 10.1% 7.4% 10.0% 10.9% 7.1% 8.9% 10.1% 11.9% 12.7% 11.1% 11.5% 14.7% Aerospace 14.2% 14.7% 17.2% 18.0% 18.6% 20.2% 19.8% 19.1% 19.1% 18.9% 19.6% 21.1% 19.7% 19.7% Vehicle 15.4% 16.1% 17.5% 14.8% 16.5% 15.5% 13.1% 15.0% 14.3% 15.7% 16.5% 16.2% 15.7% 17.0% Segment Margin 14.9% 15.3% 15.3% 13.9% 15.4% 16.0% 14.6% 15.0% 14.3% 15.8% 16.8% 16.9% 16.0% 16.9% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 109

110 Eaton Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Net Income 1,861 1,793 1, , ,972 2,265 Depreciation & Amortization Working Capital (237) (260) (135) (313) (123) (329) (87) (106) (179) Other (316) (638) (399) 49 (20) (5) (196) (172) 142 (13) (2) (204) (76) 68 Operating Cash Flow 2,285 1,878 2, , ,709 3,062 Capex (614) (632) (506) (111) (135) (100) (151) (497) (117) (117) (117) (117) (468) (477) Free Cash Flow 1,671 1,246 1, , ,241 2,586 FCF Margin 7.6% 5.5% 8.9% 5.4% 12.0% 14.0% 10.0% 10.4% 6.9% 10.4% 13.1% 15.4% 11.5% 12.7% Acquisitions (9) - (72) Disposals Other (356) (49) 90 (67) Cash Flow Pre Financing 2,083 2,021 1, , ,241 2,586 Equity issuance Stock repurchase - (650) (628) (100) (224) (243) (163) (730) (175) (179) (182) (186) (721) (952) Dividends (796) (929) (1,023) (256) (265) (259) (257) (1,037) (265) (265) (264) (263) (1,057) (1,082) Other 481 (664) (194) 59 (104) 68 (15) Movement on Net Debt 1,889 (168) 4 (68) (84) Cash & short-term investment 1,709 1, ,052 1,052 1,762 Gross Debt 9,549 9,034 8,449 8,645 8,414 8,432 8,277 8,277 7,975 7,975 7,975 7,975 7,975 7,975 Net Debt 7,840 8,008 8,004 8,072 7,945 7,725 7,531 7,531 7,615 7,509 7,271 6,923 6,923 6,213 Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 110

111 Mar Jun Sep Dec NTM P/E 1Y Median 5Y Median Mar Jun Sep Dec Mar-17 Mar Jun Sep Dec Mar Jun Sep Dec Mar-17 M O R G A N S T A N L E Y R E S E A R C H Eaton: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median 18 0% Premium/Discount vs. sector median 1Y Median 5Y Median 17-5% 16-10% % 13-20% 12-25% 11-30% 10 Organic Growth vs. EE/MI (2004/16) Core Operating Margins vs. EE/MI (2004/16) 20% Core Operating Margin EE/MI Median 15% 10% 5% 0% -5% -10% -15% -20% -25% Organic Growth EE/MI Median 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 111 Source: Company data, Morgan Stanley Research estimates, Thomson Reuters.

112 Price Target (Feb-18) Historical Stock Performance Current Stock Price WARNINGDONOTEDIT_RRS4RL~FTV.N~ M O R G A N S T A N L E Y R E S E A R C H Fortive Corp. (FTV): Overweight, $61 Price Target Price Target $61 Bull $79 Base $61 Bear $41 $ Our methodology for deriving our target price is aligned with our Base Case scenario described below. Assuming acceleration in the cyclical Field Solutions, Product 22.0x Bull Case Realization, and Automation businesses, we estimate core growth of NTM EPS of 5% in 2017 with margins up 60bps to 21.0% (core expansion moderated $3.59 modestly from typical levels due to M&A dilution). Our 22.0x bull case multiple assumes a ~3x premium is warranted vs. the broad EE/MI group 20.0x Base Case NTM EPS of $ x Bear Case NTM EPS of $2.42 $57.15 $79.00 (+38%) $61.00 (+7%) $41.00 (-28%) 0 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 given solid growth, execution on M&A, and margin expansion. Assuming modest acceleration into 2017 driven predominantly by a recovery in Professional Instrumentation, we model 1.1% organic growth in 2016 accelerating to 3.1% in 2017, with 30bps of core margin expansion over the same period. Our ~20.0x target multiple is in line with Danaher's long-term average and similar to other M&A roll-up companies. Assuming a modest downturn yields 6% organic revenue decline in 2017 with sharp declines in the cyclical Field Solutions and Product Realization businesses mitigated by secular trends in the Transportation Technologies business. We model 70bps of core margin contraction in 2016/17 primarily driven by core volume deleverage. Our 17x multiple implies a discount to the broader EE/MI group due to the cyclical nature of several businesses. Why Overweight? A Surprisingly High Quality Portfolio. We see scope for 2-3% organic growth, 20-21% OM and FCF in excess of 100%, highlighting an above-average quality collection of market leading business in niche markets that have high barriers to entry. Meet The New Danaher. The portfolio is similar to Danaher circa We see scope for >$7bn of deployable capital, driving an outlook for double-digit revenue growth and mid-teens EPS growth through YE20. Fortive Should Trade At A Premium. Given the quality of the portfolio and the M&A optionality, we believe that the company will trade with and potentially at a premium vs. its high quality industrial peer group. Potential Upside Catalysts Capital deployment towards accretive M&A over the next 12 months, particularly if industrial multiples come under pressure. Continued execution on EMV tailwinds within Transportation Technologies should drive above average organic growth. Potential Downside Risks We believe that FTV could see a 10% peak/trough decline in revenues in a global recession scenario, which could pressure the multiple below our base case. Sharper than expected downside following Brexit in more cyclical T&M and industrial markets could pressure our 2017e. A slowdown in the Global M&A market following Brexit could inhibit Fortive's ability to deploy capital. Source: Morgan Stanley Research, Thomson Reuters. 112

113 Fortive Corp - Key Financial Statistics Revenue breakdown by geography China, 8% Other International, 6% Revenue breakdown by end market Field Solutions, 23% Automation & Speciality Components, 16% AsiaPac ex-china, 10% North America, 58% Western Europe ex- UK, 12% UK, 4% Eastern Europe, 2% Product Realization Services & Product, 18% Sensing, 6% Franchise Distribution, 10% Other Professional Instrumentation, 1% Transportation Technologies, 26% CEO: James (Jim) Lico CFO: Charles McLaughlin Fortive Professional Instrumentation Division 2015 Revs ($mns) % of total Key Brands Key Products and services Product Realization Services and Products Tektronix Oscilloscopes, electronic testing and process monitoring products 1,100 Pat Byrne Field Solutions Fluke Electronic test and measurement tools, cable testers, digital multimeters 1,500 Wes Pringle Sensing Gems Sensors, Anderson-Negele Sensors and controls, power quality 400 Pat Murphy 3,000 48% Industrial Technologies Transportation Technologies GVR, Teletrac Products for retail/commercial petroleum market, Vehicle Tracking 1,600 Martin Gafinowitz Automation & Specialty Components Dynapar, Jake Brake, Kollmorgen Electronic Motion Control Products, Mechanical Components, Brake Systems 1,000 Pat Murphy Franchise Distribution 600 Matco, Hennessey Professional Tools and Toolboxes, Wheel Service Equipment 3,200 52% Total NewCo 6, % Source: Company data, Morgan Stanley Research. 113

114 Fortive Corp Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Sales 5,962 6,337 6,179 1,475 1,545 1,567 1,627 6,214 1,515 1,575 1,591 1,653 6,334 6,591 6,860 YoY total growth 3% 6% -2% -3% -1% 3% 3% 1% 3% 2% 2% 2% 2% 4% 4% YoY organic growth 0% 4% 3% -2% -1% 3% 4% 1% 3% 4% 3% 3% 3% 4% 4% Cost of sales 3,098 3,288 3, , ,211 3,318 3,441 Gross profit 2,864 3,049 3, , ,123 3,273 3,419 Margin 48.0% 48.1% 49.0% 47.7% 49.0% 49.3% 49.0% 48.8% 48.2% 49.3% 49.8% 49.9% 49.3% 49.7% 49.8% SG&A 1,343 1,416 1, , ,429 1,464 1,501 R&D Reported Operating Income 1,143 1,245 1, , ,302 1,401 1,493 Margin 19.2% 19.7% 19.9% 17.8% 20.8% 20.6% 20.8% 20.0% 18.3% 21.0% 21.1% 21.7% 20.6% 21.3% 21.8% Adjustments Core Operating Income 1,143 1,245 1, , ,311 1,408 1,500 Margin 19.2% 19.7% 17.8% 20.8% 20.6% 22.0% 18.3% 21.0% 21.1% 22.2% D&A Core EBITDA 1,303 1,423 1, , ,481 1,578 1,670 Margin 21.9% 22.5% 22.8% 20.8% 23.7% 23.5% 24.6% 23.2% 21.1% 23.7% 23.8% 24.8% 23.4% 23.9% 24.3% YoY 2% 9% -1% 2% 3% 6% 6% 2% 0% 0% 0% 0% 3% 6% 6% Interest & Other Income Interest Expense Pre-Tax Income 1,143 1,279 1, , ,231 1,374 1,529 Taxes Effective Rate 27.3% 30.9% 31.3% 30.2% 26.8% 24.3% 28.7% 27.4% 28.0% 28.0% 28.0% 28.0% 28.0% 27.0% 26.0% Continuing Income ,003 1,132 Adjustments Other (14) (10) - (24) Headline Income ,061 1,189 DWAC Headline EPS YoY 14.5% -4.3% -1.6% -6.2% 4.1% 21.9% 3.2% 5.6% 9.1% 6.9% 3.8% 9.3% 7.4% 11.0% 11.2% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 114

115 Fortive Corp Segment Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Professional Instrumentation 2,971 3,122 2, , ,902 2,987 3,076 Industrial Technologies 2,991 3,216 3, , ,432 3,604 3,784 Sales 5,962 6,337 6,179 1,475 1,545 1,567 1,627 6,214 1,515 1,575 1,591 1,653 6,334 6,591 6,860 Professional Instrumentation 0% 5% -5% -7% -6% 0% 0% -3% 0% 1% 1% 1% 1% 3% 3% Industrial Technologies 6% 8% 0% 1% 3% 5% 6% 4% 5% 3% 2% 2% 3% 5% 5% Sales YoY 3% 6% -2% -3% -1% 3% 3% 1% 3% 2% 2% 2% 2% 4% 4% Professional Instrumentation Industrial Technologies Discrete Items (20) (20) (9) (9) (7) (7) Corporate (38) (43) (62) (14) (14) (19) (17) (64) (17) (17) (17) (19) (70) (72) (74) Operating Income 1,143 1,245 1, , ,302 1,401 1,493 Professional Instrumentation -2% 10% -1% -13% -13% 4% 2% -5% 1% 1% 1% 2% 1% 4% 5% Industrial Technologies 5% 8% 2% -3% 12% 18% 16% 12% 13% 7% 4% 4% 7% 10% 8% Segment Income YoY 1% 9% 0% -8% -1% 11% 9% 3% 6% 4% 3% 3% 4% 7% 6% Operating Income YoY 1% 9% -1% -8% -1% 10% 3% 1% 6% 3% 4% 6% 5% 8% 7% Professional Instrumentation 21.1% 22.2% 23.1% 20.9% 22.5% 22.3% 24.4% 22.6% 21.0% 22.6% 22.5% 24.6% 22.7% 23.1% 23.4% Industrial Technologies 18.5% 18.6% 18.9% 16.8% 20.9% 21.4% 21.9% 20.3% 18.1% 21.6% 21.9% 22.3% 21.0% 21.9% 22.6% Segment Margins 19.8% 20.3% 20.9% 18.8% 21.6% 21.8% 23.1% 21.4% 19.4% 22.1% 22.2% 23.4% 21.8% 22.5% 22.9% Operating Margins 19.2% 19.7% 19.9% 17.8% 20.8% 20.6% 20.8% 20.0% 18.3% 21.0% 21.1% 21.7% 20.6% 21.3% 21.8% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 115

116 Fortive Corp Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Net Income ,003 1,132 Depreciation & Amortization Working Capital 11 (112) (79) (60) (27) (4) 5 (17) (16) (15) Other 29 (3) (8) 50 (35) Operating Cash Flow 1, , , ,058 1,169 1,297 Capital Expenditure (81) (103) (120) (28) (33) (29) (40) (130) (31) (31) (31) (31) (125) (131) (137) Free Cash Flow , ,038 1,160 FCF Margin 15.9% 13.3% 14.4% 10.1% 18.0% 19.3% 17.1% 16.2% 11.2% 14.3% 16.5% 16.7% 14.7% 15.8% 16.9% Acquisitions (434) (289) (37) (13) - (178) 0 (190) Disposals Other 3 14 (17) 2 2 (0) Cash Flow Pre Financing ,038 1,160 Equity issue Stock repurchase Dividends (24) (24) (48) (24) (24) (27) (27) (102) (109) (115) Other (519) (656) (835) (138) (3,168) 2 (29) (3,333) Movement in Net Debt (2,888) (2,555) ,045 Cash ,150 1,385 1,634 1,634 2,563 3,608 Gross Debt ,375 3,509 3,358 3,358 3,358 3,358 3,358 3,358 3,358 3,358 3,358 Net Debt ,888 2,784 2,555 2,555 2,410 2,208 1,973 1,724 1, (250) Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 116

117 Jul-16 Aug-16 Aug-16 Sep-16 Sep-16 Oct-16 Oct-16 Oct-16 NTM P/E 1Y Median 5Y Median Nov-16 Nov-16 Dec-16 Dec-16 Jan-17 Jan-17 Feb-17 Feb-17 Mar-17 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 M O R G A N S T A N L E Y R E S E A R C H Fortive Corp : Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median 22 25% Premium/Discount vs. Sector Median 1Y Median 5Y Median 21 20% 20 15% 19 10% 18 5% 17 0% 117 Source: Company data, Morgan Stanley Research estimates, Thomson Reuters.

118 Honeywell (HON): Overweight, $136 Price Target Why Overweight? Margin Expansion Potential Remains: OM continues to expand but HON is still under-earning vs. best-in-class peers. Moreover, there is evidence that op leverage is accelerating as HON implements HOS Gold and other excellence initiatives across the portfolio targets achievable. HON has laid out a goal for 4-6% core growth and segment margins of % by While the growth target might fall short, given macro pressures, this could be offset by inorganic growth and margin upside. Overall, we see potential for ~$8.50 of earnings power. Potential for multiple re-rating. HON's earnings growth has been second to none this cycle as it evolves into a best-in-class operator. Although the multiple lags - we see scope for expansion as core growth accelerates and FCF conversion improves. Price Target $136 Aligned with Base Case Bull $153 Base $ x Bull Case NTM EPS of $ x Base Case NTM EPS of $7.76 Assuming acceleration post-mid-cycle slowdown and a sharp rebound in non-resi construction, we believe organic growth for HON would to 4% in 2017, driven by late-cycle businesses. We model 80bps cumulative margin expansion over 2017, given tailwind from restructuring investments made in the previous years. Our 17.5x multiple assumes expansion to its 1Y max valuation. Assuming a modest recovery in non-resi construction and continued recovery in the Oil & Gas market, we believe HON s organic growth will accelerate to 2% in In this scenario, we also bake in 180bps Y/Y cumulative margin expansion over 2017, largely driven by restructuring benefits and volume leverage. Our 17.0x multiple is modest expansion from current multiple. Potential Upside Catalysts Balance Sheet deployment. HON has significant scope to drive earnings higher (~$1/share) if it chooses to lever its B/S closer to peers in the 1.5x EBITDA range. A potential repatriation deal could also provide it with greater flexibility around cash deployment. Favorable 2017 Framework. We believe that Honeywell should show revenue acceleration, which combined with margin tailwinds, should drive favorable EPS performance vs. mega-cap peers. Potential Downside Risks Pension Accounting: New rules will likely materially lower Honeywell's EBITDA and this could restrict the potential for multiple expansion. Source: Morgan Stanley Research, Thomson Reuters. Bear $ x Bear Case NTM EPS of $5.65 Assuming a recession, we embed a flat organic decline for HON in We use 30% decremental margins in 2017 (vs. 13% in 2009) due to tougher prior year comparisons. Our 14.0x multiple assume contraction towards HON s 1Y minimum valuation, but above cycle lows. 118

119 Honeywell - Key Financial Statistics Revenue breakdown by geography Revenue breakdown by end market Aerospace 2016 Revs 2016 Op. Profits CEO: Dave Cote* CFO: Tom Szlosek COO: Darius Adamczyk* % of Seg Seg Type of Rev Revs Divisions Revs Key Products & Services Key Competitors $14,751 $2,991 Product 67% Commercial Aviation OE 17% 38% 40% Service 33% Commercial Aviation AM 33% Timothy Mahoney Defense and Space 30% Transportation Systems 21% Turbine propulsion engines, auxiliary power units, environmental control systems, avionics systems, electric power systems, engine systems accessories, aircraft lighting, control products & subsystems, management & technical services, and landing systems Turbochargers & charge-air systems for gasoline, diesel, CNG & LPG, exhaust gas coolers, charge-air coolers, aluminum radiators, aluminum cooling modules. United Technologies, Rockwell Collins, Goodrich, Rolls Royce/Allison, General Electric, Safran, BAE, Parker Hannifin, Boeing, L3, Raytheon Borg-Warner, Cummins Holset, IHI, MHI, Bosch Mahle, Continental, Behr, Modine, Valeo $10,654 $1,683 Products 56% Buildings 50% Home & Building Technologies 27% 23% Distribution 44% Homes 40% Terrence Hahn Utilities 10% HVAC controls combustion, lighting and home automation; software applications for home/building control and optimization; sensors, switches, control systems and instruments for measuring pressure, air flow, temperature and electrical current; solutions for measurement, regulation, control and metering of gases and electricity; metering and communications systems for water utilities and industries; access control; video surveillance; fire products; remote patient monitoring systems; and systems that keep buildings safe, comfortable and productive Emerson, Itron, Johnson Controls, Schneider, Siemens, United Technologies Safety and Productivity Solutions John Waldron Performance Materials & Technology $4,625 $680 Product 86% Safety 45% 12% 9% Service 14% Productivity 55% $9,272 $2,050 Product 96% Upstream 7% 24% 28% Service 4% Midstream 13% Rajeev Gautam Downstream 35% Refrigerants & Foams 13% Chemicals 11% Mining Paper & Pulp 6% Electronic Materials 3% Other 12% Software/connected solutions that improve productivity; workplace safety/asset performance. Safety products include personal protection equipment and footwear designed for work, play and outdoor activities. Productivity Solutions products and services include gas detection technology; mobile devices and software for computing, data collection and thermal printing; supply chain and warehouse automation equipment, software and solutions; custom-engineered sensors, switches and controls for sensing and productivity solutions; and software-based data and asset management productivity solutions. Process technology, products including catalysts and adsorbents; equipment/consulting services to gasoline, diesel, jet fuel, petrochemicals; renewable fuels for the petroleum refining, gas processing, petrochemical, and other industries; automation control, instrumentation, advanced software and related services for oil and gas, refining, pulp and paper, industrial power generation, chemicals and petrochemicals, biofuels, life sciences, and metals, minerals and mining industries; high-performance products, including fluorocarbons, hydrofluoroolefins, specialty films, waxes, additives, advanced fibers; customized research chemicals and intermediates; electronic materials and chemicals 3M, Mine Safety Applications, Kion Group, TE Connectivity and Zebra Technologies BASF, Dow Chemical, Dupont, Sinopec, UBE, Mexichem Flour, Solvay, Arkema, Solvay, Ineos, Air Products, Axens, Atotech, ABB AspenTech, Emerson, Invensys, Siemens, Yokogawa Source: Company data, Morgan Stanley Research. 119

120 Honeywell International Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 39,055 40,306 38,581 9,522 9,991 9,804 9,985 39,302 9,149 9,838 9,730 10,062 38,779 40,330 YoY total growth 4% 3% -4% 3% 2% 2% 0% 2% -4% -2% -1% 1% -1% 4% YoY organic growth 2% 3% 1% 1% -2% -3% -1% -2% 1% 2% 3% 2% 2% 4% Cost of sales 28,364 28,957 26,747 6,547 6,821 6,903 6,879 27,150 6,198 6,623 6,513 6,538 25,873 26,607 Gross profit 10,691 11,349 11,834 2,975 3,170 2,901 3,106 12,152 2,951 3,214 3,217 3,523 12,906 13,722 Margin 27.4% 28.2% 30.7% 31.2% 31.7% 29.6% 31.1% 30.9% 32.3% 32.7% 33.1% 35.0% 33.3% 34.0% SG&A 5,190 5,518 5,006 1,280 1,329 1,367 1,493 5,469 1,218 1,296 1,343 1,489 5,346 5,504 Reported Operating Income 5,501 5,831 6,828 1,695 1,841 1,534 1,613 6,683 1,734 1,919 1,874 2,034 7,561 8,219 Margin 14.1% 14.5% 17.7% 17.8% 18.4% 15.6% 16.2% 17.0% 19.0% 19.5% 19.3% 20.2% 19.5% 20.4% Pension MtM & other adjustment Core Operating Income 5,552 6,080 6,895 1,695 1,841 1,534 1,899 6,969 1,734 1,919 1,874 2,034 7,561 8,219 Margin 14.2% 15.1% 17.9% 17.8% 18.4% 15.6% 19.0% 17.7% 19.0% 19.5% 19.3% 20.2% 19.5% 20.4% D&A , ,078 1,104 Core EBITDA 6,541 7,004 7,778 1,948 2,101 1,794 2,156 7,999 2,003 2,188 2,144 2,303 8,639 9,323 Margin 16.7% 17.4% 20.2% 20.5% 21.0% 18.3% 21.6% 20.4% 21.9% 22.2% 22.0% 22.9% 22.3% 23.1% REPO Interest Expense Interest & Other Income/Expense (95) Pre-Tax Income 5,412 5,818 6,585 1,628 1,757 1,632 1,432 6,449 1,677 1,860 1,816 1,979 7,332 7,987 Taxes (1,450) (1,489) (1,739) (409) (434) (384) (387) (1,614) (419) (465) (454) (495) (1,833) (1,997) Effective Rate 26.8% 25.6% 26.4% 25.1% 24.7% 23.5% 27.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Continuing Income 3,924 4,239 4,767 1,209 1,315 1,240 1,034 4,798 1,248 1,387 1,354 1,473 5,462 5,951 Adjustments Headline Income 3,964 4,422 4,810 1,209 1,315 1,240 1,343 5,107 1,248 1,387 1,354 1,473 5,462 5,951 DWAC Normalized EPS Yoy 11% 12% 10% 11% 13% 0% 10% 8% 4% 6% 10% 10% 8% 9% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 120

121 Honeywell International Segment Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Aerospace 15,735 15,598 15,237 3,705 3,779 3,601 3,666 14,751 3,372 3,534 3,521 3,644 14,071 14,567 Home and Building Technologies - - 9,161 2,477 2,676 2,701 2,800 10,654 2,453 2,704 2,729 2,844 10,731 11,053 Performance Materials & Technology 9,855 10,221 9,475 2,281 2,434 2,329 2,228 9,272 2,080 2,237 2,130 2,273 8,719 9,242 Safety and Productivity Solutions - - 4,708 1,059 1,102 1,173 1,291 4,625 1,244 1,363 1,350 1,301 5,258 5,469 Elimination/Corporate items Sales 39,055 40,306 38,581 9,522 9,991 9,804 9,985 39,302 9,149 9,838 9,730 10,062 38,779 40,330 Aerospace 1% -1% -2% 3% -1% -6% -8% -3% -9% -6% -2% -1% -5% 4% Home and Building Technologies -3% 18% 17% 17% 13% 16% -1% 1% 1% 2% 1% 3% Performance Materials & Technology 6% 4% -7% -5% -1% 2% -5% -2% -9% -8% -9% 2% -6% 6% Safety and Productivity Solutions -1% -5% -9% -2% 9% -2% 17% 24% 15% 1% 14% 4% Sales YoY 4% 3% -4% 3% 2% 2% 0% 2% -4% -2% -1% 1% -1% 4% Aerospace 3,160 3,192 3, , ,307 3,563 Home and Building Technologies - 1,655 1, , ,157 2,308 Performance Materials & Technology 1,862 2,104 2, , ,418 2,612 Safety and Productivity Solutions ,031 1,123 Elimination/Corporate items 33 (175) (153) (50) (43) (58) (71) (221) (55) (55) (55) (55) (221) (224) EBITDA 7,340 7,627 8,137 1,973 2,107 1,980 2,156 8,216 2,017 2,202 2,157 2,317 8,692 9,382 Aerospace 27% 1% 9% 6% 2% -19% -13% -7% -5% -2% 11% 4% 2% 8% Home and Building Technologies 2% 16% 20% 13% 15% 16% 10% 10% 8% 11% 10% 7% Performance Materials & Technology 36% 13% 8% -7% 2% 8% 18% 5% 0% 1% -1% 4% 1% 8% Safety and Productivity Solutions 7% -10% -7% -4% 18% -1% 29% 33% 28% 10% 24% 9% Elimination/Corporate items -121% -630% -13% 23% 40% 33% 85% 45% 11% 30% -4% -22% 0% 424% EBITDA YoY 8% 4% 7% 2% 4% -4% 3% 1% 2% 4% 9% 7% 341% 345% Aerospace 2,870 2,915 3, , ,043 3,306 Home and Building Technologies - 1,455 1, , ,870 2,011 Performance Materials & Technology 1,725 1,817 1, , ,111 2,286 Safety and Productivity Solutions Elimination/Corporate items (227) (229) (210) (49) (49) (59) (61) (218) (55) (55) (55) (55) (221) (224) Segment Income 6,351 6,703 7,254 1,720 1,847 1,720 1,899 7,186 1,747 1,932 1,887 2,047 7,614 7,603 REPO (663) (598) (546) (125) (116) (302) (128) (671) (139) (139) (139) (139) (555) (555) Elimination/Corporate items (187) (274) (158) ,171 Operating Income 5,501 5,831 6,828 1,695 1,841 1,534 1,613 6,683 1,734 1,919 1,874 2,034 7,561 8,219 Aerospace 26% 2% 10% 6% 2% -20% -14% -7% -6% -2% 12% 4% 2% 9% Home and Building Technologies 4% 11% 16% 8% 11% 11% 11% 11% 9% 12% 11% 8% Performance Materials & Technology 49% 5% 10% -11% -1% 6% 20% 3% 2% 4% 1% 5% 3% 8% Safety and Productivity Solutions 9% -15% -12% -11% 2% -9% 18% 24% 22% 12% 19% 11% Elimination/Corporate items 4% 1% -8% -2% -2% 5% 13% 4% 13% 13% -6% -9% 2% 1% Segment Income ex-repo YoY 8% 6% 8% 0% 2% -7% 1% -1% 2% 5% 10% 8% 6% 9% Operating Income YoY 32% 0% 0% 5% 7% -13% -7% 0% 2% 4% 22% 26% 0% 0% Aerospace 18.2% 18.7% 21.1% 21.5% 20.9% 18.4% 20.2% 20.3% 22.3% 21.9% 21.2% 21.2% 21.6% 22.7% Home and Building Technologies 16.5% 14.5% 15.4% 16.3% 16.8% 15.8% 16.4% 17.0% 17.6% 18.6% 17.4% 18.2% Performance Materials & Technology 17.5% 17.8% 21.0% 20.2% 21.4% 21.6% 25.4% 22.1% 22.6% 24.1% 23.8% 26.2% 24.2% 24.7% Safety and Productivity Solutions 15.8% 14.2% 15.7% 14.7% 14.3% 14.7% 14.3% 15.8% 15.5% 16.0% 15.4% 16.4% Segment Margins ex-repo 16.3% 16.6% 19.8% 18.1% 18.5% 17.5% 19.0% 19.4% 19.1% 19.6% 19.4% 20.3% 21.0% 21.8% Operating Margins 14.1% 14.5% 17.7% 17.8% 18.4% 15.6% 16.2% 17.0% 19.0% 19.5% 19.3% 20.2% 19.5% 20.4% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 121

122 Honeywell Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Net Income 3,924 4,239 4,767 1,209 1,315 1,240 1,034 4,798 1,248 1,387 1,354 1,473 5,462 5,951 Depreciation & Amortization , ,078 1,104 Working Capital 65 (65) 424 (557) (168) (96) 556 (265) (370) (115) 85 (235) (635) (140) Other (326) 49 (175) (451) (743) (94) 380 1, Operating Cash Flow 4,335 5,024 5, ,544 1,655 2,042 5, ,277 1,918 2,361 5,788 6,272 Capital Expenditure (932) (1,076) (1,057) (193) (281) (271) (329) (1,074) (250) (250) (250) (250) (1,001) (929) Free Cash Flow 3,403 3,948 4, ,263 1,384 1,713 4,424 (17) 1,026 1,667 2,111 4,787 5,343 FCF Margin 8.7% 9.8% 11.4% 0.7% 12.6% 14.1% 17.2% 11.3% -0.2% 10.4% 17.1% 21.0% 12.3% 13.2% Acquisitions (1,133) (4) (5,228) (1,056) - (1,512) (5) (2,573) Disposals (8) Other 103 (956) (229) 53 (65) (255) Cash Flow Pre Financing 2,376 3,148 (1,060) (939) 1,198 (79) 2,122 2,302 (17) 1,026 1,667 2,111 4,787 5,343 Equity issue Stock repurchase (1,073) (924) (1,884) (1,156) (477) (233) (213) (2,079) (293) (298) (304) (310) (1,206) (1,302) Dividends (1,343) (1,510) (1,726) (499) (458) (453) (505) (1,915) (496) (496) (495) (560) (2,047) (2,290) Other (1,167) (351) (84) Movement on Net Debt 553 1,469 (5,651) (2,915) 596 (70) 1,343 (1,046) (683) ,364 2,027 2,239 Cash 7,077 8,400 6,134 5,108 5,760 7,535 8,795 8,795 8,113 8,468 9,459 10,822 10,822 13,062 Gross Debt 8,829 8,683 12,068 13,957 14,013 15,858 15,775 15,775 15,775 15,775 15,775 15,775 15,775 15,775 Net Debt 1, ,934 8,849 8,253 8,323 6,980 6,980 7,662 7,307 6,316 4,953 4,953 2,713 Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 122

123 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 M O R G A N S T A N L E Y R E S E A R C H Honeywell: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median NTM P/E 1Y Median 5Y Median 5% 0% -5% -10% -15% -20% Premium/Discount vs. sector median 1Y Median 5Y Median Organic Growth vs. EE/MI (2004/16) Core Operating Margins vs. EE/MI (2004/16) Organic Growth 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% EE/MI Median 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Core Operating Margin EE/MI Median Source: Company data, Morgan Stanley Research estimates. 123

124 Hubbell (HUBB): Overweight, $134 Price Target Price Target $134 Aligned with Base Case Bull $163 $ x Bull Base Tax Adj. NTM EPS of $7.78 $ $ (+33%) $ (+9%) $69.00 (-44%) 0 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb Price Target (Feb-18) Historical Stock Performance Current Stock Price WARNINGDONOTEDIT_RRS4RL~HUBB.N~ Assuming a continued peak construction growth while O&G continues to rebound in H&H, we model for 4% organic growth in 2017e. Our model embeds 80bps margin expansion 2016/18e driven by restructuring payback. Our ~21.0x multiple assumes the stock trades closer to cycle highs and includes a consolidation premium. Why Overweight? As it relates to our 2017 positioning framework, HUBB ticks almost all of the boxes given elevated US market leverage as well as significant exposure to depressed industrial and energy markets. HUBB is under-earning with margins 200bps below prior peak levels on account of elevated restructuring activity and negative product mix. As Industrial/Energy markets recover, we see scope for expansion, driving >10% EPS growth. HUBB is not cheap, but it always attracts a premium and this can be sustained given favorable positioning, balance sheet optionality and potential participation in industry consolidation. Potential Catalysts HUBB is a relatively cheap second derivative exposure to NAm energy markets. As rig counts recover, we believe that HUBB could re-rate further as EPS estimates move higher. HUBB has one of the strongest balance sheets in EE/MI and a more proactive deployment strategy could lead to EPS accretion over and above our base case expectations. Potential Risks US policy uncertainty could push the recovery in industrial markets to the right, thus leading to a shortfall in EPS estimates. Commodity inflation is generally a positive for electrical equipment names, but there could be some short term pressure as pricing typically lags the inflation curve. Base $ x Base Case Tax Adj. NTM EPS of $6.90 Assuming a mild construction slowdown is more than offset by a recovering in O&G in H&H, we model for 2% organic growth in 2017e. Our model embeds 140bps margin expansion 2016/18e driven by restructuring payback. Our ~19.5x multiple is slightly ahead of the current 1Y median. Source: Morgan Stanley Research, Thomson Reuters. Bear $ x Bear Case Tax Adj. NTM EPS of $4.62 Industrial downturn yields a 5% organic decline in We have assumed additional restructuring is necessary in FY17e, ahead of our base case assumption. Our 14.0x multiple assumes reversion below the 10Y median. 124

125 Hubbell - Key Financial Statistics Revenue breakdown by geography Revenue breakdown by end market North America 92% Asia Pacific 1% EMEA 6% Building Equipment (Residential) 10% RoW 1% Building Equipment (Non- Resi) 40% Oil & Gas 8% Transmission & Distribution 23% Metals & Mining 4% General Industrial 15% 2016 Revs 2016 Op. Profits End Markets CEO: David G. Nord CFO: William R. Sperry % of Seg. Revs Key Products & Services Key Brands Competitors Electrical Segment $2,460 $300 Non-Residential 53% Gary N. Amato 70% 58% Industrial 40% Residential 7% Cable reels, cable glands & fittings, connectors & tooling, floor boxes, gorund fault devices, wiring devices & accessories, switches & dimmers, pin & sleeve devices, electrical motor controls, steel & plastic electrical enclosures, junction boxes, plugs & receptacles, datacom connectivity & enclosures, speciality communications equipment, high voltage test systems, mining communication and controls, various LED and non-led light fixtures, occupancy, dimming & daylight haresting sensors Hubbell, Kellems, Bryant, Burndy, Wejtap, Implo, Raco, Bell, Weigmann, Killark, Hawke, Chalmit, Victor, GAI-Tronics, Gleason Reel, Haefely, Hipotronics, Austdac, Kim Lighting, Sportsliter Solutions, Kurt Versen, Beacon, Architectural Area Lighting, Security Lighting Systems, Sterner Lighting, Prescolite, Precision-Paragon, Spaulding Lighting, Alera Lighting, Dual-Lite, Progress Lighting ABB, Eaton, Acuity Brands, Philips, Legrand, Ferraz Showmut, Littelfuse, Leviton, Pentair, Appleton (EMR), Honeywell, Stahl Power Segment $1,045 $214 Utility 100% Gerben Bakker 30% 42% Arresters, Cutouts and fuse links, Lineman tools, hoses & gloves, Helical anchors & foundations, Overhead & pad mounted switches, High voltage bushings, Insulators, Cable terminations & accessories, Formed wire products, Splices, taps & connectors, Grounding equipment, Programmable reclosers, Sectionalizers, Pole line hardware, Polymer concrete & fiberglass enclosures and equipment pads Ohio Brass, Fargo, Quazite, Electro Composites, Hot Box, Chance, Hubbell, Quadri*sil, USCO, PCORE, Anderson, Polycast, Comcore, CDR, Delmar ABB, Eaton, Legrand, Schneider, General Electric Source: Company data, Morgan Stanley Research. 125

126 Hubbell Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 3,184 3,359 3, , ,592 3,726 YoY total revenue growth 4.6% 5.5% 0.9% 3.1% 4.0% 3.5% 3.0% 3.4% 1.6% 1.2% 3.4% 3.7% 2.5% 3.7% YoY organic revenue growth 1.3% 2.3% 0.0% 2.1% 1.3% -0.1% -0.2% 0.7% 0.7% 1.7% 3.4% 3.7% 2.4% 3.7% Cost of sales 2,113 2,250 2, , ,434 2,502 Gross Profit 1,071 1,109 1, , ,158 1,223 Margin 33.6% 33.0% 32.3% 31.1% 32.3% 31.8% 30.3% 31.4% 31.1% 32.6% 32.7% 32.4% 32.2% 32.8% Selling & administrative expense Reported Operating Income Margin 15.9% 15.4% 14.0% 12.2% 14.5% 15.0% 12.6% 13.6% 12.5% 15.1% 16.1% 15.0% 14.7% 15.6% Exceptional Items Core Operating Income Margin 15.9% 15.8% 15.1% 13.0% 15.2% 15.6% 14.5% 14.6% 13.6% 15.7% 16.5% 15.4% 15.4% 16.0% Depreciation & Amortization Core EBITDA Margin 18.2% 18.1% 17.7% 15.7% 17.8% 18.1% 17.3% 17.3% 16.3% 18.2% 19.0% 18.0% 17.9% 18.5% Yoy 7.4% 5.3% -1.6% 1.1% 0.0% 0.0% 0.0% 1.1% 0.0% 0.0% 0.0% 0.0% 6.4% 6.9% Other Income/(Expenses) (1) 2 (23) (1) (4) 0 2 (3) 0 (0) (0) (0) (0) 2 Net Interest (33) (33) (33) (9) (12) (12) (11) (45) (11) (11) (11) (11) (46) (46) Income before Tax Taxes Effective Rate 30.4% 32.6% 32.6% 32.3% 29.8% 29.0% 32.9% 30.8% 32.0% 32.0% 32.0% 32.0% 32.0% 32.0% Continuing Income Adjustments Headline Income DWAC Headline EPS Yoy 9.4% 0.2% -7.5% 1.0% 5.5% 11.8% -6.0% 3.3% 4.4% 5.2% 7.6% 26.6% 10.7% 12.4% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 126

127 Hubbell Segment Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q16 2Q16 3Q16 4Q E 2018E Electrical 2,263 2,398 2, , ,529 2,630 Power , , ,064 1,096 Sales 3,184 3,359 3, , ,592 3,726 Electrical 7.0% 6.0% -0.4% 2.3% 4.3% 2.8% 2.6% 3.0% 1.5% 1.6% 4.0% 4.0% 2.8% 4.0% Power -0.9% 4.3% 4.3% 5.0% 3.2% 5.1% 3.7% 4.3% 2.0% 0.4% 2.0% 3.0% 1.8% 3.0% Sales YoY 4.6% 5.5% 0.9% 3.1% 4.0% 3.5% 3.0% 3.4% 1.6% 1.2% 3.4% 3.7% 2.5% 3.7% Electrical Power EBITDA Electrical 11.3% 3.6% -8.8% -4.9% -4.2% -1.7% 1.9% -2.3% 6.7% 5.5% 10.1% 13.2% 8.8% 8.9% Power 0.0% 8.6% 12.4% 9.7% 3.1% 5.9% 8.8% 6.7% 2.5% 1.2% 2.5% 3.3% 2.3% 3.7% EBITDA YoY 7.4% 5.3% -1.6% 0.2% -1.2% 1.2% 4.5% 1.1% 5.2% 3.7% 8.1% 8.3% 6.4% 6.9% Electrical Power Operating Income Electrical 12.3% -0.9% -17.4% -12.6% 3.5% 2.7% -13.5% -4.2% 4.6% 7.9% 15.5% 43.2% 16.6% 13.6% Power -1.0% 7.8% 8.9% 11.8% 5.4% 5.6% 8.7% 8.1% 2.6% 2.0% 5.4% 3.9% 3.0% 4.1% Segment Income YoY 7.6% 1.9% -8.3% -3.0% 4.3% 3.8% -3.7% 0.9% 3.7% 5.4% 11.4% 23.6% 10.6% 9.7% Electrical 15.1% 14.1% 11.7% 9.5% 12.0% 12.7% 9.0% 10.9% 9.8% 12.8% 14.2% 12.4% 12.3% 13.5% Power 18.1% 18.7% 19.5% 18.4% 20.6% 20.2% 21.3% 20.2% 18.6% 20.9% 20.9% 21.5% 20.5% 20.7% Segment Margin 15.9% 15.4% 14.0% 12.2% 14.5% 15.0% 12.6% 13.7% 12.5% 15.1% 16.1% 15.0% 14.7% 15.6% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 127

128 Hubbell Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q16 2Q16 3Q16 4Q E 2018E Net Income Depreciation & Amortization Working Capital (55) (45) (32) (43) (34) (10) (13) (9) (52) 80 6 (26) Other (7) 17 (5) 23 (34) (49) (13) 14 Operating Cash Flow Capex (59) (60) (77) (15) (15) (16) (21) (67) (18) (18) (18) (18) (74) (76) Free Cash Flow FCF Margin 10.1% 9.9% 7.5% 5.2% 5.4% 13.5% 13.6% 9.4% 2.5% 3.5% 10.5% 20.8% 9.3% 9.8% Acquisitions (97) (184) (163) (172) 1 (1) (1) (173) Disposals Other 4 2 (9) (1) 2 (2) Cash Flow Pre Financing (130) Equity issuance Stock repurchase (31) (106) (79) (202) (45) - - (247) (41) (42) (43) (44) (170) (179) Dividends (110) (121) (134) (36) (35) (35) (39) (144) (39) (39) (39) (43) (160) (173) Other 2 (13) (225) (1) (12) (7) (12) (33) Movement on Net Debt 95 (88) (356) (368) (41) (256) (59) (49) Cash Gross Debt , Net Debt (143) (55) Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 128

129 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 M O R G A N S T A N L E Y R E S E A R C H Hubbell: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median NTM P/E 1Y Median 5Y Median 25% Premium/Discount vs. sector median 1Y Median 5Y Median 22 20% % % 17 5% % 14 Organic Growth vs. EE/MI (2004/15) Core Operating Margins vs. EE/MI (2004/15) Organic Growth Core Operating Margin EE/MI Median 20% 15% 10% 5% 0% -5% -10% -15% -20% EE/MI Median 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -25% Source: Company data, Morgan Stanley Research estimates. 129

130 Price Target (Feb-18) Historical Stock Performance Current Stock Price Illinois Tool Works (ITW): Equal-weight, $124 Price Target $ $ $ (+32%) $ (-3%) $79.00 (-38%) Why Equal-weight? M O R G A N S T A N L E Y R E S E A R C H Over the past three years, ITW has succeeded in improving its operating margins by ~500bps via its Enterprise Strategy, a commendable performance, and fully in line with the company's original goals. However, the margin-focused elements of this plan have been largely addressed, and management is now working to improve ITW's organic growth profile, targeting 200bps+ outperformance vs. global GDP growth (which it has not been able to sustain in the past). As such, we characterize this as a 'show me story'. We see two potential reasons to recommend the stock: 1) Upside to consensus EPS and/or 2) Improving short-cycle trends. Price Target $124 Aligned with Base Case Bull $169 Base $124 Bear $ Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb x Bull Case Tax Adj. NTM EPS of $ x Base Case Tax Adj. NTM EPS of $ x Bear Case Tax Adj. NTM EPS of $5.67 WARNINGDONOTEDIT_RRS4RL~ITW.N~ In a slightly more bullish mid-cycle re-acceleration scenario, we believe ITW will see organic growth accelerate to 4% in 2017e and 5% in 2018e. In this scenario, we model 110bps+ core margin expansion over 2016/18e, driven by simplification/ strategic sourcing benefits. Our 21.0x multiple assumes a slight premium to the current multiple. We assume a 23% normalized tax rate in this scenario. Assuming a modest short cycle re-acceleration in We model 2% organic growth for ITW in 2017e. We are looking for ~40bps of cumulative margin expansion over 2016/18e, with volume leverage and restructuring payback partially offset by acquisition dilution. Our 18.0x multiple is in line with the 1Y median. We assume a 27% normalized tax rate in this scenario. Assuming continued negative trends for short cycle Industrial end markets. We model -1% organic growth in 2017e accelerating to 2% in In this scenario, we model 40bps of margin contraction from 2016/2018 driven primarily by volume deleverage partially offset by restructuring payback. Our 14x multiple assumes a contraction closer to cycle multiple lows. We assume a 30% normalized tax rate in this scenario. Potential Catalysts Acceleration in short cycle industrial trends, particularly in the US. Downward EPS revisions, indicating that a more conservative outlook is already priced into the stock. Significant accretive M&A and/or incremental buybacks vs. expectations. Success with the company's initiative to improve organic growth to 200bps+ above global GDP growth. Additional cost cutting measures. Risk to Achieving Price Target Continued deterioration in short cycle industrial trends. Inability to deliver on top line outgrowth targets, as the margin expansion plan comes to an end. Incremental USD strength given ITW's heavier than average exposure to Europe. Source: Morgan Stanley Research, Thomson Reuters. 130

131 Illinois Tool Works- Key Financial Statistics Revenue breakdown by geography Revenue breakdown by end market Other North America 7% Australia/ Newzealand 5% Asia 12% Other 6% United States 43% Electronics 4% Consumer Durables 5% Energy 3% Ind'l Cap Goods 3% MRO 4% Other 10% Auto OEM 19% Auto A/M 6% General Ind'l 12% Europe 28% Renovation 4% Resi Construction 5% Comm Construction 6% Food Retail 3% F&B 4% Food (Institutional) 6% Food Service 6% 2016 Revs 2016 Profits End Markets CEO: E. Scott Santi % of Seg. Revenue CFO: Michael M. Larsen Products Product Type Auto OEM $ 2,864 $690 Auto OEM/Tiers 84% Consumables Plastic and metal components, fasteners and assemblies for automobiles, light trucks, 100% NA 47% Sundaram Nagarajan 21% 22% Auto A/M 8% and other industrial uses EMEA 35% Other 8% APAC/Other 18% Welding $ 1,486 $370 General Industrial 33% John Hartnett 11% 12% Energy 16% Consumables 40% NA 67% Shipbuilding 12% Service & Parts 7% EMEA 12% MRO 9% Arc welding equipment; metal arc welding consumables and related accessories; Equipment & Tools 53% APAC/Other 21% Commercial Construction 6% Primary Metals 4% Other 20% Food Equipment $ 2,110 $537 Food Institution & Restaurant 44% Ware washing & cooking equipment, including ovens, ranges and broilers; NA 52% Lei Zhang Schlitz 15% 17% Service 35% refrigeration equipment, including refrigerators, freezers and prep tables; food Service & Parts 35% EMEA 40% Food Retail 16% processing equipment, including slicers, mixers and scales; kitchen exhaust, Equipment & Tools 65% APAC/Other 8% ventilation and pollution control systems; food equipment MRO. Other 4% Construction Products $ 1,609 $361 Residential 46% Fasteners, anchors & related tools for wood, metal & concrete applications Consumables 84% NA 32% Michael Zimmerman 12% 11% Renovation 30% applications; metal plate truss components & related equipment/software; packaged Service & Parts 3% EMEA 36% Commercial 24% hardware, fasteners, anchors & other products for retail. Equipment & Tools 13% APAC/Other 32% Polymers & Fluids $ 1,691 $343 Auto A/M 39% Adhesives for industrial, construction and consumer purposes; chemical fluids which Juan Valls 12% 11% General Industrial 19% clean or add lubrication to machines; epoxy and resin-based coating products for Consumables 98% NA 49% Construction 8% industrial applications; and pressure sensitive adhesives and components for Service & Parts 1% EMEA 29% MRO 10% telecommunications, electronics, medical and transportation applications; fluids, Equipment & Tools 1% APAC/Other 22% Other 24% polymers, fillers & putties for auto A/M. T&M and Electronics $ 1,974 $372 General Industrial 27% Equip & software for T&M of materials & structures; metal solder materials for PC Steven Martindale 14% 12% Electronics 27% Consumables 34% NA 41% board fabrication; equipment and services for microelectronics assembly; electronic Auto OEM & Tiers 6% Service & Parts 12% EMEA 21% components and component packaging; and airport ground support equipment. Energy 5% Equipment & Tools 54% APAC/Other 38% Other 35% Specialty Products $ 1,885 $482 Food & Beverage 27% Plastic reclosable bags& packaging for consumer storage; plastic consumables that Roland Martel 14% 15% Truck Remanufacturing 16% multi-pack cans/bottles and related equip; plastic and metal fasteners & components Consumables for appliances, furniture & industrial uses; swabs, wipes & mats for clean room usage; 59% NA 56% General Industrial 16% foil, film & related equip to decorate consumer products; product coding & marking Service & Parts 11% EMEA 29% Consumer Durables 12% equip; paint spray & adhesive dispensing equip; line integration, conveyor systems & Equipment & Tools 30% APAC/Other 15% Airlines 4% line automation for F&B. Other 25% % of Seg Revenue Geography % of Seg Revenue Source: Company data, Morgan Stanley Research. 131

132 Illinois Tool Works Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 14,135 14,484 13,405 3,274 3,431 3,495 3,399 13,599 3,396 3,559 3,517 3,479 13,950 14,358 Y/Y Growth -4% 2% -7% -2% 0% 4% 4% 1% 4% 4% 1% 2% 3% 3% Y/Y Organic Growth 0% 3% 0% 1% 1% 2% 1% 1% 1% 2% 2% 3% 2% 3% Cost of sales 8,554 8,673 7,888 1,896 1,967 2,027 2,006 7,896 1,983 2,038 2,048 2,030 8,099 8,357 Gross Profit 5,581 5,811 5,517 1,378 1,464 1,468 1,393 5,703 1,413 1,521 1,469 1,449 5,851 6,001 Margin 39.5% 40.1% 41.2% 42.1% 42.7% 42.0% 41.0% 41.9% 41.6% 42.7% 41.8% 41.6% 41.9% 41.8% SG&A 2,815 2,678 2, , ,453 2,500 Amortization of Intangibles Impairment Charges Reported Operating Income 2,514 2,888 2, , ,188 3,326 Margin 17.8% 19.9% 21.4% 22.1% 23.1% 23.1% 21.8% 22.5% 22.0% 23.4% 23.2% 22.8% 22.9% 23.2% Adjustments Core Operating Income 2,628 2,988 2, , ,233 3,360 Margin 18.6% 20.6% 21.9% 22.5% 23.5% 23.5% 22.3% 23.0% 22.3% 23.8% 23.5% 23.1% 23.2% 23.4% D&A Core EBITDA 3,241 3,495 3, , ,665 3,772 Margin 22.9% 24.1% 25.4% 26.1% 26.9% 27.0% 25.8% 26.4% 25.5% 26.8% 26.5% 26.1% 26.3% 26.3% Y/Y Growth 1.7% 7.8% -2.5% 2.8% 6.1% 6.4% 7.0% 5.6% 1.3% 3.3% -1.1% 3.7% 1.9% 2.9% Interest Expense Interest Income & Other Income/(Expense) Pre-Tax Income 2,347 2,699 2, , ,985 3,104 Taxes Effective Rate 30.5% 30.0% 30.2% 29.9% 30.1% 29.9% 30.2% 30.0% 29.5% 29.5% 29.5% 29.5% 29.5% 28.0% Continuing Income 1,630 1,890 1, , ,104 2,235 Adjustments (21) (21) Headline Income 1,630 1,890 1, , ,104 2,235 DWAC Headline EPS Y/Y Growth 8% 29% 10% 6% 12% 8% 13% 10% 10% 9% 4% 10% 8% 10% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 132

133 Illinois Tool Works Segment Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E T&M and Electronics 2,176 2,204 1, , ,968 2,007 Automotive OEM 2,396 2,590 2, , ,174 3,296 Polymers & Fluids 1,993 1,927 1, , ,703 1,737 Food Equipment 2,047 2,177 2, , ,117 2,170 Welding 1,837 1,850 1, , ,511 1,587 Construction Products 1,717 1,707 1, , ,598 1,646 Specialty Products 2,007 2,055 1, , ,899 1,937 Intersegment (38) (26) (23) (4) (7) (5) (4) (20) (5) (5) (5) (5) (20) (21) Sales 14,135 14,484 13,405 3,274 3,431 3,495 3,399 13,599 3,396 3,559 3,517 3,479 13,950 14,358 T&M and Electronics -5% 1.3% -10.7% -4% 2% 5% -3% 0.3% -1% -2% 0% 2% -0.3% 2.0% Automotive OEM 10% 8.1% -2.4% 0% 3% 25% 26% 13.2% 22% 20% 0% 4% 10.8% 3.8% Polymers & Fluids -3% -3.3% -11.2% -5% -1% 0% 1% -1.2% 0% 1% 1% 1% 0.7% 2.0% Food Equipment 6% 6.4% -3.7% 1% 3% -1% 0% 0.7% 0% -1% 1% 1% 0.3% 2.5% Welding -1% 0.7% -10.8% -10% -12% -9% -9% -9.9% -3% 2% 3% 5% 1.7% 5.0% Construction Products 0% -0.6% -7.0% 1% 1% 1% 2% 1.4% -1% -1% -2% 1% -0.7% 3.0% Decorative Surfaces 7% 2.4% -8.3% 1% 0% 0% 0% 0.0% 0% 1% 1% 1% 0.7% 2.0% Intersegment -14% -31.6% -11.5% -33% 17% -17% -20% -13.0% 27% -27% 2% 27% 2.0% 2.9% Sales Y/Y Growth -4% 2.5% -7.4% -2% 0% 4% 4% 1.4% 4% 4% 1% 2% 2.6% 2.9% T&M and Electronics Automotive OEM Polymers & Fluids Food Equipment Welding Construction Products Decorative Surfaces Intersegment (127) (65) (69) (25) (25) (18) (23) (91) (24) (24) (24) (24) (96) (107) Operating Income 2,514 2,888 2, , ,188 3,326 T&M and Electronics -6% 6% -5% 1% 19% 32% 9% 16% 0% -5% -2% 8% 0% 5% Automotive OEM 16% 22% 2% 6% 9% 6% 32% 13% 15% 13% 6% 12% 11% 4% Polymers & Fluids 2% 7% -6% -5% -1% 11% 5% 2% -1% 5% 0% 3% 2% 5% Food Equipment 16% 18% 10% 9% 18% 3% 3% 8% -2% 0% 2% 4% 1% 4% Welding -1% 3% -13% -21% -15% -3% -1% -11% 4% 10% 3% 6% 6% 7% Construction Products 18% 21% 9% 29% 23% 0% 11% 15% 1% 3% 0% 2% 2% 5% Decorative Surfaces 12% 7% 1% 17% 10% 9% 4% 10% -2% 6% -1% 6% 2% 3% Segment income Y/Y 2% 12% -1% 4% 8% 7% 10% 7% 3% 5% 2% 7% 4% 5% Operating income Y/Y 2% 15% -1% 4% 8% 6% 9% 7% 3% 5% 1% 7% 4% 4% T&M and Electronics 14.8% 15.4% 16.4% 15.5% 18.5% 20.9% 20.1% 18.8% 15.7% 17.9% 20.6% 21.3% 19.0% 19.6% Automotive OEM 20.5% 23.2% 24.2% 26.4% 25.8% 21.7% 23.0% 24.1% 24.8% 24.3% 22.9% 24.7% 24.2% 24.2% Polymers & Fluids 16.8% 18.5% 19.6% 20.1% 21.0% 21.1% 18.9% 20.3% 19.9% 21.9% 20.9% 19.2% 20.5% 21.2% Food Equipment 18.8% 20.8% 23.8% 24.4% 25.0% 27.4% 24.8% 25.5% 23.9% 25.3% 27.6% 25.5% 25.6% 26.0% Welding 25.3% 25.9% 25.2% 23.9% 25.1% 26.3% 24.4% 24.9% 25.8% 26.9% 26.3% 24.7% 25.9% 26.4% Construction Products 13.9% 16.9% 19.8% 21.1% 24.3% 22.7% 21.5% 22.4% 21.5% 25.3% 23.0% 21.8% 23.0% 23.3% Decorative Surfaces 20.3% 21.2% 23.3% 26.1% 26.0% 26.2% 23.9% 25.6% 25.5% 27.3% 25.7% 25.1% 25.9% 26.3% Segment Margin 18.7% 20.4% 21.9% 22.8% 23.8% 23.6% 22.5% 23.2% 22.7% 24.1% 23.8% 23.4% 23.5% 23.9% Operating Margin 17.8% 19.9% 21.4% 22.1% 23.1% 23.1% 21.8% 22.5% 22.0% 23.4% 23.2% 22.8% 22.9% 23.2% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 133

134 Illinois Tool Works Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Net Income 1,679 2,946 1, , ,104 2,235 Depreciation & Amortization Working Capital (51) (100) (47) 91 (129) (13) (266) (60) (27) Other 287 (1,737) (30) (197) 24 (18) (122) (313) (159) (63) 45 (28) Operating Cash Flow 2,528 1,616 2, , ,578 2,592 Acquisitions (369) (45) (6) (2) - (454) - (456) Disposals 208 3, (1) Other (2) Investing Cash Flow (456) 2,842 (210) (50) (65) (522) 416 (221) (72) (72) (72) (72) (287) (296) Equity issue Stock repurchase (2,106) (4,346) (2,002) (480) (520) (482) (492) (1,974) (303) (309) (315) (322) (1,250) (2,601) Dividends (528) (711) (742) (200) (198) (195) (206) (799) (205) (203) (202) (210) (821) (828) Other 1,288 1, (522) (220) (18) Financing Cash Flow (1,140) (3,551) (2,526) (1,163) (481) (155) (907) (2,706) (485) (490) (495) (509) (1,980) (3,337) Operating Cash Flow 2,528 1,616 2, , ,578 2,592 Capital Expenditure (368) (361) (284) (57) (64) (81) (71) (273) (72) (72) (72) (72) (287) (296) Free Cash Flow 2,198 1,283 2, , ,292 2,295 FCF Margin 15.6% 8.9% 15.3% 13.0% 13.8% 15.7% 17.4% 15.0% 14.1% 16.1% 18.9% 16.5% 16.4% 16.0% Cash 3,618 3,990 3,090 2,448 2,355 2,299 2,472 2,472 2,467 2,550 2,720 2,784 2,784 1,742 Gross Debt 6,344 7,457 7,422 7,003 7,164 7,693 7,829 7,829 7,829 7,829 7,829 7,829 7,829 7,829 Net Debt / (Cash) 2,726 3,467 4,332 4,555 4,809 5,394 5,357 5,357 5,362 5,279 5,109 5,045 5,045 6,087 Net Debt Movement (37) 1,025 5 (83) (170) (64) (312) 1,041 Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 134

135 Mar Jun Sep Dec-15 NTM P/E 1Y Median 5Y Median 2009 Mar Jun Sep Dec Mar Mar Jun Sep Dec Mar Jun Sep Dec Mar M O R G A N S T A N L E Y R E S E A R C H Illinois Tool Works: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median 21 20% Premium/Discount vs. sector median 1Y Median 5Y Median 20 15% % 17 5% 16 0% 15-5% 14 Organic Growth vs. EE/MI (2004/16) Core Operating Margins vs. EE/MI (2004/16) 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Organic Growth EE/MI Median 25% 20% 15% 10% 5% 0% Core Operating Margin EE/MI Median Source: Company data, Morgan Stanley Research 135

136 Ingersoll Rand (IR): Overweight, $90 Price Target Why Overweight? We see above-average growth in US residential and commercial construction markets, supported by continued strong payroll data and permitting activity. We are also beginning to see genuine signs of momentum in institutional end markets, which are key drivers of demand for large Applied equipment. IR continues to under-earn vs. its closest peers, UTC Carrier and Atlas Copco, making it one of the most credible restructuring stories in EE/MI. The combination of lean, supply chain and ERP initiatives, in conjunction with raw material (CU, AL) tailwinds, argues for margin expansion. We see almost 50c of upward EPS pressure (+11%) from share count reduction, Industrial recovery, and announced restructuring actions. This drives mid-teens EPS growth through 2018e. Price Target $90 Aligned with Base Case Bull $103 Base $ x Bull Case NTM EPS of $ x Base Case NTM EPS of $5.31 We assume that ~4% organic growth is sustainable through 2018e. We have assumed ~35% incremental margins driven by volume leverage, favorable mix, productivity and new product benefits, offset modestly by incremental investments. This scenario could support a 18.0x multiple, which is broadly consistent with the EE/MI median. We assume modest acceleration in organic growth to ~3% in FY17e vs. +2.7% in 2016e, largely driven by easy comps in Industrial. We have modeled core margin expansion to ~13.4% by 2018e. Our 17.0x multiple assumes IR's current valuation is sustainable, which still represents a modest discount to EE/MI peer average. Potential Upside Catalysts Investors are concerned that the non-residential is slowing, particularly in the US, while there are signs of volatility, we believe IR can sustained low to mid-single-digit growth in Climate in a trend GDP scenario. We believe IR is well positioned to capitalize on a broader US recovery, which is expected to take place in 2017 and We believe IR has the capacity to deploy ~$2bn of excess capital through Accretive acquisitions or announcement of share repurchases would be positive catalysts to the stock. Potential Downside Risks IR's absolute multiple is now ~2x above historic trend levels, as it has expanded in line with the group post-election. As such, the company could see multiple compression if it disappoints operationally. Price/raw has been a crucial tailwind for IRs margins this year. With raw material benefits waning, if pricing deteriorates, this could pose incremental margin challenges. Bear $ x Bear Case NTM EPS of $3.41 We assume a mild downturn yields 5% decline in organic growth for in 2017e. We model ~35% decremental margins, which leads to 150bps margin contraction through 2018e. A 13.0x multiple assumes contraction toward 10Y lows. Source: Morgan Stanley Research, Thomson Reuters. 136

137 Ingersoll Rand - Key Financial Statistics Revenue breakdown by geography Revenue breakdown by end market RoW 5% Asia Pacific 14% North America 66% Other General 5% Industrial 18% HVAC/R (Non- Residentia l) 47% EMEA 15% Transport Refrigerat ion 16% HVAC/R (Residenti al) 14% 2016 Revs 2016 Op. Profits CEO: Michael W. Lamach End Markets Seg. Revs CFO: Susan Carter Equipment vs. Services Climate Solutions $10,545 $1,534 Comm HVAC 60% Equipment 70% Didier Teirlinck 78% 83% Transport 20% Services 30% Resi HVAC 18% Seg. Revs Key Brands Competitors Thermo King, Trane, Ameristar Johnson Controls, Lennox, Carrier, Rheem, York, Transicold, Industrial $2,964 $315 General Industrial 82% Equipment 65% Technologies Robert Zafari 22% 17% Club Car 23% Services 35% Club Car, Ingersoll Rand, ARO Atlas Copco, Yamaha, Cushman, Harley- Davidson, Graco Source: Company data, Morgan Stanley Research. 137

138 Ingersoll Rand Income Statement Estimates YE 31 December ($ million) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 12,351 12,891 13,301 2,894 3,688 3,568 3,359 13,509 2,993 3,755 3,585 3,447 13,781 14,280 YoY total growth 3% 4% 3% 0% 2% 2% 1% 2% 3% 2% 0% 3% 2% 4% YoY organic growth 3% 5% 5% 2% 3% 3% 2% 3% 4% 3% 2% 3% 3% 4% Cost of sales 8,684 8,983 9,302 2,047 2,512 2,419 2,351 9,329 2,130 2,555 2,429 2,371 9,484 9,739 Gross profit 3,667 3,909 3, ,176 1,149 1,008 4, ,201 1,156 1,077 4,296 4,540 Margin 29.7% 30.3% 30.1% 29.3% 31.9% 32.2% 30.0% 30.9% 28.8% 32.0% 32.3% 31.2% 31.2% 31.8% SG&A 2,562 2,504 2, , ,618 2,658 Other Items Reported Operating Income 1,105 1,405 1, , ,679 1,882 Margin 8.9% 10.9% 11.0% 7.5% 13.7% 14.1% 10.3% 11.6% 7.4% 14.1% 14.5% 11.9% 12.2% 13.2% Exceptional Items Core Operating Income 1,188 1,417 1, , ,729 1,909 Margin 9.6% 11.0% 11.0% 7.8% 13.8% 14.3% 10.8% 11.6% 7.8% 14.4% 14.8% 12.2% 12.2% 13.2% D&A Core EBITDA 1,520 1,750 1, , ,077 2,254 Margin 12% 14% 14% 11% 16% 17% 13% 15% 11% 17% 17% 15% 15% 16% Interest & Other Income/Expense (24) Interest Expense Income before Tax 830 1,209 1, , ,464 1,666 Taxes Effective Rate 23.9% 24.3% 43.3% 24.6% 10.9% 18.5% 23.8% 16.2% 22.0% 21.5% 21.0% 21.0% 21.3% 21.5% Minority interest (23) (19) (18) (3) (5) (5) (4) (17) (4) (4) (4) (4) (17) (19) Continuing Income , ,135 1,289 Adjustments (395) 5 20 (363) Headline Income , ,169 1,310 DWAC Headline EPS YoY 4% 27% 12% 33% 14% 17% -10% 11% 2% 4% 1% 34% 9% 18% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 138

139 Ingersoll Rand Segment Estimates YE 31 December ($ million) Q16 2Q16 3Q16 4Q Q16 2Q16 3Q16 4Q E 2018E Climate Solutions 9,414 9,880 10,224 2,214 2,935 2,838 2,559 10,545 2,304 2,990 2,873 2,661 10,828 11,179 Industrial Technologies 2,937 3,012 3, , ,953 3,101 Sales 12,351 12,891 13,301 2,894 3,688 3,568 3,359 13,509 2,993 3,755 3,585 3,447 13,781 14,280 Climate Solutions 4% 5% 3% 3% 4% 3% 3% 3% 4% 2% 1% 4% 3% 3% Industrial Technologies 0% 3% 2% -7% -4% 0% -4% -4% 1% 2% -2% -2% 0% 5% Sales YoY 3% 4% 3% 0% 2% 2% 1% 2% 3% 2% 0% 3% 2% 4% Climate Solutions 1,234 1,448 1, , ,845 1,969 Industrial Technologies Corporate/Restructuring (226) (190) (160) (42) (43) (32) (63) (181) (44) (43) (43) (50) (180) (180) EBITDA 1,520 1,750 1, , ,070 2,254 Climate Solutions 12% 17% 8% 30% 18% 7% 4% 13% 1% 3% 5% 11% 5% 7% Industrial Technologies 1% -4% -3% -18% -25% -18% -19% -20% 8% 16% 2% 0% 6% 15% EBITDA YoY 6% 15% 8% 16% 7% 4% -5% 4% 6% 9% 7% 0% 6% 9% Climate Solutions 981 1,201 1, , ,625 1,753 Industrial Technologies Segment Income ex-items 1,449 1,648 1, , ,962 2,149 Restructuring/Discrete Items (82) (13) (59) (8) (5) (7) (15) (36) (11) (11) (11) (11) (50) (27) Corporate/Other (262) (231) (211) (56) (58) (48) (78) (240) (59) (58) (58) (65) (233) (240) Operating Income 1,105 1,405 1, , ,679 1,882 Climate Solutions 17% 22% 10% 43% 22% 9% 8% 17% 2% 3% 6% 13% 6% 695% Industrial Technologies 0% -4% -8% -25% -29% -20% -21% -23% 9% 20% 1% -1% 7% 453% Segment Income ex-restructuring YoY 11% 14% 5% 18% 12% 3% 0% 7% 4% 5% 5% 10% 6% 636% Operating Income YoY 3% 27% 4% 27% 12% 6% -3% 8% 2% 5% 3% 18% 7% 747% Climate Solutions 10.4% 12.2% 12.9% 9.8% 16.9% 16.7% 13.6% 14.5% 9.6% 17.0% 17.5% 14.8% 15.0% 15.7% Industrial Technologies 15.9% 14.8% 13.4% 9.6% 9.8% 11.6% 11.4% 10.6% 10.4% 11.6% 12.0% 11.6% 11.4% 12.8% Segment Margins ex-restructuring 11.7% 12.8% 13.0% 9.7% 15.4% 15.7% 13.1% 13.7% 9.8% 15.9% 16.4% 14.1% 14.2% 15.0% Operating Margins 8.9% 10.9% 11.4% 7.5% 13.7% 14.1% 10.3% 11.6% 7.4% 14.1% 14.5% 11.9% 12.2% 13.2% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 139

140 Ingersoll Rand Cash Flow Estimates YE 31 December ($ million) Q16 2Q16 3Q16 4Q Q16 2Q16 3Q16 4Q E 2018E Net Income , ,169 1,310 Depreciation & Amortization Working Capital (97) (193) (127) (222) (447) (401) (464) (24) (58) (11) Other (143) (81) (384) (10) Operating Cash Flow (12) ,500 (241) ,459 1,655 Capital Expenditure (242) (234) (250) (40) (43) (45) (55) (183) (62) (62) (62) (62) (247) (255) Free Cash Flow (52) ,318 (303) ,212 1,400 FCF Margin 5% 6% 5% -2% 11% 18% 10% 10% -10% 10% 17% 15% 9% 10% Acquisitions 5 (9) (962) Disposals Other Cash Flow Pre Financing (342) (52) ,740 (303) ,212 1,400 Equity issue Stock repurchase (1,213) (1,365) (250) (250) (0) - - (250) (78) (80) (82) (1,260) (1,500) (450) Dividends (246) (265) (303) (82) (80) (83) (103) (349) (103) (103) (103) (110) (418) (436) Other 1,308 (155) (149) 27 (22) 37 (37) Movement on Net Debt 767 (935) (983) (358) ,147 (484) (837) (706) 515 Cash 1,937 1, ,505 1,715 1,715 1,230 1,426 1,846 1,008 1,008 1,523 Gross Debt (3,521) (4,224) (4,239) (4,473) (4,086) (4,070) (4,070) (4,070) (4,070) (4,070) (4,070) (4,070) (4,070) (4,070) Net Debt (1,584) (2,519) (3,502) (3,860) (3,157) (2,565) (2,356) (2,356) (2,840) (2,644) (2,224) (3,062) (3,062) (2,547) Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 140

141 Mar Jun Sep Dec-15 NTM P/E 1Y Median 5Y Median 2009 Mar Jun Sep Dec Mar Mar Jun Sep Dec Mar Jun Sep Dec Mar M O R G A N S T A N L E Y R E S E A R C H Ingersoll Rand: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median 18 10% Premium/Discount vs. sector median 1Y Median 5Y Median 17 5% 16 0% % 13-10% 12-15% 11-20% 10 Organic Growth vs. EE/MI (2004/16) Core Operating Margins vs. EE/MI (2004/16) Organic Growth Core Operating Margin EE/MI Median 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% EE/MI Median 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: Company data, Morgan Stanley Research 141

142 Price Target (Feb-18) Historical Stock Performance Current Stock Price Johnson Controls (JCI): Overweight, $53 Price Target M O R G A N S T A N L E Y R E S E A R C H Morning Call $ 70 Why Overweight? $41.85 $64.00 (+53%) $53.00 (+27%) $27.00 (-35%) We view the JCI/TYC merger as strategically sound, with a reasonable targets for cost synergies. We believe the JCI/TYC merger and spin-out transaction of Adient will help drive multiple expansion. We see scope for improving FCF and a pathway to ~90% for the TYC/JCI pro-forma. We are relatively bullish on Power Solutions, modeling for MSD organic growth p.a. through 2018e Price Target $53 Aligned with Base Case Bull $64 Base $ Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb x Bull Case NTM EPS of $3.54 (at 15% tax rate) 16.5x Base Case NTM EPS of $3.20 (at 18% tax rate) WARNINGDONOTEDIT_RRS4RL~JCI.N~ Economic Reacceleration, with upside to synergy target. In this scenario, we as ~4.5% organic growth CARG through 2019e, predicated on strong construction growth in the US and Asia, solid AGM battery adoption and upside vs. targets through the early stages of merger integration. Our bull case valuation bakes in 15% normalized tax rate (in line with 2018e ETR), assuming no impact from US tax reform. We also assume a 18x bull case target multiple, in line with the EE/MI group. Modest growth in the Construction market, with success vs. targets through the early stages of merger integration. In this scenario, we as assume ~3.5% organic growth CAGR for the combined company through 2018e. We also adjust our EPS estimate for a normalized tax rate of 18% (vs. 15.5% GAAP ETR), reflecting potential headwinds from the proposed border adjustability measures. Our base case target multiple of 16x is comparable to how IR (its closest comp) has traded since the spin-out of Allegion. Potential Upside Catalysts We see potential for accretive capital deployment beyond FY17e following the JCY/TYC merger (mgmt guided for $3bn+ surplus capital through 2020), which is not considered in our current estimates. Upside to the $1.1bn synergy/ productivity target by FY20 Potential Downside Risks There are risks to the future rate of adoption for AGM (start-stop) technology. Adoption below our estimates and incremental CapEx to support future growth/share maintenance would represent a headwind estimates. Retroactive rule-making on inversion transactions. Source: Morgan Stanley Research, Thomson Reuters. Bear $ x Bear Case NTM EPS of $1.93 (at 22% tax rate) Recessionary Environment. We assume 1% growth in 2017e followed by ~2% p.a. decline over 2018/19e. We also forecast modest margin contraction through 2018e. We also adjust our EPS estimates for a normalized tax rate of 22% (vs. 15.5% GAAP ETR), reflecting potential headwinds from the proposed border adjustability measures. Our 14.0x P/E multiple assumes contraction towards its 1 year minimum valuation. 142

143 Johnson Controls - Key Financial Statistics Revenue breakdown by geography (ex-adient) Revenue Exposure by End Market Consumer/ Auto Aftermarket 22% Fire & Security 33% Comm HVAC 23% Resi HVAC/ Industrial Refrig 11% Building Automation/ Controls 11% Revenue breakdown by end market (ex-adient) Revenue Exposure by Geography North America 51% EMEA 22% Asia-Pac (ex- China) 16% China 6% Latin America 5% CEO: Alex Molinaroli (for 18 months after merger closing) COO: George Oliver (CEO after 18 months) CFO: Brian Stief Johnson Controls Tyco International 2015 Sales 2015 Op. Profits End Market Exposure % of Segment Sales Key Products & Services Key Brands Competitors Building Efficiency $13,300 $1,150 Bill Jackson 45% 31% Building Controls C-HVAC R-HVAC/Industrial Ref. China HVAC 26% 39% 14% 22% Chillers, Industrial Refrigeration Products, Air Handlers, Control Systems, Air Conditioning and Heating Equipment and Products. York, Metasys, Titus, Ruskin Honeywell International, Siemens Building Technologies, Schneider Electric, Carrier Corporation, Trane, Daikin, Lennox, GC Midea, Gree Electric Appliances, Greenheck Fan Corp., Various local providers. Power Solutions Joseph Walicki AGM/EFB 12% $6,600 $1,150 Services both automotive OEMs and aftermarket by providing Li-Ion 4% energy storage technology, coupled with systems SLI 84% engineering. Lead-acid batteries, absorbent glass mat (AGM), 22% 31% and enhanced flooded battery (EFB), Lithium-ion batteries. Optima, Varta, LTH, Heliar Exide Technologies, GS Yuasa Corp, Camel Group Company, East Penn Manufacturing, Banner Batteries, various local competitors NA Integrated Solutions & Service $3,900 $590 Installation Service 47% 36% Girish Rishi RoW Integrated Solutions & Service 13% 16% $3,400 $360 Recurring Installation Service 17% 44% 37% Security monitoring services, security management services, fire alarm system design, installation and support services;anti-theft systems and detection accessories; security video surveillance, electronic access control. Tyco, Tyco Integrated Security, SimplexGrinnell, Sensormatic UTC Fire & Security, Stanley, Honeywell Johan Pfeiffer 11% 10% Recurring 19% Global Products $2,600 $460 Fire Protection Products 55.0% Commercial 25% Institutional 17% Residential 17% Detection panels, detectors, notification systems, water sprinklers, valves, watermist nozzles, special hazard portables, engineered systems, foam, mechanical grooved, fire grooved, metal framing and supports. Ansul, Grinnell, Simplex, Tyco, Wormald Colleen Repplier Security Products 25.0% Industrial 17% POG 7% Government 4% Infrastructure 4% Intrusion panels, keypads, communicators, sensors & detectors, access control cards and readers, security management software, network and digital video management systems, IP and analog cameras, monitors and matrix switchers, active RFID tags, tracking systems. Tyco, Software House, Kantech, CEM Systems, American Dynamics, Elpas, DSC, Bentel Security, Visonic, Sensormatic Honeywell, UTC Fire & Security, 3M, MSA Mike Ryan 9% 12% Life Safety Products 20.0% Retail 3% Mining 3% Other 3% Supplied air SCBAs, compressors, air lines, escape sets, air purification masks, filters, PAPRs, head tops, detection devices, thermal imaging, and incident management Scott Safety Total $29,800 $3,710 *Excludes automotive-seating business spin Adient ; estimates based on FY15 actuals, proforma to include Hitachi. Source: Company data, Morgan Stanley Research. 143

144 Johnson Controls Income Statement Estimates YE 30 September ($ million) Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 2017E 1Q18E 2Q18E 3Q18E 4Q18E 2018E 2019E Sales 38,749 37,179 7,066 7,058 7,597 7,848 29,569 7,086 7,129 7,659 8,249 30,124 7,347 7,358 7,897 8,500 31,102 32,219 YoY total growth -7% -4% -27% -23% -21% -10% -20% 0% 1% 1% 5% 2% 4% 3% 3% 3% 3% 4% YoY organic growth 2% 3% 2% 3% 2% 3% 2% 1% 2% 3% 4% 3% 3% 3% 3% 3% 3% 4% Cost of sales 32,444 30,732 5,023 5,018 5,279 5,550 20,870 4,972 4,873 5,232 5,494 20,571 5,057 5,081 5,310 5,576 21,025 21,494 Gross profit 6,305 6,447 2,043 2,040 2,318 2,298 8,699 2,114 2,256 2,427 2,755 9,552 2,290 2,277 2,586 2,924 10,077 10,725 Margin 16.3% 17.3% 28.9% 28.9% 30.5% 29.3% 29.4% 29.8% 31.6% 31.7% 33.4% 31.7% 31.2% 30.9% 32.7% 34.4% 32.4% 33.3% SG&A 4,121 3,986 1,413 1,412 1,519 1,570 5,914 1,570 1,568 1,532 1,650 6,320 1,469 1,472 1,579 1,700 6,220 6,444 Restructuring Impairment Other Items Reported Operating Income 2,184 2, , ,030 2, ,174 3,657 4,181 Margin 5.6% 6.6% 8.9% 8.9% 10.5% 9.3% 9.4% 6.6% 8.5% 10.7% 12.5% 9.7% 10.5% 10.3% 12.1% 13.8% 11.8% 13.0% Exceptional Items Core Operating Income 2,556 2, , ,105 3, ,007 1,224 3,857 4,281 Margin 6.6% 7.6% 9.1% 9.2% 10.9% 12.4% 10.5% 9.9% 9.6% 11.7% 13.4% 11.3% 11.2% 10.9% 12.7% 14.4% 12.4% 13.3% D&A , , ,206 1,214 Core EBITDA 3,511 3, ,103 1,297 4,225 1, ,195 1,405 4,589 1,122 1,107 1,308 1,526 5,063 5,495 Margin 9% 10% 13% 13% 15% 17% 14% 14% 14% 16% 17% 15% 15% 15% 17% 18% 16% 17% Interest & Other Income/Expense (14) (22) 49 (198) (54) (445) (649) Interest Expense Income before Tax 1,916 2, , , ,135 3,420 3,972 Taxes (27) Effective Rate 21.2% 27.9% 16.9% 17.0% 17.1% 17.0% 17.0% -7.0% 15.0% 15.0% 15.0% 11.8% 15.0% 15.0% 15.0% 15.0% 15.0% 16.0% Minority interest Continuing Income (1,381) (1,435) (452) (426) (576) (719) (2,173) (372) (402) (592) (783) (2,149) (566) (530) (718) (922) (2,736) (3,159) Adjustments (962) (797) (123) (68) (64) (64) (319) (43) (43) (43) (43) (170) (84) Headline Income (2,177) (2,360) (452) (426) (576) (719) (2,173) (495) (470) (656) (847) (2,468) (608) (573) (761) (964) (2,906) (3,243) DWAC Headline EPS YoY 21% 11% -38% -42% -35% -28% -35% 9% 10% 13% 17% 13% 23% 22% 16% 14% 18% 13% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 144

145 Johnson Controls Segment Estimates YE 30 September ($ million) Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 2017E 1Q18E 2Q18E 3Q18E 4Q18E 2018E 2019E Buidings 5,326 5,475 6,078 6,037 22,916 5,186 5,432 6,063 6,365 23,046 5,379 5,580 6,228 6,538 23,725 24,451 Power Solutions 1,740 1,583 1,519 1,811 6,653 1,900 1,697 1,596 1,884 7,078 1,968 1,778 1,669 1,962 7,377 7,768 Sales 38,749 37,179 7,066 7,058 7,597 7,848 29,569 7,086 7,129 7,659 8,249 30,124 7,347 7,358 7,897 8,500 31,102 32,219 Buidings 113% 130% 122% 108% 118% -3% -1% 0% 5% 1% 4% 3% 3% 3% 3% 3% Power Solutions -6% 0% 3% 7% 1% 9% 7% 5% 4% 6% 4% 5% 5% 4% 4% 5% Sales YoY -7% -4% -27% -23% -21% -10% -20% 0% 1% 1% 5% 2% 4% 3% 3% 3% 3% 4% Buidings , ,002 1,074 3, ,076 1,153 3,840 4,143 Power Solutions , , ,857 1,953 Synergies Corporate/Others (277) (306) (181) (181) (198) (154) (713) (163) (154) (172) (179) (669) (155) (145) (163) (171) (635) (602) EBITDA 3,511 3, ,103 1,297 4,225 1, ,195 1,405 4,588 1,122 1,107 1,308 1,526 5,063 5,495 Buidings 211% 233% 196% 142% 187% 5% 4% 6% 11% 7% 10% 10% 7% 7% 8% 8% Power Solutions 11% 4% 14% 17% 12% 9% 6% 4% 5% 6% 9% 10% 8% 7% 8% 5% EBITDA YoY 11% 5% 9% 11% 13% 23% 15% 10% 8% 8% 8% 9% 12% 12% 9% 9% 10% 9% Buidings , , ,032 3,359 3,657 Power Solutions , , ,545 1,638 Synergies Segment Income ex-items 3,094 3, ,126 1,276 4, ,170 1,388 4,471 1,078 1,053 1,273 1,498 4,903 5,295 Restructuring/Discrete Items (372) (368) (13) (24) (29) (242) (308) (236) (80) (75) (75) (466) (50) (50) (50) (50) (200) (100) Corporate/Other (538) (797) (276) (265) (299) (306) (1,145) (397) (257) (275) (282) (1,212) (258) (248) (266) (274) (1,047) (1,014) Operating Income 2,184 2, , ,030 2, ,174 3,657 4,181 Buidings 241% 267% 211% 146% 202% 3% 2% 4% 11% 6% 12% 11% 8% 8% 10% 9% Power Solutions 14% 7% 20% 21% 16% 8% 5% 2% 5% 5% 11% 12% 10% 8% 10% 6% Segment Income ex-restructuring YoY 42% 17% 28% 31% 33% 36% 17% 15% 3% 4% 9% 2% 2% 11% 9% 8% 13% 8% Operating Income YoY -20% 13% 4% 5% 9% 38% 13% -26% -3% 3% 41% 5% 65% 24% 17% 14% 25% 14% Buidings 10.5% 11.6% 13.9% 14.3% 12.7% 11.1% 12.0% 14.6% 15.0% 13.3% 12.0% 13.0% 15.3% 15.8% 14.2% 15.0% Power Solutions 20.7% 17.8% 18.5% 22.8% 20.1% 20.5% 17.4% 18.0% 23.0% 19.9% 21.9% 18.6% 19.0% 23.8% 20.9% 21.1% Segment Margins ex-restructuring 8.0% 9.8% 13.0% 13.0% 14.8% 16.3% 14.3% 15.0% 13.3% 15.3% 16.8% 14.4% 14.7% 14.3% 16.1% 17.6% 15.8% 16.4% Operating Margins 5.6% 6.6% 8.9% 8.9% 10.5% 9.3% 9.4% 6.6% 8.5% 10.7% 12.5% 9.7% 10.5% 10.3% 12.1% 13.8% 11.8% 13.0% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 145

146 Johnson Controls Cash Flow Estimates YE 30 September ($ million) Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 2017E 1Q18E 2Q18E 3Q18E 4Q18E 2018E 2019E Net Income 1,343 1, , , ,907 3,336 Depreciation & Amortization , ,206 1,214 Working Capital 111 (48) (265) (139) (2,791) (252) (2,412) (454) (251) (50) (61) Other (14) (891) (455) 86 (857) (289) (1,515) 176 (106) (124) (157) (210) (70) (70) (70) (70) (280) (290) Operating Cash Flow 2,395 1,600 (13) ,199 1,845 (1,900) , ,452 1,391 3,783 4,199 Capital Expenditure (1,199) (1,135) (282) (261) (279) (427) (1,249) (371) (269) (269) (269) (1,179) (290) (290) (290) (290) (1,158) (1,119) Free Cash Flow 1, (295) 373 (254) (2,269) ,193 (282) ,162 1,102 2,625 3,080 FCF Margin 3% 1% -4% 5% -3% 10% 2% -32% 2% 9% 14% -1% 1% 4% 15% 13% 8% 10% Acquisitions (1,733) (22) (133) (3) (3) Disposals 225 1, (22) Other 35 (56) (57) (27) (6) (6) Cash Flow Pre Financing (198) 2,070 (397) 401 (229) 1, (2,231) ,193 (244) ,162 1,102 2,625 3,080 Equity issue Stock repurchase (1,249) (1,362) - - (475) (26) (501) - (135) (92) 5 (223) (116) (116) (116) (116) (466) (955) Dividends (568) (657) (168) (188) (188) (371) (915) (31) (31) (31) (31) (123) (35) (35) (35) (35) (138) (156) Other (22) (117) 6 (76) 1 (64) (133) (10) (10) Movement on Net Debt (1,828) 258 (727) 72 (863) (6,104) (7,622) 762 (17) 587 1,168 2,500 (5) 162 1,060 1,000 2,217 2,166 Cash ,718 2, (539) 48 1,216 1,216 1,211 1,373 2,433 3,063 3,063 5,228 Gross Debt (6,680) (6,610) (7,154) (7,026) (7,998) (16,353) (16,353) (13,250) (12,351) (12,351) (12,351) (12,351) (12,351) (12,351) (12,351) (11,981) (11,981) (11,981) Net Debt (6,271) (6,013) (6,740) (6,668) (7,531) (13,635) (13,635) (12,873) (12,890) (12,303) (11,135) (11,135) (11,140) (10,978) (9,918) (8,918) (8,918) (6,753) Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 146

147 Mar Jun Sep Dec NTM P/E 1Y Median 5Y Median 2009 Mar Jun Sep Dec Mar Mar Jun Sep Dec Mar Jun Sep Dec Mar-17 M O R G A N S T A N L E Y R E S E A R C H Johnson Controls: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median % Premium/Discount vs. sector median 1Y Median 5Y Median 18-5% % % 13-20% % % 8 Organic Growth vs. EE/MI (2004/16) Core Operating Margins vs. EE/MI (2004/16) Organic Growth Core Operating Margin EE/MI Median 20% 15% 10% 5% 0% -5% -10% -15% -20% EE/MI Median 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -25% Source: Company data, Morgan Stanley Research 147

148 WARNINGDONOTEDIT_RRS4RL~LII.N~ M O R G A N S T A N L E Y R E S E A R C H Lennox International (LII): Underweight, $156 Price Target Price Target $156 Aligned with Base Case Bull $214 Base $156 $ x $10.71 Tax Adj. NTM EPS 18.2x $8.60 Tax Adj. NTM EPS $ $ (+31%) $ (-4%) $87.00 (-47%) 0 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Price Target (Feb-18) Historical Stock Performance Current Stock Price Assuming a re-acceleration in residential demand along with supportive Commercial/Refrigeration activity, we believe LII can sustain mid-to-high-single-digit organic growth through 2018e. We model ~30% incremental margins, which assumes positive price/mix and continued productivity/sourcing-led cost-out. We adjust for a normalized tax rate of 25% in this scenario. Our 21.0x multiple assumes a premium to the group and considers strategic value.. We believe LII can generate core growth of ~4% Y/Y in 2017e and 2018e. We model >200bps cumulative core margin expansion through '18e, driven by volume leverage, mix up and investment payback (facility cost-out, in sourcing, restructuring, etc.). We do not adjust for a normalized tax rate in our base case as it is still unclear of LII is a beneficiary of border adjustability. Our 18.2x multiple broadly assumes contraction from current levels.. Why Underweight? We are not bearish US HVAC markets but volumes have returned to prior peak levels and we see scope for lumpier and slower growth in a rising rate environment We concur that LII will be able to price along incipient raw material inflation in 2017 but this will be tougher in As EBIT growth rates decelerate, we see scope for multiple compression. We view 2017 guidance as reasonable in aggregate, although the upper end of the 3-7% range feels aggressive in light of tougher conditions in LII's light commercial and refrigeration markets. We view LII as a winner from potential US tax policy reform but see risks related to LII's over-reliance on Mexico-based production facilities. Potential Upside Catalysts We see increasing rotation from consumer-centric names in a risk-on environment, thus pressuring LII's multiple. Rising rates could pressure consumer spending and sentiment and this would likely pressure LII disproportionately vs, group Potential Downside Catalysts LII has ample balance sheet capacity and could elect to bump up its 2017 buy-back program if the stock starts to underperform. LII could be a target for industry consolidation, although we struggle to identify likely candidates that could make the math work at these levels. Source: Morgan Stanley Research, Thomson Reuters. Bear $ x $5.80 Tax Adj. NTM EPS In our Bear Case, we have embedded a decline one-third as bad as seen in 2009; in this scenario, core revenues will decline 5% Y/Y in 2018e. We model 35%+ decremental margins, reflecting less volume leverage, higher fixed costs and unfavorable mix. We assume a lack of tax policy changes in this scenario. Our 15.0x multiple assumes substantial compression below the 10Yr median. 148

149 Lennox International: Key Financial Statistics Revenue breakdown by geography Revenue breakdown by end market HVAC/R (Residential) 54% Americas 88% Europe 8% Asia Pacific 4% HVAC/R (Non- Residential) 25% Retail Refrigeration & Food Prep 21% 2016 Revs 2016 Op. Profits End Markets Residential Heating & Cooling $2,001 $349 HVAC 100% Douglas Young 55% 62% CEO: Todd M. Bluedorn CFO: Joseph W. Reitmeier COO: Terry L. Johnston % of Seg. Revs Key Products & Services Key Brands Competitors Furnaces, air conditioners, heat pumps, packaged heating and cooling systems, indoor air quality equipment, pre-fabricated fireplaces, freestanding stoves. Lennox, Armstrong Air, Ducane, Aire- Flo, AirEase, Concord, Magic-Pak, Advanced Distributor Products, Superior, Country Stoves, Security Chimneys Goodman, Carrier, Trane, York, Nordyen, Daikin Commercial Heating & Cooling $918 $149 Terry Johnston 25% 26% Unitary heating and air conditioning equipment, applied systems. Lennox, Allied Commercial York, Trane, Carrier, Daikin Refrigeration $723 $69 Commercial 100% David Moon 20% 12% Refrigeration Condensing units, unit coolers, fluid coolers, air cooled condensers, air handlers, process chillers, compressorized racks. Heatcraft Worldwide Refrigeration, Bohn, Larkin, Climate Control, Chandler Refrigeration, Friga-Bohn, HK Refrigeration, Hyfra, Kirby, Frigus-Bohn Hussmann, Carrier, Emerson, GEA Group, Alfa Laval Source: Company data, Morgan Stanley Research. 149

150 Lennox International Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Sales 3,199 3,367 3, ,019 1, , ,091 1, ,793 3,929 4,032 YoY total revenue growth 8% 5% 3% 4% 3% 6% 8% 5% 7% 7% 2% 1% 4% 4% 3% YoY organic revenue growth 9% 6% 7% 6% 3% 6% 7% 6% 6% 7% 2% 1% 4% 4% 3% Cost of sales 2,338 2,464 2, , ,628 2,715 2,779 Gross Profit , ,166 1,214 1,254 Margin 26.9% 26.8% 27.3% 25.7% 30.9% 30.7% 29.8% 29.6% 27.2% 32.2% 31.5% 31.0% 30.7% 30.9% 31.1% SG&A Gains and other expenses, net Restructuring Charges (0) Income from equity method investments (12) (14) (13) (5) (6) (4) (3) (19) (6) (7) (4) (3) (20) (21) (22) Reported Operating Income Margin 9.0% 9.9% 8.8% 6.1% 15.8% 15.5% 7.6% 11.8% 8.4% 17.3% 16.6% 13.1% 14.3% 14.5% 14.7% Exceptional Items Core Operating Income Margin 9.4% 10.1% 10.8% 6.5% 15.8% 15.5% 11.8% 12.4% 8.4% 17.3% 16.6% 13.1% 14.3% 14.5% 14.7% D&A Core EBITDA Margin 11.2% 11.9% 12.7% 8.5% 17.2% 17.0% 13.4% 14.0% 10.3% 18.7% 18.0% 14.7% 15.9% 16.1% 16.4% Yoy 31% 12% 9% 30% 19% 17% 24% 16% 30% 16% 8% 11% 18% 5% 4% Other Income/(Expenses) (0) Net Interest (15) (17) (24) (6) (7) (7) (7) (27) (7) (8) (9) (8) (32) (37) (39) Income before Tax Taxes Effective Rate 34.4% 34.5% 33.8% 34.3% 27.8% 32.2% 32.9% 30.8% 32.0% 32.0% 32.0% 32.0% 32.0% 32.0% 32.0% Continuing Income Adjustments (0) Headline Income DWAC Headline EPS Yoy 37% 18% 17% 65% 37% 28% 36% 35% 48% 12% 10% 18% 16% 7% 6% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 150

151 Lennox International Segment Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Residential Heating & Cooling 1,583 1,736 1, , ,106 2,191 2,256 Commercial Heating & Cooling Refrigeration Corporate and Others (0) Elimination Sales 3,199 3,367 3, ,019 1, , ,091 1, ,793 3,929 4,032 Residential Heating & Cooling 15% 10% 8% 4% 3% 11% 10% 7% 10% 10% 1% 1% 5% 4% 3% Commercial Heating & Cooling 8% 4% 1% 7% 0% 2% 7% 3% 3% 5% 3% 1% 3% 3% 2% Refrigeration -2% -2% -5% 3% 4% -2% 1% 1% 4% 1% 3% 3% 3% 3% 2% Sales YoY 8% 5% 3% 4% 3% 6% 8% 5% 7% 7% 2% 1% 4% 4% 3% Residential Heating & Cooling Commercial Heating & Cooling Refrigeration Corporate & Others (74) (61) (69) (11) (19) (23) (25) (78) (14) (18) (18) (18) (68) (78) (82) EBITDA Residential Heating & Cooling 63% 28% 17% 20% 15% 24% 40% 24% 31% 14% 1% 2% 9% 6% 4% Commercial Heating & Cooling 18% 5% 5% 66% 10% 9% 11% 14% 10% 7% 3% 1% 5% 5% 4% Refrigeration 8% -32% -4% 43% 37% 4% -7% 14% 16% 4% 11% 13% 10% 10% 6% EBITDA YoY 31% 12% 9% 30% 19% 17% 26% 21% 23% 13% 6% 9% 11% 253% 276% Residential Heating & Cooling Commercial Heating & Cooling Refrigeration Corporate & Others (96) (79) (103) (18) (23) (27) (68) (136) (14) (17) (20) (21) (72) (81) (84) Operating Income Residential Heating & Cooling 75% 31% 18% 0% 0% 0% 0% 25% 0% 0% 0% 0% 9% 6% 4% Commercial Heating & Cooling 19% 5% 5% 0% 0% 0% 0% 15% 0% 0% 0% 0% 4% 5% 3% Refrigeration 10% -39% -4% 0% 0% 0% 0% 30% 0% 0% 0% 0% 11% 10% 5% Segment Income YoY 35% 13% 11% 50% 20% 20% 29% 24% 28% 14% 7% 13% 13% 5% 4% Operating Income YoY 34% 16% -9% 62% 23% 24% 233% 41% 47% 17% 8% 75% 26% 5% 4% Residential Heating & Cooling 11.4% 13.6% 14.9% 10.2% 20.2% 19.7% 17.2% 17.4% 12.5% 21.1% 19.7% 17.3% 18.1% 18.4% 18.6% Commercial Heating & Cooling 14.0% 14.1% 14.7% 8.3% 18.7% 19.5% 15.9% 16.3% 8.9% 19.1% 19.5% 15.9% 16.5% 16.7% 16.9% Refrigeration 11.7% 7.4% 7.4% 5.4% 11.1% 12.3% 8.8% 9.5% 6.2% 11.4% 13.4% 9.7% 10.3% 11.0% 11.4% Segment Margin 9.4% 10.1% 10.9% 6.5% 15.8% 15.6% 11.7% 12.9% 7.8% 16.8% 16.3% 12.9% 13.9% 14.1% 14.3% Operating Margin 9.0% 9.9% 8.8% 6.1% 15.8% 15.5% 7.6% 11.8% 8.4% 17.3% 16.6% 13.1% 14.3% 14.5% 14.7% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 151

152 Lennox International Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Net Income Depreciation & Amortization Working Capital (79) (83) 2 (72) (142) (123) (150) (7) (35) (15) Other 43 (6) 32 (83) 89 (46) 23 (16) (28) 46 (15) (1) Operating Cash Flow (113) (97) Capex (78) (88) (70) (24) (18) (18) (25) (84) (21) (21) (21) (21) (83) (96) (98) Free Cash Flow (137) (118) FCF Margin 4.1% 2.9% 7.5% -19.2% 5.3% 12.9% 24.8% 7.4% -15.4% 1.2% 20.0% 24.7% 8.6% 7.9% 8.2% Acquisitions Disposals Other Cash Flow Pre Financing (137) (118) Equity issuance Stock repurchase (125) (550) - (200) - (100) - (300) (60) (62) (63) (65) (249) (274) (301) Dividends (34) (53) (59) (16) (16) (19) (19) (69) (18) (18) (22) (22) (81) (89) (100) Other (13) (22) (21) (1) (1) 0 (15) (17) Movement on Net Debt (28) (526) 183 (354) (113) (180) (62) (14) (27) Cash Gross Debt (400) (926) (744) (1,099) (1,075) (1,056) (868) (868) (1,048) (1,110) (984) (984) (984) (984) (984) Net Debt (362) (888) (705) (1,059) (1,021) (1,008) (818) (818) (998) (1,060) (934) (784) (784) (799) (826) Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 152

153 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 M O R G A N S T A N L E Y R E S E A R C H Lennox International: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median 24 NTM P/E 1Y Median 5Y Median 40% Premium/Discount vs. sector median 1Y Median 5Y Median 23 35% 22 30% 21 25% 20% 20 15% 19 10% 18 5% 0% 17-5% 16 Organic Growth vs. EE/MI (2004/16) Core Operating Margins vs. EE/MI (2004/16) Organic Growth Core Operating Margin EE/MI Median 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% EE/MI Median 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: Company data, Thomson Reuters, Morgan Stanley Research estimates. 153

154 Pentair plc (PNR): Equal-weight, $65 Price Target Price Target $65 Aligned with Base Case Bull $82 Base $65 Bear $43 $ x Jan '17 NTM EPS of $ x Jan '17 NTM EPS of $ x Jan '17 NTM EPS of $3.18 $58.72 $82.00 (+40%) $65.00 (+11%) $43.00 (-27%) 0 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Price Target (Feb-18) Historical Stock Performance Current Stock Price WARNINGDONOTEDIT_RRS4RL~PNR.N~ A cyclical recovery drives modest organic growth acceleration into 2017e, driven largely by industrial and infrastructure exposure. Incremental M&A/capital deployment adds to upside in our bull case. We model ~25% incremental margins on volume leverage, favorable price/cost, and M&A synergies. We see a modest organic growth decline in 2017e. We look for a modest improvement in Industrial demand into next year, we see sustained growth in Water verticals. We see limited scope for multiple expansion from current levels and assume an in line vs. our assumption for EE/MI, at ~17.0x. We assume Resi/Comm verticals see pressure in a mild recession. We model modest core margin compression driven by ~20% decremental margins, and assume a 13.0x NTM P/E, representing a >30% decline in valuation from current levels for PNR. Why Equal-weight? PNR has leading positions in fragmented industries, a desire to drive acquisition-led growth and the advantages of an offshore domicile. Given more manageable leverage post-v&c close, we believe strategic portfolio actions could drive value creation over time. PNR has seen underlying markets deteriorate in recent quarters, with organic growth decelerating to -1.4% in 2016 and 2017 expected to be similar. However, we see scope for core growth to accelerate into 2018 as underlying markets recover. The company has significant productivity targets, which drive ~15% earnings growth at the midpoint of guidance. We see these as broadly achievable but note that management will have to run hard to hit targets. Potential Upside Catalysts Post V&C, with leverage now at a more manageable level (~1.7x), we believe accretive strategic action is back on the table, i.e. cash/debtfunded acquisitions; we believe such a scenario is likely to be received well by the market. PNR has a track record of closing and integrating equity-structured deals - with the shares now trading in line or better vs. the group, we see scope for management to consider more creative deal structures that leverage the company's Water and Electrical Products platforms. Potential Downside Catalysts Our Bear Case scenario considers potential for headwinds in consumer-facing industries, i.e. a more broad based recessionary environment. This scenario could result in sharp downside to our Base Case. Margin expansion in FF&S represents a notable source of earnings growth in our model (+150bps ) given that this segment has been under-earning. However, recent trends - at the top and bottom line - have been somewhat underwhelming and as such, misexecution in this segment relative our estimates and long-term guidance could drive pressure to numbers. Source: Morgan Stanley Research, Thomson Reuters. 154

155 Pentair plc: Key Financial Statistics Revenue breakdown by geography Revenue breakdown by end market RoW 65% Asia Pacific 11% North America 0% EMEA 24% Food & Beverage 9% Telecom 2% Municipal 4% Mining 3% Power 5% Downstream O&G 8% Transport 2% Midstream O&G 5% Upstream O&G 5% Commercial 18% General Industrial 11% Residential 12% Chemical 14% Pharma 2% CEO: Randall J. Hogan CFO: John L. Stauch Segment 2016 Sales 2016 Op Profit End Market % of Sales Geography % of Sales Products and Services Key Brands Segment Competitors Resi/Comm 59% North America 63% Fairbanks Nijhuis, Aurora Gorman-Rupp, Xylem Water Karl Frykman $2,778 57% $457 54% Food & Bev 22% Fast Growth 18% Pump, control solutions, sewage, effluent pumps, Hydromatc, Meyers and Berkeley Franklin Electric, Grundfos Infrastructure 10% Europe 14% submersive handling pumps, self-primers, grinder pumps, hygienic and aseptic valves and pumps, Haffmans GEA, Alfa Laval, SPX Flow, Krones Industrial 6% Dev. Asia 5% membrane technology for water and beer purificantion, Hypro Goulds, Delavan Energy 3% filtration, CO2 systems, quality control management, X-Flow Fragmented microfiltraction products, spray pumps, transfer pumps, nozzle bodies, spray tips. Above group pump/filtration Pentair Fluidra, Hayward, Zodiac systems, automation controls, cleaners, heaters & Various brands Private competitors pumps, valves, water features/accessories, membranes, housings, meters and controls for Everpure 3M and Pall desalination, beverage dispensers, aeration. Pentair Sudomo Electrical Beth Wozniak $2,116 $387 43% 46% Industrial 40% North America 67% Product and service solutions for enclosing, protecting, Hoffman, Schroff Killark, B-Line Resi/Comm 27% Europe 20% and cooling electrical and electronic systems to support ERICO, Caddy, Lenton, Thomas & Betts, Eaton/Cooper, Hubbell Energy 19% Fast Growth 11% automation, control and communication. Heat management systems, heat tracing, floor heating, firerated Hoffman, Schroff Fragmented Infrastructure 14% Dev. Asia 2% and specialty wiring, sensing, and snow melting Raychem, Tracer Thermon, Chromalox, Spirax Sarco, Nelson Heat Trace and de-icing solutions. Raychem, Tracer Devi, Watts Radiant, Warmup, Danfoss, EasyHeat, Ebeco Source: Company data, Morgan Stanley Research. 155

156 Pentair plc Income Statement Estimates YE 31 December ($m) PF 1Q16PF 2Q16PF 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Sales 7,000 7,039 4,616 1,190 1,301 1,211 1,188 4,890 1,143 1,278 1,193 1,219 4,834 5,021 5,175 YoY total revenue growth 4.2% 0.6% -34.4% 13.6% 11.5% 8.8% -7.8% 5.9% -3.9% -1.8% -1.4% 2.6% -1.1% 3.9% 3.1% YoY organic revenue growth 8.7% 1.9% 1.1% 4.1% 0.7% -1.6% -7.4% -1.4% -3.9% -1.7% -2.0% 1.8% -1.5% 3.9% 3.0% Cost of sales 4,630 4,576 2, , ,038 3,151 3,241 Gross Profit 2,370 2,463 1, , ,796 1,870 1,935 Margin 33.9% 35.0% 35.2% 34.9% 37.5% 36.4% 37.0% 36.5% 34.0% 38.3% 37.1% 38.9% 37.2% 37.2% 37.4% SG&A 1,494 1, R&D Other Operating Expenses Reported Operating Income Margin 10.6% 12.1% 13.3% 12.8% 15.6% 15.1% 13.6% 14.3% 12.9% 17.5% 16.8% 16.5% 16.0% 16.1% 16.2% Exceptional Items Core Operating Income 902 1, Margin 12.9% 14.5% 16.3% 14.9% 18.4% 17.8% 17.2% 17.1% 15.1% 19.4% 18.8% 18.5% 18.0% 18.1% 18.2% D&A Core EBITDA 1,178 1, ,021 Margin 16.8% 18.1% 18.1% 16.5% 19.9% 20.3% 20.6% 19.3% 16.9% 21.0% 20.6% 20.2% 19.7% 19.7% 19.7% Yoy 30.1% 8.2% -34.6% 13.4% 0.9% 3.6% 3.2% 13.4% 0.0% 0.0% 0.0% 0.0% 0.0% 3.6% 3.2% Other Income/(Expenses) 21 (0) (3) (4) (4) (75) (75) - - Equity income of unconsolidated s Net Interest (69) (70) (103) (36) (36) (34) (34) (140) (33) (13) (13) (13) (72) (48) (42) Income Before Tax Taxes Effective Rate 25.4% 22.6% 19.8% 21.6% 21.3% 21.5% 12.5% 19.5% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% Continuing Income Adjustments Amortization Headline Income DWAC Headline EPS Yoy 28.8% 23.6% 14.3% 24.7% 14.3% 11.7% -10.9% 7.7% 0.1% 16.8% 19.6% 19.7% 14.9% 9.2% 6.7% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 156

157 Pentair plc Segment Estimates YE 31 December ($m) PF 1Q16PF 2Q16PF 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Valves & Controls 2,452 2, Flow & Filtration Solutions 1,652 1,603 1, , Water Quality Sysytems 1,269 1,356 1, , Water ,825 2,910 Electrical 1,663 1,728 1, , ,026 2,129 2,225 Others (37) (26) (16) (4) (5) (4) (5) (17) (4) (4) (4) (4) (17) (18) (18) Sales 7,000 7,039 4,616 1,190 1,301 1,211 1,188 4,890 1,143 1,278 1,193 1,219 4,834 5,021 5,175 Valves & Controls 8.9% -3.0% -22.6% -9.8% -12.7% -7.7% -6.2% -9.1% -3.0% -3.0% -1.0% -1.0% -2.0% 3.0% 3.0% Flow & Filtration Solutions 6.1% -2.9% -10.1% -3.5% -1.6% -5.5% -11.3% -5.4% -5.2% -3.2% -0.6% 3.0% -1.6% 2.0% 4.0% Water Quality Sysytems 11.8% 6.9% 1.9% 8.0% 2.4% 2.0% 1.7% 3.4% 0.9% 1.4% 1.6% 2.7% 1.7% 3.0% 2.0% Water 8.5% 1.3% -5.1% 2.1% 0.4% -2.1% -4.6% -1.1% -0.8% 0.6% 2.5% 4.6% 1.7% 3.0% Electrical -2.2% 3.9% 4.7% 32.5% 32.8% 25.6% -11.6% 17.0% -7.1% -4.6% -5.6% 0.6% -4.2% 5.1% 4.6% Sales YoY 4.2% 0.6% -34.4% 13.6% 11.5% 8.8% -7.8% 5.9% -3.9% -1.8% -1.4% 2.6% -1.1% 3.9% 3.1% Valves & Controls Flow & Filtration Solutions Water Quality Sysytems Water Electrical One-time Items Others (258) (348) (100) (40) (27) (15) (20) (102) (26) (26) (26) (26) (103) (118) (128) EBITDA 1,178 1, ,021 Valves & Controls 57.0% 18.6% 8.2% Flow & Filtration Solutions 19.2% 10.6% -16.5% 9.7% -0.9% -5.4% -9.0% -1.9% -14.4% -5.1% 0.2% 13.6% -1.9% 5.3% 9.3% Water Quality Sysytems 20.0% 16.7% 4.8% 17.9% 11.1% 14.3% 3.3% 10.8% 2.5% 3.0% 3.8% 5.2% 3.7% 3.2% 2.2% Water 19.6% 13.8% -5.1% 14.4% 6.3% 5.0% -1.0% 5.9% -0.7% 6.5% 10.0% 16.1% 7.9% 3.4% Electrical 16.2% 8.4% 4.7% 45.5% 31.4% 21.1% -17.9% 15.5% -12.7% -2.5% -1.7% 5.7% -3.0% 6.3% 5.6% EBITDA YoY 30.1% 8.2% -34.6% 28.4% 16.6% 18.3% -10.3% 11.1% -1.3% 3.6% 0.1% 9.6% 3.1% 3.6% 3.2% Valves & Controls Flow & Filtration Solutions Water Quality Sysytems Water Electrical Others and One-time adjustments (268) (264) (176) (37) (38) (32) (37) (144) (25) (25) (25) (25) (100) (115) (125) Operating Income Valves & Controls 25.2% 16.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Flow & Filtration Solutions 24.8% -0.9% -6.0% 13.0% -1.7% -7.4% -13.0% -3.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Water Quality Sysytems 22.6% 10.4% 11.9% 20.0% 11.6% 15.6% 3.1% 11.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Water NM NM NM NM NM NM NM NM -1.3% 7.2% 11.6% 18.9% 9.4% 3.9% Electrical 13.4% 11.1% 0.9% 34.5% 19.6% 9.8% -21.8% 7.1% -15.9% -3.2% -2.1% 7.4% -3.7% 8.0% 7.0% Segment Income YoY 20.6% 10.4% -28.9% 25.6% 11.5% 7.5% -11.8% 6.6% -8.8% 3.1% 4.9% 13.8% 3.4% 5.7% 4.5% Valves & Controls 12.1% 14.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Flow & Filtration Solutions 10.3% 10.6% 11.0% 9.7% 13.3% 12.5% 9.4% 11.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Water Quality Sysytems 17.3% 17.9% 19.7% 17.8% 24.1% 20.4% 21.9% 21.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Water NM NM NM NM NM NM NM NM 13.8% 20.2% 17.9% 18.5% 17.7% 17.9% Electrical 19.4% 20.7% 20.0% 18.6% 17.9% 19.3% 17.4% 18.3% 16.9% 18.1% 20.0% 18.5% 18.4% 18.9% 19.4% Segment Margin 14.4% 15.8% 17.2% 16.0% 18.5% 17.7% 16.8% 17.3% 15.1% 19.4% 18.9% 18.6% 18.1% 18.4% 18.6% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 157

158 Pentair plc Cash Flow Estimates YE 31 December ($m) PF 1Q16PF 2Q16PF 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Net Income Depreciation & Amortization Working Capital (7) (107) 186 (112) (947) (105) (116) (151) Other (71) (6) (71) (646) 24 (18) (1) 36 Operating Cash Flow 928 1, (15) (194) Capex (170) (130) (134) (38) (36) (20) (23) (118) (27) (27) (27) (27) (107) (111) (114) Other recurring investment Free Cash Flow (53) (221) FCF Margin 10.8% 12.5% 13.1% -4.5% 26.8% 13.8% 23.7% 15.2% -19.3% 14.9% 21.5% 18.8% 9.4% 11.3% 11.5% Acquisitions (92) (12) (1,914) (0) - - (25) (25) Disposals , , Other (4) (6) (4) Cash Flow Pre Financing (1,285) (47) , , Equity issuance (2) Stock repurchase (716) (1,150) (200) (31) (32) (46) (109) (276) (298) Dividends (194) (211) (232) (60) (60) (62) (62) (244) (62) (62) (68) (68) (259) (278) (300) Other 15 (155) (75) (75) - - Movement on Net Debt (98) (599) (1,690) (96) , , Cash Gross Debt 2,550 3,004 4,710 4,838 4,552 4,411 4,279 4,279 2,020 2,020 2,020 2,020 2,020 2,020 2,020 Net Debt 2,294 2,894 4,584 4,680 4,378 4,240 4,041 4,041 1,781 1,681 1,521 1,402 1,402 1,381 1,374 Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 158

159 Mar Jun Sep Dec-15 NTM P/E 1Y Median 5Y Median 2009 Mar Jun Sep Dec Mar Mar Jun Sep Dec Mar Jun Sep Dec Mar M O R G A N S T A N L E Y R E S E A R C H Pentair plc: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median 19 10% Premium/Discount vs. sector median 1Y Median 5Y Median 18 5% 17 0% 16-5% 15-10% 14-15% % -25% -30% -35% 10 Organic Growth vs. EE/MI (2004/16) Core Operating Margins vs. EE/MI (2004/16) Organic Growth Core Operating Margin EE/MI Median 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% EE/MI Median 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: Company data, Thomson Reuters, Morgan Stanley Research estimates. 159

160 Regal-Beloit Corp. (RBC): Equal-weight, $77 Price Target Why Equal-weight? M O R G A N S T A N L E Y R E S E A R C H We are more bullish on O&G and general industrial exposed verticals and see scope for RBC's growth to inflect positive as it laps easier comps. Net leverage at 2.4x EBITDA now in line with the company's stated goals. Additionally, RBC generates solid FCF conversion (~120%), which should allow the company to deploy capital opportunistically. RBC is trading at one of the lowest multiples in the group, however we are not optimistic that RBC can close its valuation gap versus the group without showing a meaningful acceleration in top-line growth. Potential Upside Catalysts A pickup in US R-HVAC, with consumer confidence driving highefficiency volumes to new highs. Continued cyclical re-acceleration, driven by O&G stabilization, firmer demand in China and an uptick in general Industrial production, could represent meaningful EPS upside and drive multiple expansion. Price Target $77 Aligned with Base Case Bull $103 Base $77 Bear $ x $ x $ x $3.66 Predicated on Resi HVAC growth, O&G upside in out years and an uplift in high-efficiency demand, we assume RBC s organic growth accelerates from -8% in 2016 to mid single digits by We give full credit for stated restructuring and synergy targets for the PTS transaction. Our 17x multiple assumes RBC returns to new 5Y peak levels. We assume 1% organic sales growth in 2017 driven by a recovery in depressed industrial markets. We see 200bps of margin expansion through 2018, driven by volume leverage and simplification initiatives. Our ~15.0x NTM P/E multiple is a slight discount to current levels. Assuming a sustained downturn in industrial verticals, inclusive of share loss and pricing headwinds for RBC, we model a 2% organic decline in 2017 and flat top line growth in We bake in 25% decremental margins, modestly better than prior downturns given restructuring. Our 11x multiple assumes a reversion to within 20% of prior trough levels. Potential Downside Risks Share loss, even in high efficiency markets, as low-cost suppliers compete for SEER14+ demand - we believe continued underperformance YTD has refueled this debate. Slowing growth in the broader R-HVAC market due to weaker consumer confidence and US macro conditions would cause notable pressure to our estimates in the Climate segment. A sharp move higher in commodities, although a modest top line benefit to RBC via MPF pass-throughs, would likely be an incremental margin headwind as we believe offsetting price capture will be difficult to attain. Source: Morgan Stanley Research, Thomson Reuters. 160

161 Regal-Beloit Corp: Key Financial Statistics Revenue breakdown by geography Revenue breakdown by end market RoW 6% EMEA 8% APAC 9% NA 77% HVAC/R (Non- Residential) 8% HVAC/R (Residential) 21% Commercial Aerospace 1% Other 1% FMCG 2% Consumer and Retail 6% Retail Refrigeration & Food Prep 4% Oil & Gas 6% Power Generation 4% Metals & Mining 2% General Industrial 45% 2016 Revs 2016 Op. Profits CEO: Mark J. Gliebe CFO: Chuck A. Hinrichs COO: Jonathan J. Schlemmer End Markets Key Products & Services Key Brands Competitors Commercial & Industrial $1,531 $104 Residential Tim Harris 47% 32% Commercial Refrigeration Climate Solutions $960 $130 O&G John Kunze 30% 41% Power Gen Distribution Pump General Industry Fractional motors, electronic variable speed controls and blowers used in a variety of residential and light commercial air moving applications including HVAC systems and commercial refrigeration. Fractional motors and blowers used across a wide range of other applications including white goods, water heating equipment, small pumps and compressors. Precision stator and rotor sets from 1.5 to 5 horsepower that are assembled into compressors for air conditioning, heat pump and refrigeration applications. Capacitors for use in HVAC systems, high intensity lighting and other applications. Marathon Electric, Rotor, Dutchi Motors, Fasco, Elco, Unico, LEESON Electric, Genteq, Hwada Motors, Lincoln Motors, Morrill Motors, Thomson Technology Welling Holding Limited, Kirloskar Brothers Limited, Crompton Greaves Limited, Lafert, ABB, Johnson Electric Holdings, Siemens, Toshiba, Cummins, Panasonic, Leroy-Somer, Tech-top, Weg SA, Hyundai, and TECO Electric & Machinery Co. Power Transmission $734 $87 Commercial Anthony Pajk 23% 27% Industrial Wind Energy Marine Aerospace Metals Materials Handling Beverage HVAC Mounted and unmounted bearings. High quality conveyor products including chains, belts, sprockets, components and guide rails and wear strips. High performance disc, patented diaphragm and gear couplings for applications including turbines, compressors, generators and pumps in many industries including petrochemical, refinery, power generation, gas pipeline and LNG. Mechanical power transmission drives, components and bearings including: belt drives, bushings, chain and sprockets, drive tighteners and idlers, mechanical CAM clutches, and torque overload devices. Gearboxes for motion control within complex equipment and systems used for a variety of applications. Mastergear, Durst, Velvet Drive Transmissions, Grove Gear/Electra- Gear, Hub City/Foote-Jones, Marathon Special Products, Sankey, Browning, Jaure, Kop-Flex, McGill, Morse, Rollway, SealMaster, SystemPlast, Browning, Jaure, Hop-Flex, McGill, Morse, Rollway, SealMaster, System Plast. Altra Industrial Motion, Inc. Dodge (a subsidiary of ABB), Rexnord Corporation, The Timkin Company, and SEW Eurodrive GmbH & Co. Source: Company data, Morgan Stanley Research. 161

162 Regal-Beloit Corp Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 3,096 3,257 3, , ,240 3,351 YoY total revenue growth -2.2% 5.2% 7.8% -10.3% -11.0% -8.2% -2.0% -8.1% -0.5% 0.4% 0.2% 1.8% 0.5% 3.4% YoY organic revenue growth -2.4% 1.6% -6.0% -12.9% -9.8% -7.6% -0.7% -8.1% -0.3% 1.1% 0.8% 2.1% 0.9% 3.4% Cost of sales 2,313 2,460 2, , ,366 2,431 Gross Profit Margin 25.3% 24.5% 26.6% 26.6% 26.6% 28.6% 25.5% 26.8% 26.5% 26.0% 27.1% 28.4% 27.0% 27.5% Operating Expenses Reported Operating Income Margin 6.7% 3.7% 7.2% 8.5% 10.9% 11.1% 9.2% 9.9% 8.5% 10.0% 11.1% 10.4% 10.0% 10.7% Exceptional Items (0) (10) (0) 2 (8) Core Operating Income Margin 9.6% 9.4% 10.9% 8.4% 9.7% 11.1% 9.5% 9.7% 8.7% 10.2% 11.4% 10.7% 10.3% 10.7% D&A Core EBITDA Margin 13.7% 13.7% 15.4% 13.3% 14.4% 15.7% 14.6% 14.5% 13.8% 15.1% 16.5% 16.0% 15.3% 15.3% Yoy -5.2% 4.8% 21.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6.2% 3.3% Other Income/(Expenses) Net Interest (38) (31) (56) (14) (14) (13) (13) (54) (13) (13) (14) (13) (52) (51) Income before Tax Taxes Effective Rate 26.1% 60.0% 24.6% 22.9% 24.9% 20.1% 16.9% 21.4% 23.0% 23.0% 23.0% 23.0% 23.0% 23.5% Continuing Income Adjustments (5) (0) 1 (3) Headline Income DWAC Headline EPS Yoy -7.9% -1.7% 24.3% -21.3% -25.6% -7.8% -10.9% -16.7% 2.2% 6.3% 1.0% 12.4% 5.2% 10.3% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 162

163 Regal-Beloit Corp Segment Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E C&I Systems 1,856 1, , ,549 1,595 Climate Solutions 1,135 1, ,007 Power Transmission Electrical (Legacy) 2,837 Sales 3,096 3,257 3, , ,240 3,351 Climate Solutions 6.3% -8.7% -17.3% -10.5% -8.8% -0.4% -9.7% 0.8% 0.7% 0.7% 2.5% 1.2% 3.0% C&I Systems 3.3% -8.2% -14.5% -11.0% -5.3% 2.3% -7.8% 4.8% 4.4% -1.6% -0.4% 1.9% 3.0% Power Transmission -12.7% 6.3% 190.6% 14.8% -11.9% -11.2% -9.8% -5.2% -9.1% -5.3% 1.7% 2.8% -2.8% 5.0% Electrical (Legacy) -2.8% Sales YoY -2.2% 5.2% 7.8% -10.3% -11.0% -8.2% -2.0% -8.1% -0.5% 0.4% 0.2% 1.8% 0.5% 3.4% C&I Systems Climate Solutions Power Transmission Electrical (Legacy) 381 EBITDA Climate Solutions -4.3% 2.8% -25.6% -27.2% -6.7% -23.9% -20.8% 5.2% 5.3% 4.4% 9.7% 6.0% 2.9% C&I Systems 9.4% -2.4% -15.4% -13.0% 3.7% 0.9% -6.1% 10.7% 7.1% -4.8% 11.3% 5.1% 3.2% Power Transmission -12.2% -3.2% 221.0% 4.4% -15.6% -24.5% 21.9% -4.6% -10.0% -2.9% 11.4% 6.8% 0.8% 4.2% Electrical (Legacy) -4.1% EBITDA YoY -5.2% 4.8% 21.5% -12.7% -22.1% -11.2% -6.6% -13.6% 3.0% 5.6% 5.0% 11.4% 6.2% 3.3% C&I Systems Climate Solutions Electrical (Legacy) 189 Power Transmission 19 (12) Operating Income Climate Solutions -58.9% 60.4% -34.8% -39.5% -6.7% % 92.0% 5.9% 8.5% 1.2% 19.5% 7.6% 11.9% C&I Systems -8.9% 47.3% -26.3% -17.4% 3.7% -6.6% -11.5% 16.8% 8.0% -7.0% 14.1% 6.0% 7.5% Power Transmission -50.4% % % % 67.8% -44.7% 35.3% 67.0% -25.1% -41.6% 27.4% 11.1% -14.6% 182.8% Electrical (Legacy) -31.1% Segment Income YoY -33.5% -41.6% 108.1% 9.0% -11.4% -10.3% % 26.8% -0.5% -8.3% 0.7% 14.7% 0.9% 10.7% C&I Systems 1.8% 3.2% 5.7% 6.4% 9.3% 5.6% 6.8% 6.0% 6.9% 9.3% 6.5% 7.2% 7.8% Climate Solutions 8.8% 14.1% 10.3% 14.2% 16.8% 12.5% 13.5% 11.4% 14.7% 15.9% 14.4% 14.1% 14.7% Electrical (Legacy) 6.6% Power Transmission 7.5% -4.4% 6.7% 11.5% 15.9% 6.7% 13.0% 11.9% 9.4% 9.8% 8.4% 14.1% 10.4% 11.4% Segment Margin 6.7% 3.7% 7.2% 8.5% 10.9% 11.1% 9.2% 9.9% 8.5% 10.0% 11.1% 10.4% 10.0% 10.7% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 163

164 Regal-Beloit Corp Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Net Income Depreciation & Amortization Working Capital (43) (49) (23) (29) (8) (123) (94) Other (5) (51) 99 (51) (35) (38) 47 Operating Cash Flow Capex (83) (84) (92) (15) (17) (14) (19) (65) (18) (18) (18) (18) (74) (63) Free Cash Flow FCF Margin 7.2% 6.5% 8.2% 5.3% 11.8% 17.3% 12.1% 11.6% 0.8% 6.1% 13.1% 15.2% 8.7% 8.1% Acquisitions (38) (128) (1,401) Disposals Other (6) 5 (10) (2) 6 (15) Cash Flow Pre Financing (1,107) Equity issuance Stock repurchase - (35) (12) (13) (13) (13) (13) (50) (55) Dividends (35) (38) (40) (10) (10) (11) (11) (42) (11) (11) (11) (11) (44) (46) Other (1) (13) (18) (20) (0) (0) 0 (20) Movement on Net Debt (1,173) (17) Cash Gross Debt (767) (634) (1,722) (1,705) (1,614) (1,511) (1,412) (1,412) (1,428) (1,400) (1,317) (1,224) (1,224) (1,051) Net Debt (301) (300) (1,469) (1,456) (1,343) (1,229) (1,127) (1,127) (1,144) (1,115) (1,033) (939) (939) (766) Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 164

165 Mar Jun Sep Dec NTM P/E 1Y Median 5Y Median Mar Jun Sep Dec Mar Mar Jun Sep Dec Mar Jun Sep Dec Mar-17 M O R G A N S T A N L E Y R E S E A R C H Regal-Beloit Corp: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median 18 0% Premium/Discount vs. sector median 1Y Median 5Y Median 17-5% 16-10% 15-15% 14-20% 13-25% 12-30% 11-35% 10-40% 9 Organic Growth vs. EE/MI (2004/16) Core Operating Margins vs. EE/MI (2004/16) 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Organic Growth EE/MI Median 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Core Operating Margin EE/MI Median Source: Company data, Morgan Stanley Research estimates. 165

166 Rockwell Automation (ROK): Equal-Weight, $153 Price Target $ $ $ (+19%) $ (+1%) $75.00 (-50%) Why Equal-Weight? We are turning more bullish on the cycle and therefore believe that ROK sales can turn back to positive organic growth faster and sharper than consensus expectations. We continue to see strong operating leverage on any inflection. ROK has an under-levered balance sheet and we believe that any repatriation deal that unlocks overseas cash could be a catalyst for upsized capital return to shareholders. When adjusted for B/S leverage, ROK's valuation premium vs. EE/MI disappears. We view the automation industry as an above-average grower longer term as firms continue to drive improved productivity. We see tailwinds from pro-domestic manufacturing policies from the US govt. and IIOT-related investments. Price Target $153 Aligned with Base Case Bull $180 Base $ Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Price Target (Feb-18) Historical Stock Performance Current Stock Price 21.0x Bull Case NTM EPS of $ $15 from surplus capital. 19.5x Base Case NTM EPS of $ $10 from surplus capital. WARNINGDONOTEDIT_RRS4RL~ROK.N~ Assuming a re-acceleration following the current mid-cycle slowdown, we believe ROK will generate 5.5% organic growth in 2017e vs. -4% in We model ~35% incremental/decremental margins, in line with historical norms, which drives +290bps Y/Y expansion FY18e vs. FY16. Our 21.0x multiple assumes current valuations are sustainable. Assuming a re-acceleration in global growth is offset by O&G headwind, we believe ROK will post 1% core growth in 2017e post 4% decline in We model 180bps cumulative OM compression through YE17 vs. 2015, primarily driven by volume pressures and FX. Our 19.0x multiple represents a revision to the 1Y median. Potential Catalysts A sharp recovery in the US industrial cycle, combined with healthier capex outlooks in heavy industries could lead to a sharper recovery in sales and earnings vs. consensus. The automation industry is consolidating and is now highly concentrated. ROK is one of the few remaining listed pure plays with scale and could be of interest to strategic partners. Risks to Achieving Price Target US policy proposals could lead to project deferrals, global trade friction and a material strengthening of the USD - all of which could be negative for ROK. Structural changes in the automation market could create a more price competitive market over the next 2-3 years, particularly in the hybrid segments. Source: Morgan Stanley Research, Thomson Reuters. Bear $ x Bear Case NTM EPS of $ $5 from surplus capital. In our Bear Case scenario, we have assumed a downturn in ROK's core markets; this implies a 2% core decline for ROK in 2017e. Given decremental margins of 40%, core operating margins are expected to contract to 17.9% in 2017e. Our 13.0x multiple assume contraction to the sector cross-cycle multiple. 166

167 Rockwell Automation: Key Financial Statistics Revenue breakdown by geography APAC 13% LatAm 8% Revenue breakdown by end market Transportation 15% Other 6% Consumer 30% EMEA 20% Canada 7% FY16 Revs FY16 Op. Profits US 52% CEO: Blake Moret Other Heavy Industry 17% Semi-conductor 5% Pulp & Paper 5% CFO: Ted Crandall Metals 5% Mining & Cement 5% Key Products & Services Key Brands Competitors End Markets % of Seg. Revs Architecture & Software $2,635 $695 Control platforms, controllers, electronic operator interface Allen Bradley, A-B, Siemens AG, Consumer 30% Frank Kulaszewicz 45% 58% devices, configuration and visualization software, rotary Rockwell Software, Mitsubishi Corp., and linear motion control products, sensors and machine FactoryTalk ABB, Honeywell, O&G 12% safety components. Emerson Electric Mining & Cement 5% Metals 5% Pulp & Paper 5% Control Products & Solutions $3,244 $494 Low and medium voltage electro-mechanical and Allen Bradley, A-B, Siemens AG, Semi-conductor 5% Ken Champa 55% 42% electronic motor starters, motor and circuit protection ICS Triplex ABB, Honeywell, devices, configured drives and motor control centers, Emerson Electric Other Heavy Industry 17% automation and information solutions, total life-cycle Transportation 15% support services Other 6% O&G 12% Source: Company data, Morgan Stanley Research. 167

168 Rockwell Automation Income Statement Estimates YE 30 September ($m) Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Sales 6,352 6,624 6,308 1,427 1,440 1,474 1,539 5,880 1,490 1,490 1,524 1,639 6,143 6,397 6,781 YoY total growth 1% 4% -5% -9% -7% -6% -4% -7% 4% 3% 3% 7% 4% 4% 6% YoY organic growth 2% 5% 1% -3% -4% -5% -4% -4% 4% 4% 5% 6% 5% 4% 6% Cost of sales 3,778 3,870 3, , ,562 3,677 3,881 Gross profit 2,574 2,754 2, , ,581 2,720 2,900 Margin 40.5% 41.6% 42.9% 42.9% 41.2% 41.8% 42.4% 42.1% 43.1% 40.3% 41.5% 43.1% 42.0% 42.5% 42.8% SG&A 1,538 1,570 1, , ,504 1,520 1,563 Reported Operating Income 1,036 1,184 1, , ,077 1,200 1,337 Margin 16.3% 17.9% 19.0% 17.7% 16.3% 18.3% 16.2% 17.1% 18.3% 15.9% 18.5% 17.5% 17.5% 18.8% 19.7% Exceptional Items Core Operating Income 1,115 1,240 1, , ,156 1,280 1,417 Margin 17.5% 18.7% 20.0% 19.0% 17.7% 19.6% 17.5% 18.4% 19.6% 17.2% 19.8% 18.7% 18.8% 20.0% 20.9% D&A Core EBITDA 1,260 1,392 1, , ,325 1,443 1,577 Margin 19.8% 21.0% 22.5% 21.9% 20.8% 22.5% 20.3% 21.4% 22.3% 20.1% 22.6% 21.3% 21.6% 22.6% 23.3% Other Income/expenses (4) (5) (25) (3) (6) (5) (0) (14) (1) (1) (1) (10) (14) (14) (14) Net Interest Pre-Tax Income 981 1,134 1, ,011 1,137 1,274 Taxes Effective Rate 22.9% 27.1% 26.6% 21.7% 22.6% 24.3% 21.8% 22.6% 16.7% 26.0% 26.0% 26.0% 23.6% 25.0% 25.0% Continuing Income Adjustments Headline Income ,007 Yoy 6% 7% 1% -12% -17% -6% -6% 260% 15% -1% 4% 5% 261% 12% 388% DWAC Headline EPS YoY 8% 8% 4% -9% -14% -3% -3% -7% 18% 0% 5% 5% 7% 11% 14% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 168

169 Rockwell Automation Segment Estimates YE 30 September ($m) Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Architecture & Software 2,682 2,845 2, , ,798 2,935 3,111 Control Products and Solutions 3,670 3,778 3, , ,345 3,462 3,669 Sales 6,352 6,624 6,308 1,427 1,440 1,474 1,539 5,880 1,490 1,490 1,524 1,639 6,143 6,397 6,781 Architecture & Software 1% 6% -3% -9% -7% -3% 2% -4% 8% 7% 5% 5% 6% 5% 6% Control Products and Solutions 2% 3% -6% -10% -7% -9% -9% -9% 1% 1% 2% 8% 3% 3% 6% Sales YoY 1% 4% -5% -9% -7% -6% -4% -7% 4% 3% 3% 7% 4% 4% 6% Architecture & Software ,001 Control Products and Solutions Corporate (97) (83) (79) (18) (20) (20) (27) (84) (17) (17) (17) (18) (70) (70) (70) EBITDA 1,260 1,390 1, , ,325 1,443 1,577 Architecture & Software 7% 9% -3% -18% -21% -7% -3% -12% 16% 9% 8% 6% 10% 9% 8% Control Products and Solutions 6% 8% 8% -4% -3% -7% -12% -8% -8% -9% -2% 5% -2% 8% 10% Corporate 17% -14% -5% -20% -7% 0% 64% 6% -4% -12% -12% -33% -17% 0% 0% EBITDA YoY 5% 10% 3% -12% -13% -7% -13% -12% 6% 0% 4% 12% 6% 9% 9% Architecture & Software Control Products and Solutions Corporate (117) (105) (102) (23) (24) (24) (32) (103) (23) (23) (23) (24) (88) (88) (88) Operating Income 1,036 1,182 1, , ,078 1,200 1,337 Architecture & Software 6% 11% -4% -20% -23% -8% -3% -14% 18% 11% 9% 7% 11% 10% 9% Control Products and Solutions 6% 7% 8% -5% -8% -12% -17% -11% -10% -8% 0% 8% -3% 10% 12% Segment Income YoY 6% 9% 1% -15% -17% -10% -9% -13% 7% 2% 6% 7% 6% 10% 10% Operating Income YoY 0% 14% 2% -16% -19% -12% -19% -16% 7% 1% 5% 15% 7% 11% 11% Architecture & Software 28.3% 29.5% 29.4% 27.4% 24.6% 27.6% 25.8% 26.4% 30.0% 25.4% 28.9% 26.3% 27.6% 29.1% 30.0% Control Products and Solutions 13.0% 13.6% 15.5% 15.3% 15.2% 15.7% 14.8% 15.2% 13.6% 13.8% 15.3% 14.7% 14.4% 15.3% 16.1% Segment Margins 19.5% 20.4% 21.6% 20.7% 19.3% 21.1% 19.8% 20.2% 21.2% 19.1% 21.5% 19.9% 20.4% 21.6% 22.5% Operating Margins 16.3% 17.8% 19.0% 17.7% 16.3% 18.2% 16.1% 17.1% 18.1% 15.9% 18.5% 17.5% 17.6% 18.8% 19.7% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 169

170 Rockwell Automation Cash Flow Estimates YE 30 September ($m) Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Net Income ,007 Depreciation & Amortization Working Capital (8) (62) 88 (37) 20 (96) (32) 8 45 (114) (93) (73) (72) Other (7) (20) 137 (87) (15) (81) (123) 47 Operating Cash Flow 1,015 1,033 1, ,102 Capital Expenditure (146) (141) (123) (40) (12) (27) (38) (117) (39) (39) (39) (31) (149) (152) (156) Free Cash Flow , FCF Margin 13.7% 13.5% 16.9% 10.1% 14.0% 16.9% 15.2% 14.1% 19.1% 11.0% 11.0% 14.1% 13.8% 10.6% 14.0% Acquisitions (85) (82) (21) - (21) (0) (118) (139) (1) (1) - - Disposals (0) (0) - - Other (26) (261) (105) (51) (142) (12) 21 (184) Cash Flow Pre Financing Equity issue Stock repurchase (403) (486) (598) (127) (130) (117) (134) (508) (82) (122) (125) (127) (457) (540) (567) Dividends (276) (321) (350) (96) (95) (94) (94) (378) (98) (97) (97) (112) (404) (457) (507) Other (3) (11) 158 (54) (54) - - Movement on Net Debt (82) (47) 38 (93) (184) 119 (5) (3) (243) (46) Cash 1,574 1,820 2,149 2,220 2,310 2,433 2,429 2,429 2,483 2,478 2,475 2,518 2,518 2,351 2,305 Gross Debt 1,084 1,231 1,501 1,654 1,791 1,876 1,965 1,965 1,900 1,900 1,900 1,900 1,900 1,975 1,975 Net Debt (490) (589) (648) (566) (519) (557) (464) (464) (583) (578) (575) (619) (619) (376) (330) Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 170

171 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 M O R G A N S T A N L E Y R E S E A R C H Rockwell Automation: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median 26 NTM P/E 1Y Median 5Y Median 35% Premium/Discount vs. sector median 1Y Median 5Y Median % 25% 22 20% % 10% % 0% 15-5% 14 Organic Growth vs. EE/MI (2004/16) Core Operating Margins vs. EE/MI (2004/16) 20% 15% Organic Growth EE/MI Median 25% Core Operating Margin EE/MI Median 10% 20% 5% 0% -5% 15% 10% -10% 5% -15% -20% 0% -25% Source: Company data, Morgan Stanley Research estimates. 171

172 Stanley Black & Decker (SWK): Equal-weight, $133 Price Target Why Equal-weight? M O R G A N S T A N L E Y R E S E A R C H SWK remains in a good cycle, although we believe that construction and consumer discretionary related demand will start to decelerate as industrial end markets begin to cycle back. We expect FCF deployment to pivot back towards M&A, and while the Niscayah acquisition dented sentiment, we believe the Black & Decker acquisition has been a home run. We believe the Newell acquisition makes strategic sense, and expect the deal to approach 10% cash on cash return by Year 3. We see some downside pressure to earnings due to the stronger USD with further risks if the USD appreciates further as projected by MS strategists. Price Target $133 Aligned with Base Case Bull $153 Base $133 Bear $ x our Bull Case 2018e EPS of $ x our Base Case 2018e EPS of $ x our Bear Case 2018e EPS of $6.11 Portfolio SOTP hopes and EPS acceleration on an end market recovery and security margin normalization. Our bull case models 6% organic growth in e. We assume ~20% incremental margins, driving ~40-50bps of margin expansion per annum. Our 18.0x target multiple assumes SWK's current valuation is sustainable, which is already at its 5Y highs Assuming modest growth stabilization into 2017 on tough comps, we expect SWK to see ~4.6% p.a. organic over 2017/18 vs. 4.4% in We are modeling modest margin expansion to 14.7%, driven predominantly volume leverage, restructuring and cost-out, which offsets FX headwinds. Our 175x multiple assumes modest contraction from the current level, and a slight discount to the EE/MI group average. Assuming a top-line pause in 2017e (flat organic), followed by -5% growth in 2018e. We model 30% decremental margins, driving ~10bps contraction vs driven by volume deleverage, softer pricing and an inability to offset sharper FX headwinds. Our 14.0x multiple assumes a reversion toward the long-term median and 1Y minimum. Potential Upside Catalysts Continued volume outgrowth, which we believe is reasonable given product vitality initiatives, could see SWK's relative multiple expand vs. anemic EE/MI growth rates. Sharper than expected normalization of Security margins would be a notable positive, and management continues to guide towards >15% normalized OM vs. 12% in 2015; we model more limited upside. Potential Downside Risks SWK's earnings show above average sensitivity to USD strength. Further USD strength would drive outsized FX headwind vs. the group. SWK has large manufacturing footprint in China, and thus could be negatively impacted by proposed border adjustability measures. Source: Morgan Stanley Research, Thomson Reuters. 172

173 Stanley Black & Decker: Key Financial Statistics Revenue breakdown by geography Revenue breakdown by end market Asia, 10% Industrial 11% Infrastructure 4% Consumer 23% Other Europe, 23% US, 48% Automotive 11% Resi 18% France, 6% Other Americas, 7% Canada, 5% Non Resi 30% Electronics & Other 3% CEO: John F. Lundgren COO: James M. Loree CFO: Donald Allan, Jr. Segment 2016 Revs 2016 Op. Profits End Markets % of Seg. Revs Key Products & Services Key Brands Competitors Tools & Storage Professional Power Tools & Acces. 32% Jon Adinolfi $7,469 $1,267 Hand Tools & Fasteners 21% William Taylor Industrial & Auto Repair 21% Jeffery Ansell Consumer Outdoor Products 19% 65% 69% Other 8% Hand Tools, Power Tools, Small Appliances, Lawn & Garden, Protective Equipment, Storage, Mechanics Tools, Fastening Systems, Faucets, Bathroom Fixtures, Professional Power Tools, Professional Hand Tools Stanley, Black & Decker, Bostitch, DeWalt, Porter Cable, Facom, Proto, Mac Tools, Vidmar Big Box Private Label, Makita, Tektronic, Hitachi, Bosch, Ryobi Industrial Engineered Fastening 78% Pete Morris $1,840 $304 Auto 43% JoAnna Sohovich Industrial 25% Electronics 10% Engineered Fasteners, Professional Power Tools, Professional Hand Tools Emhart, CRC-Evans, Heli- Coli, Gripco, Dodge Snap-On, Bosch, Atlas Copco, Milwaukee, Makita, Ingersoll Rand Infrastructure 22% 16% 17% Oil & Gas 15% Hydraulics 7% Security $2,097 $269 Mechanical Access 30% Aru Bala Convergent Security 81% James Cannon 18% 15% Healthcare Solutions 8% Locks, Door Closing Systems, Access Control, Security Monitoring, Hardware, Electronic Security Systems, Healthcare Patient Security, Healthcare Storage Baldwin, BEST, National Hardware, Sonitrol, Stanley Security Solutions, Weiser, Niscayah Allegion, Assa Abloy, Kaba, Dorma, ADT, Tyco Source: Company data, Morgan Stanley Research. 173

174 Stanley Black & Decker Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Sales 10,893 11,339 11,172 2,672 2,932 2,882 2,920 11,407 2,758 3,130 3,080 3,169 12,136 12,767 13,152 YoY total growth 7% 4% -1% 2% 2% 2% 3% 2% 3% 7% 7% 9% 6% 5% 3% YoY organic growth 2% 5% 5% 5% 4% 3% 4% 4% 4% 4% 3% 4% 5% 4% 3% Cost of sales 6,998 7,236 7,100 1,695 1,804 1,798 1,844 7,140 1,752 1,943 1,911 1,956 7,561 7,892 8,075 Gross profit 3,895 4,103 4, ,129 1,084 1,077 4,267 1,006 1,187 1,169 1,212 4,575 4,875 5,077 Margin 35.8% 36.2% 36.4% 36.6% 38.5% 37.6% 36.9% 37.4% 36.5% 37.9% 38.0% 38.3% 37.7% 38.2% 38.6% SG&A 2,693 2,598 2, , ,791 2,924 2,999 Reported Operating Income 1,202 1,505 1, , ,783 1,952 2,078 Margin 11.0% 13.3% 14.2% 13.1% 15.8% 15.2% 13.5% 14.4% 13.0% 15.2% 15.6% 14.8% 14.7% 15.3% 15.8% Exceptional Items Restructuring Charges & Impairments Core Operating Income 1,368 1,540 1, , ,783 1,952 2,078 Margin 12.6% 13.6% 14.2% 13.1% 15.8% 15.2% 13.5% 14.4% 13.0% 15.2% 15.6% 14.8% 14.7% 15.3% 15.8% D&A Core EBITDA 1,606 1,804 1, , ,044 2,229 2,376 Margin 14.7% 15.9% 16.5% 15.5% 18.0% 17.5% 15.3% 16.6% 15.3% 17.3% 17.7% 16.9% 16.8% 17.5% 18.1% Other, Net Interest & Other Income/Expenses Interest Expense Pre-Tax Income 577 1,081 1, , ,239 1,463 1,657 Taxes Effective Rate 11.6% 20.8% 21.6% 25.8% 25.0% 24.0% 9.4% 21.3% 26.0% 25.0% 23.5% 6.0% 19.9% 22.0% 22.0% Continuing Income ,142 1,293 Adjustments Headline Income ,062 1,184 1,307 DWAC Headline EPS Yoy 7% 15% 5% 20% 19% 8% -4% 10% -6% 2% 10% 23% 8% 10% 10% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 174

175 Stanley Black & Decker Segment Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Tools & Storage 5,275 7,033 7,141 1,707 1,932 1,897 1,934 7,469 1,813 2,219 2,168 2,238 8,438 9,008 9,296 Industrial 3,303 2,044 1, , ,797 1,886 1,964 Security 2,316 2,261 2, , ,901 1,873 1,892 Sales 10,893 11,339 11,172 2,672 2,932 2,882 2,920 11,407 2,758 3,130 3,080 3,169 12,136 12,767 13,152 Tools & Storage 2% 33% 2% 5% 5% 3% 6% 5% 6% 15% 14% 16% 13% 7% 3% Industrial 29% -38% -5% -6% -6% -4% -5% -5% -5% -4% -2% 2% -2% 5% 4% Security -4% -2% -7% -1% 1% 2% -1% 0% 1% -13% -12% -12% -9% -1% 1% Sales YoY 7% 4% -1% 2% 2% 2% 3% 2% 3% 7% 7% 9% 6% 5% 3% Tools & Storage 791 1,079 1, , ,430 1,572 1,674 Industrial Security Segment Income ex-items 1,543 1,699 1, , ,971 2,149 2,287 Tools & Storage 4% 36% 8% 2% 20% 7% 3% 8% 4% 7% 17% 23% 13% 10% 6% Industrial 15% -26% -4% 2% -16% -6% -19% -10% -6% -5% -2% 2% -3% 9% 7% Security -23% -2% -10% 10% 23% 17% 2% 12% 2% -11% -13% -13% -9% 4% 5% Segment Income ex-items YoY 1% 10% 3% 3% 13% 6% -1% 5% 2% 3% 9% 15% 7% 9% 375% Tools & Storage 15.0% 15.3% 16.4% 15.3% 18.8% 17.4% 16.2% 17.0% 15.0% 17.4% 17.8% 17.2% 16.9% 17.5% 18.0% Industrial 14.6% 17.3% 17.5% 16.5% 17.0% 17.4% 15.2% 16.5% 16.3% 16.9% 17.3% 15.3% 16.5% 17.1% 17.6% Security 11.7% 11.8% 11.4% 11.9% 12.6% 13.7% 13.1% 12.8% 12.1% 13.0% 13.5% 13.0% 12.9% 13.6% 14.1% Segment Margins ex-items 14.2% 15.0% 15.7% 14.9% 17.4% 16.7% 15.5% 16.1% 14.7% 16.7% 17.1% 16.3% 16.2% 16.8% 17.4% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 175

176 Stanley Black & Decker Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E 2019E Net Income ,142 1,293 Depreciation & Amortization Trade Working Capital 12 (10) (98) (268) 58 (183) (822) 351 (313) 642 (142) (68) (42) Other (96) (15) (37) (115) (98) 79 (226) Operating Cash Flow 868 1,282 1,182 (93) ,485 (121) ,451 1,532 1,701 Capital Expenditure (366) (291) (311) (65) (79) (78) (125) (347) (108) (108) (108) (108) (431) (370) (382) Other recurring investment Free Cash Flow 502 1, (158) ,138 (228) ,020 1,162 1,319 FCF Margin Acquisitions (934) (3) (2,475) (2,475) - - Disposals Other (38) (147) (186) (350) Cash Flow Pre Financing (334) (158) (2,003) (755) 1, Equity issue Stock repurchase (39) (28) (650) (361) (1) (1) (11) (374) (274) (296) Dividends (313) (321) (320) (80) (80) (85) (87) (331) (87) (88) (97) (97) (369) (387) (406) Other (353) (380) (93) 15 (11) 43 (30) Movement on Net Debt (884) 355 (28) (575) (2,061) 460 (49) 650 (1,001) Cash ,132 1, Gross Debt (4,202) (3,847) (3,844) (4,306) (4,172) (3,917) (3,827) (3,827) (5,015) (4,715) (4,715) (4,415) (4,415) (3,780) (3,365) Net Debt (3,706) (3,351) (3,379) (3,954) (3,604) (3,497) (2,696) (2,696) (4,757) (4,297) (4,346) (3,696) (3,696) (3,061) (2,646) Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 176

177 Mar Jun Sep Dec NTM P/E 1Y Median 5Y Median 2009 Mar Jun Sep Dec Mar Mar Jun Sep Dec Mar Jun Sep Dec Mar M O R G A N S T A N L E Y R E S E A R C H Stanley Black & Decker: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median 20 10% Premium/Discount vs. sector median 1Y Median 5Y Median 19 5% 18 0% % 15-10% 14-15% 13 Organic Growth vs. EE/MI (2004/16) Core Operating Margins vs. EE/MI (2004/16) Organic Growth Core Operating Margin EE/MI Median 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% EE/MI Median 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: Morgan Stanley Research, Company Data, Thomson Reuters 177

178 SPX Flow (FLOW): Equal-weight, $39 Price Target Why Equal-weight? Organic growth has underperformed vs. peers for several years, in part due to margin initiatives. We see growth continuing to trail given demand headwinds in core markets and a focus on cost. Margins track below the Flow Control average, but restructuring and recent expansion ( ) suggests potential to close the gap if/when demand stabilizes. However, we need to see further execution on costs actions and improving demand before we can fully capitalize current cost plans. We see longer-term potential for valuation to comp more in line with pure-play Flow Control peers (~10% historical premium), but given heavy demand pressure and limited visibility on operational execution, we do not embed multiple expansion. Price Target: $39 Bull $ x Bull Case NTM EPS of $3.03 Aligned with our Base Case Scenario. Assuming a faster recovery in depressed end markets, we forecast flat organic growth in 2017 accelerating to 10% growth in Allied to execution on restructuring, we see margins expanding into the 11% zone by We assume an 18.0x multiple, a modest discount vs. the group and Flow Control peers, as investor confidence begins to rebound. Potential Upside Catalysts We believe that Dairy Process assets are an attractive investment longer-term with secular growth characteristics. If demand trends stabilize/accelerate, FLOW could see multiple expansion from current levels. Energy demand has been difficult to forecast given oil price downside and resultant volatility in both project execution and MRO spending. We model a decline in O&G/Power related organic sales in A continued favorable recovery in oil prices with resultant stability in CapEx could drive sharp earnings revisions higher. Base $39 Bear $16 DCF fair value assuming 7.6% WACC and 0.9% terminal growth 10x Bear Case NTM EPS of $1.59 We assume an 3% organic decline in 2017e driven by lower volumes Y/Y in all three segments, with additional headwinds from pricing pressure in P&E. We see margins trending up 350bps through 2018, as the benefits from restructuring begin to flow through. We assume a WACC of 7.6% and a terming growth rate of 0.9% to derive our price target.. Lower oil prices lead to sharper than anticipated declines in OE project demand in P&E and sharp price competition, with limited recovery in Dairy and Industrial markets. Sharp volume (and price) headwinds partially offset restructuring payback, driving only 160bps of margin expansion through 2018e despite sizable cost cuts across the businesses. We assume a 10x multiple, near historical trough levels for EE/MI and Flow peers. Potential Downside Risks Given the aforementioned lack of visibility around an O&G recovery, we could see incremental volume and price vs. current estimates if trends deteriorate or commodity price fall - this would further offset expected restructuring payback. As noted, organic growth has been below the peer average for the last 5+ years; given the heavy focus on margins/cost, growth could once again underwhelm, thus limiting upside even in an expansion. Source: Morgan Stanley Research, Thomson Reuters. 178

179 SPX Flow: Key Financial Statistics Revenue breakdown by geography North America 35% Latin America 3% Middle East/Africa 8% Asia Pacific 24% Europe 30% Revenue breakdown by end market Pulp & Paper General 1% Industrial 1% HVAC 1% Mining 2% Water 1% Air Treatment 10% Marine 3% Dairy 23% Chemical Processing 13% Conventional Power 4% Food 9% Beverage 3% Personal Care 1% Upstream Oil & Gas 13% Midstream Oil & Gas 6% Downstream Oil & Gas 5% Nuclear Power 4% Segment 2016 Sales 2016 Op Profit End Market CEO: Marc Michael CFO: Jeremy Smeltser % of Sales Key Products & Services Key Brands Competitors Dairy 63% Food & Beverage $728 $75 Drying & evaporation, liquid processing, extraction & distillation, seperation & clarification, dispersion, mixing, pumps, valves, Food 26% heat exchangers for production of infant formula, milk & whey powders, dairy ingredients, recombined milk products, butter & spreads, yoghurt & fermented products, fresh & UTH milk, vegetable fats, margarines, baby food, ingredients & flavorings, Beverage 7% yeast extract, condiments, soft drinks, tea & coffee drinks, instant coffee, nutritional & soy drinks, silica & industrial powders, Marc Michael 36% 38% Personal Care 4% extraction, recovery of organic substances, and cosmetics. Anhydro, APV, Bran+Luebbe, e&e, Gerstenberg Schroeder, LIGHTNIN, Seital, and Waukesha Cherry-Burrell. Gea Group, Tetra Pak, Alfa Laval, Krones, Idex, Sudmo (Pentair), Fristam, and various regional competitors Power and Energy $563 $25 Tony Renzi 28% 13% Upstream Oil & Gas 41% Midstream Oil & Gas 20% Downstream Oil & Gas 15% Nuclear Power 12% Conventional Power 12% O&G: API and ANSI pumps, chemical injection pumps/packages, control, on/off and surge relief valve systems/solutions, heat transfer technology, side and vertical mixers, gas and liquid filtration and straining equipment, liquid and gas and dehydration solutions. Power: Full range of pumps, valves, heat transfer solutions, mixers and filters, designed specifically to increase reliability, safety and efficiency in power generation applications. Products range from turbine bypass valves and boiler feed pumps to nuclear safety pumps. APV, Bran+Luebbe, ClydeUnion Pumps, Copes- Vulcan, Dollinger Filtration, LIGHTNIN, M&J Valve, Plenty, and Vokes Cameron International Corporation, Ebara Fluid Handling, Flowserve Corporation, ITT Goulds Pumps, KSB AG, and Sulzer Ltd. Chemical Processing 39% Industrial $705 $99 Air Treatment 30% Primarily serves customers in the chemical, air treatment, mining, pharmaceutical, marine, shipbuilding, infrastructure Marine 10% construction, automotive, and water treatment industries. Key products for the segment include industrial pumps, mixers, heat Mining 6% exchangers, air dryers, hydraulic technologies and other equipment, which are designed for solutions to applications within David J. Wilson 35% 50% Water 4% heat transfer, storage, blending, circulation, compressed air drying and other critical processes. Other (HVAC, Paper, Gen Ind) 11% Airpel, APV, Delair, Deltech, Hankison, Jemaco, Johnson Pump, LIGHTNIN, Power Team, and Stone Alfa Laval AB, Chemineer Inc., EKATO, Actuant, Enerpac, IDEX Viking Pump, KSB AG, Parker Domnick Hunter, and various regional companies Source: Company data, Morgan Stanley Research. 179

180 SPX Flow Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 2,805 2,770 2, , ,876 1,973 YoY total growth -1% -1% -14% -12% -14% -21% -19% -16% -14% -10% 0% 1% -6% 5% YoY organic growth -1% -1% -6% -9% -12% -20% -16% -14% -11% -6% 2% 2% -3% 5% Cost of sales 1,907 1,833 1, , ,261 1,296 Gross profit Margin 32.0% 33.8% 33.2% 31.5% 31.5% 31.3% 30.8% 31.3% 30.4% 32.0% 34.1% 34.3% 32.8% 34.3% SG&A Amortization Impairment Charges Special Charges Reported Operating Income (22) (394) 22 9 (385) Margin 8.2% 9.2% 7.7% -4.3% -74.5% 4.7% 1.8% -19.3% 0.9% 6.8% 8.6% 9.2% 6.5% 10.5% Exceptional Items Core Operating Income Margin 8.3% 10.1% 8.8% 3.8% 8.2% 7.3% 8.2% 6.9% 2.9% 8.9% 10.3% 11.8% 8.6% 10.5% D&A Core EBITDA Margin 10.8% 12.5% 11.6% 7.2% 11.4% 10.7% 11.2% 10.1% 6.3% 12.0% 13.5% 14.7% 11.8% 13.3% Interest expenses Interest & Other income/expense (4) 5 10 (3) 0 (38) 2 (38) Pre-Tax Income (39) (409) (31) (4) (482) (11) Taxes (7) (56) (27) (11) (101) (3) Effective Rate 30.7% 42.2% 30.3% 17.3% 13.8% 86.5% 311.1% 21.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% Continuing Income (31) (353) (5) 7 (382) (8) Adjustments Headline Income (2) DWAC Headline EPS (0.04) Yoy 0% 0% -16% -97% -42% -48% -10% -47% -339% 0% 67% 59% 35% 42% GAAP EPS - Diluted (0.75) (8.52) (0.11) 0.16 (9.22) (0.19) Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 180

181 SPX Flow Segment Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Power & Energy Food & Beverage Industrial Sales 2,805 2,770 2, , ,876 1,973 Power & Energy -1% -4% -22% -14% -15% -36% -33% -25% -26% -19% 1% 5% -11% 7% Food & Beverage 2% 0% -10% -12% -20% -16% -17% -16% -13% -6% 1% 2% -4% 6% Industrial -6% 0% -8% -9% -6% -10% -8% -8% -5% -8% -1% -3% -4% 3% Sales YoY -1% -1% -14% -12% -14% -21% -19% -16% -14% -10% 0% 1% -6% 5% Power & Energy Food & Beverage Industrial Other (85) (110) (84) (18) (12) (13) (15) (59) (17) (13) (14) (15) (59) (56) EBITDA Power & Energy 27% 24% -42% -62% -46% -64% -45% -54% -57% -8% 51% 75% 20% 19% Food & Beverage -2% 9% 5% -20% -27% -25% -27% -25% -23% 2% 22% 32% 8% 16% Industrial -7% 1% -13% -22% -4% -10% 13% -6% 1% -5% 8% 0% 1% 9% EBITDA YoY 8% 14% -20% -30% -27% -36% -17% -27% -24% -6% 26% 33% 10% 19% Power & Energy (2) Food & Beverage Industrial Segment Income Other (106) (136) (109) (61) (451) (26) (46) (584) (26) (23) (22) (28) (99) (56) Operating Income (22) (394) 22 9 (385) Power & Energy 32% -50% -86% -57% -79% -58% -70% -206% -7% 124% 148% 51% 38% Food & Beverage 10% 5% -22% -30% -28% -31% -28% -28% 3% 28% 42% 12% 21% Industrial 3% -15% -25% -4% -11% 15% -6% 0% -6% 8% 0% 0% 10% Segment Income YoY 16% -25% -39% -29% -39% -21% -32% -24% -3% 30% 34% 11% 19% Operating Income YoY 22% 10% -28% -166% -770% -58% -78% -309% -117% -108% 85% 406% -132% 69% Power & Energy 12.8% 17.5% 11.2% 1.5% 6.4% 4.3% 5.9% 4.5% -2.1% 7.3% 9.6% 14.0% 7.6% 9.8% Food & Beverage 9.3% 10.2% 12.0% 9.4% 10.6% 11.3% 10.0% 10.3% 7.7% 11.6% 14.4% 13.8% 12.0% 13.6% Industrial 14.2% 14.7% 13.7% 11.4% 14.5% 13.8% 16.1% 14.0% 12.0% 14.8% 15.1% 16.6% 14.7% 15.6% Segment Margin 12.0% 14.1% 12.3% 7.7% 10.7% 10.3% 11.2% 10.0% 6.8% 11.6% 13.3% 14.9% 11.8% 13.3% Operating Margin 8.2% 9.2% 7.7% -4.3% -74.5% 4.7% 1.8% -19.3% 0.9% 6.8% 8.6% 9.2% 6.5% 10.5% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 181

182 SPX Flow Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Net Income (31) (353) (5) 7 (382) (8) Depreciation & Amortization Working Capital (83) (2) 21 (22) (85) 10 (4) (25) Other (19) (35) (24) (37) (31) (14) 20 Operating Cash Flow (68) 40 (21) 22 (28) 96 (1) (29) Capital Expenditure (23) (41) (57) (17) (14) (7) (7) (44) (8) (8) (8) (8) (30) (32) Free Cash Flow (85) 26 (29) 15 (72) 88 (9) (36) FCF Margin 8.6% 9.5% 6.6% -16.8% 4.9% -6.1% 3.1% -3.6% 20.3% -1.9% -7.8% 8.3% 4.5% 7.9% Acquisitions (3) Disposals Other Cash Flow Pre Financing (489) (83) 26 (28) 17 (68) 88 (9) (36) Equity issue Stock repurchase Dividends - (1) (11) Other 258 (66) (106) 2 (13) (49) (25) (84) Movement in Net Debt (230) (81) 13 (77) (7) (152) 88 (9) (36) Cash Gross Debt (1,006) (1,021) (1,037) (1,043) (1,039) (1,114) (1,109) (1,109) (1,109) (1,109) (1,109) (1,109) (1,109) (1,130) Net Debt (1,006) (805) (741) (823) (810) (886) (894) (894) (805) (814) (851) (809) (809) (663) Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 182

183 United Technologies (UTX): Overweight, $120 Price Target Price Target $120 Aligned with Base Case Bull $135 Base $120 Bear $ x $ x $ x $6.21 Continued strength in US commercial construction and aerospace aftermarket with improvement in Otis, UTX could see core growth accelerate to 4% in 2017e vs. +2% in We model 60bps margin expansion over 2017e, with better aero Q/M sales, productivity and restructuring payback largely offset by Otis pricing pressure, pricing and P&W OE headwinds. We see the NTM multiple expand to 17.7x consistent with 1Y highs - driven by beat/raise quarters. Assuming modest acceleration driven predominantly by a return of China growth, we forecast core growth of 3.8% in 2017e vs. +2% in Otis pricing pressure and P&W OE headwind are the predominant drivers of our forecasted 90bps cumulative core OM contraction over 2017e, partly offset by benefits from restructuring actions, lower E&D expense and volume leverage. Our 17x multiple assumes multiple maintains current levels. Depressed commercial aftermarket, weak commercial construction end markets and further deceleration in China yields a 1% organic decline outcome in 2017e, following 2% growth in 2016e. We model 100bps margin compression over 2017e as restructuring savings are offset by negative mix related to declines in Otis China and P&W OE ramp up. Our 13.0x multiple implies reversion to the 1Y minimum as EPS expectations ratchet lower. Why Overweight? Portfolio dynamics are complex. The bulk of CC&S and Comm Aero A/M biz are in attractive cycles. Comm Aero OE will likely accelerate, but create significant EBIT headwinds, while Otis has more structural headwinds with rebounding NAm markets offset by declines in China and potential for continued pricing & share pressure in EMEA. Market is mis-pricing Comml Aero OE programs. UTX is absorbing significant EBIT losses as production ramps up on new programs. The NPV on these programs is very attractive, given razor/blade model, but the market is currently embedding these at a heavily negative value Should See Improving Sentiment. We see credible case for peaking Aerospace OEM losses, narrowing price deflation in China, accelerating CCS top line and improving FCF conversion - all key drivers of sentiment. Earnings estimates are achievable. We view the FY17 range as achievable and sit at the high end. Potential Upside Catalysts Multiple expansion: UTX is one of the cheapest, mega-cap industrials and should see re-rating if its delivers on its commitments. More aggressive BS deployment: Management is completing its $16bn buyback this year, but we see additional deployment in the event of a repatriation deal. Portfolio realignment. UTX is currently trading ~20% below its SotP valuation. Potential Downside Risks Further cuts to FY17 EPS estimates would likely be punished on price headwinds at Otis (viz. China) and weaker aero A/M. Failure to meet 350+ GTF deliveries this year could dent management credibility. Source: Morgan Stanley Research, Thomson Reuters. 183

184 United Technologies: Key Financial Statistics Revenue breakdown by geography Chine 7% APAC ex. China 13% Other 15% US 38% Revenue breakdown by end market C-HVAC/R 9% Defense 13% Fire & Security 9% Transport Rerigeration 5% Elevator & Escalator 22% MEA 3% Europe 24% R-HVAC/R 6% Comm Aero 36% 2016 Revs ($bn) 2016 Op. Profits ($bn) End Markets CEO: Greg Hayes CFO: Akhil Johri % of Seg Revs Key Products and Services Key Brands Competitors Otis $11.9 $2.2 Commercial 90% Elevators, Escalators, and Moving Walkways Otis Philippe Delpech 20% 24% Residential 10% CCS $16.9 $3.1 Commercial 60% Robert McDonough 29% 33% Residential 20% Food Safety 20% Commercial HVAC, Residential HVAC, Commercial Refrigeration, Transport Refrigeration (containers, truck / trailers), Fire & Security products, installation, and services Carrier, Payne, Bryant, Kidde, Chubb, Transicold Pratt & Whitney $14.9 $1.8 Commercial Aerospace OE 14% Aircraft engines and spare parts Pratt & Whitney Robert Leduc 26% 19% Commercial Aerospace A/M 32% Military OE 16% Military A/M 14% Biz Jet / Regional Turboprop 24% Kone, Schindler, ThyssenKrupp, Mitsubishi, Hyundai Ingersoll Rand, Lennox, Johnson Controls, Tyco, Daikin, Honeywell, Siemens, Stanley Black & Decker GE Aviation, Rolls Royce, Safran, MTU UTAS $14.5 $2.3 Commercial Aerospace OE 41% David Gitlin 25% 25% Commercial Aerospace A/M 31% Military OE 16% Military A/M 9% Space 3% Aircraft systems including: actuation and landing Nord-Micro, HS systems, nacelles, nozzles, thrust reversers, fuel Nauka, HS controls, sensors, power generation, propellers, Elektronik motor control, and aircraft utilities management Systeme, Ratier Figeac, HS Marston GE Aviation, Honeywell, Safran, Parker Hannifin, Eaton, BAE, Spirit, B/E Aerospace, Thales Source: Company data, Morgan Stanley Research. 184

185 United Technologies Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 62,626 65,100 56,040 13,357 14,874 14,354 14,659 57,244 13,666 15,174 14,688 15,326 58,752 60,981 YoY total growth 9% 4% -14% 0% 1% 4% 3% 2% 2% 2% 2% 5% 3% 4% YoY organic growth 1% 4% 2% 2% 2% 5% 0% 2% 3% 3% 4% 5% 4% 4% Cost of sales 45,321 47,447 40,366 9,654 10,741 10,342 10,723 41,460 10,124 11,047 10,687 11,015 42,771 44,425 Gross profit 17,305 17,653 15,674 3,703 4,133 4,012 3,936 15,784 3,542 4,127 4,002 4,310 15,981 16,556 Margin 27.6% 27.1% 28.0% 27.7% 27.8% 28.0% 26.9% 27.6% 25.9% 27.2% 27.2% 28.1% 27.2% 27.1% SG&A 6,718 6,500 5,886 1,363 1,451 1,390 1,856 6,060 1,395 1,480 1,422 1,742 6,039 6,403 R&D 2,529 2,635 2, , ,322 2,258 Other (1,151) (1,251) 211 (146) (243) (211) (185) (785) (649) (196) (196) (196) (1,238) (854) Reported Operating Income 9,209 9,769 7,298 1,945 2,337 2,251 1,639 8,172 2,260 2,262 2,202 2,133 8,858 8,749 Margin 14.7% 15.0% 13.0% 14.6% 15.7% 15.7% 11.2% 14.3% 16.5% 14.9% 15.0% 13.9% 15.1% 14.3% Adjustments (1,078) (83) (343) (260) Core Operating Income 9,467 10,352 9,168 2,007 2,465 2,380 2,160 9,012 1,901 2,346 2,281 2,181 8,709 9,053 Margin 15.1% 15.9% 16.4% 15.0% 16.6% 16.6% 14.7% 15.7% 13.9% 15.5% 15.5% 14.2% 14.8% 14.8% D&A 1,821 1,907 1, , ,040 2,096 Core EBITDA 11,288 12,259 11,031 2,473 2,959 2,876 2,666 10,974 2,415 2,860 2,795 2,679 10,749 11,149 Margin 18.0% 18.8% 19.7% 18.5% 19.9% 20.0% 18.2% 19.2% 17.7% 18.8% 19.0% 17.5% 18.3% 18.3% Yoy 17% 9% -10% -5% 0% 1% 2% -1% -2% -3% -3% 0% -2% 4% Interest expense (1,034) (1,096) (944) (241) (248) (252) (394) (1,135) (254) (265) (275) (275) (1,069) (1,112) Interest & Others income/expenses Pre-Tax Income 8,312 8,887 6,475 1,722 2,112 2,026 1,273 7,133 2,029 2,027 1,959 1,891 7,906 7,780 Taxes (2,238) (2,264) (2,111) (461) (593) (492) (149) (1,695) (568) (547) (529) (510) (2,155) (2,121) Effective Rate 26.9% 25.5% 32.6% 26.8% 28.1% 24.3% 11.7% 23.8% 28.0% 27.0% 27.0% 27.0% 27.3% 27.3% Minority interest (388) (403) (360) (81) (99) (91) (100) (371) (75) (90) (83) (108) (356) (362) Continuing Income 5,686 6,220 4,004 1,180 1,420 1,443 1,024 5,067 1,386 1,390 1,347 1,273 5,396 5,297 DWAC Headline EPS Yoy 16% 10% -7% 2% 7% 5% 2% 4% -5% 0% 0% 6% 0% 7% GAAP EPS Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 185

186 United Technologies Segment Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Otis 12,484 12,982 11,913 2,715 3,097 3,018 3,063 11,893 2,678 3,053 2,990 3,292 12,012 12,490 CCS 16,809 16,823 16,707 3,728 4,459 4,415 4,249 16,851 3,774 4,447 4,426 4,297 16,945 17,425 Pratt & Whitney 14,501 14,508 14,082 3,588 3,813 3,501 3,992 14,894 3,783 4,013 3,685 4,208 15,586 16,241 Aerospace Systems 13,347 14,215 14,094 3,505 3,716 3,646 3,598 14,465 3,651 3,882 3,809 3,749 15,091 15,740 Sikorsky 6,253 7, Eliminations (768) (879) (757) (179) (211) (226) (243) (859) (220) (220) (220) (220) (882) (915) Sales 62,626 65,100 56,040 13,357 14,874 14,354 14,659 57,244 13,666 15,174 14,688 15,326 58,752 60,981 Otis 3.6% 4.0% -8.2% -1.1% 0.0% -0.8% -1.0% -0.2% -1.4% -1.4% -0.9% 7.5% 1.0% 4.0% CCS -1.6% 0.1% -0.7% -3.2% 0.1% 3.2% 3.1% 0.9% 1.2% -0.3% 0.2% 1.1% 0.6% 2.8% Pratt & Whitney 3.8% 0.0% -2.9% 7.7% 3.7% 8.3% 4.0% 5.8% 5.4% 5.2% 5.2% 5.4% 4.6% 4.2% Aerospace Systems 60.2% 6.5% -0.9% -1.2% 2.3% 5.5% 4.1% 2.6% 4.2% 4.5% 4.5% 4.2% 4.3% 4.3% Sikorsky -7.9% 19.2% Sales YoY 8.5% 4.0% -13.9% 0.3% 1.2% 4.1% 2.5% 2.1% 2.3% 2.0% 2.3% 4.5% 2.6% 3.8% Otis 2,678 2,727 2, , ,105 2,144 CCS 2,632 2,868 2, , ,168 3,351 Pratt & Whitney 1,862 2,063 1, , ,570 1,560 Aerospace Systems 2,110 2,437 2, , ,407 2,539 Sikorsky Segment Income ex-items 9,926 10,794 9,580 2,081 2,548 2,449 2,279 9,388 2,036 2,481 2,416 2,316 9,250 9,594 Restructuring (481) (363) (375) (61) (115) (18) (90) (284) (89) (79) (74) (43) (284) (284) Other 223 (435) (1,182) - (12) (106) (9) (158) (0) (0) Corporate & Eliminations (459) (227) (725) (75) (84) (74) (541) (774) (140) (140) (140) (140) (561) (561) Operating Income 9,209 9,769 7,298 1,945 2,337 2,251 1,639 8,172 2,260 2,262 2,202 2,133 8,858 8,749 Otis 0.1% 1.8% -12.4% -9.8% -6.0% -10.0% -4.8% -6.4% -7.1% -9.6% -8.5% 7.7% -5.9% 1.8% CCS 9.2% 9.0% 1.9% 1.1% 6.8% 5.6% 3.2% 4.4% 3.4% 2.3% 4.0% 5.8% 3.8% 5.8% Pratt & Whitney 10.5% 10.8% -7.3% -3.9% -7.6% -6.1% -14.7% -8.5% -12.5% -11.4% -8.9% -8.7% -10.4% -0.6% Aerospace Systems 99.2% 15.5% -3.4% -11.0% 1.7% 4.3% 4.4% -0.3% 3.6% 3.6% 3.4% -0.3% 2.6% 5.5% Sikorsky -15.8% 8.5% Segment income ex-restructuring YoY 15.5% 8.7% -11.2% -5.9% -0.3% -1.0% -2.6% -2.0% -2.1% -2.6% -1.4% 1.6% -1.5% 3.7% Operating income YoY 19.8% 6.1% -25.3% -10.9% -3.5% -2.2% 318.1% 12.0% 16.2% -3.2% -2.2% 30.2% 8.4% -1.2% Otis 21.5% 21.0% 20.1% 17.7% 19.3% 19.7% 17.4% 18.8% 16.7% 17.7% 18.2% 17.5% 17.5% 17.2% CCS 15.7% 17.0% 17.5% 17.0% 20.4% 18.8% 16.0% 18.1% 17.4% 20.9% 19.5% 16.7% 18.7% 19.2% Pratt & Whitney 12.8% 14.2% 13.6% 11.6% 11.9% 11.8% 11.8% 11.8% 9.6% 10.0% 10.2% 10.2% 10.1% 9.6% Aerospace Systems 15.8% 17.1% 16.7% 15.7% 15.9% 16.8% 16.5% 16.2% 15.6% 15.7% 16.6% 15.8% 16.0% 16.1% Sikorsky 10.3% 9.4% Segment Margins ex-restructuring 15.7% 16.4% 16.9% 15.4% 16.9% 16.8% 15.3% 16.2% 14.7% 16.1% 16.2% 14.9% 15.5% 15.5% Operating Margins 14.7% 15.0% 13.0% 14.6% 15.7% 15.7% 11.2% 14.3% 16.5% 14.9% 15.0% 13.9% 15.1% 14.3% Otis CCS Pratt & Whitney Aerospace Systems Sikorsky Corporate & Eliminations (117) (40) (9) Capital Expenditure 1,688 1,711 1, , ,804 1,679 Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 186

187 United Technologies Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Net Income 5,686 6,220 4,004 1,180 1,420 1,443 1,024 5,067 1,386 1,390 1,347 1,273 5,396 5,297 Depreciation & Amortization 1,821 1,907 1, , ,040 2,096 Working Capital (200) (1,248) (503) (640) 3 (116) (462) (1,215) (563) (486) (267) (65) Other ,157 (211) (141) (292) (851) (18) 219 Operating Cash Flow 7,504 7,335 6, ,776 1,951 1,845 6,367 2,268 1,613 1,868 1,401 7,151 7,548 Capital Expenditure (1,688) (1,711) (1,704) (286) (363) (394) (656) (1,699) (451) (451) (451) (451) (1,804) (1,679) Free Cash Flow 5,816 5,624 4, ,413 1,557 1,189 4,713 1,817 1,162 1, ,346 5,868 FCF Margin 102.3% 90.4% 120.3% 43.1% 99.5% 107.9% 116.1% 93.0% 131.1% 83.6% 105.2% 74.7% 99.1% 110.8% Increase in collaboration intangibles (722) (593) (437) (98) (101) (102) (79) (380) (78) (78) (78) (78) (311) (311) FCF adj. for Collaboration Intangibles 5,094 5,031 4, ,312 1,455 1,110 4,333 1,739 1,084 1, ,035 5,557 Conversion 89.6% 80.9% 109.4% 34.8% 92.4% 100.8% 108.4% 85.5% 125.5% 78.0% 99.5% 68.6% 93.3% 104.9% Acquisitions - (402) (497) (63) (425) - (112) (600) Disposals 1, Other (583) 61 (107) (36) 30 (112) 13 (105) Cash Flow Pre Financing 6,041 4,838 3, ,444 1,011 3,684 2,189 1,084 1, ,485 5,557 Equity issue , Stock repurchase (1,200) (1,500) (10,000) - (36) (492) (1,726) (2,254) (770) (789) (809) (829) (3,197) (2,352) Dividends (1,907) (2,048) (2,184) (509) (526) (526) (508) (2,069) (529) (551) (547) (544) (2,170) (2,334) Other (532) (414) 8,333 (2,289) (271) (232) 37 (2,755) Movement on Net Debt 2,780 1,063 1,209 (2,486) (1,186) (3,394) 951 (196) 63 (440) 377 1,157 Cash 4,619 5,235 7,075 7,215 6,785 7,107 7,157 7,157 9,108 9,911 9,974 9,534 9,534 10,691 Gross Debt 20,241 19,794 20,425 23,051 22,537 22,665 23,901 23,901 24,901 25,901 25,901 25,901 25,901 25,901 Net Debt 15,622 14,559 13,350 15,836 15,752 15,558 16,744 16,744 15,793 15,990 15,927 16,367 16,367 15,210 Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 187

188 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 M O R G A N S T A N L E Y R E S E A R C H United Technologies: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median 19 NTM P/E 1Y Median 5Y Median 5% Premium/Discount vs. sector median 1Y Median 5Y Median 18 0% % 15-10% 14-15% 13-20% 12 Organic Growth vs. EE/MI (2004/16) Core Operating Margins vs. EE/MI (2004/16) Organic Growth Core Operating Margin EE/MI Median 20% 15% 10% 5% 0% -5% -10% -15% -20% EE/MI Median 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -25% Source: Morgan Stanley Research, Company Data, Thomson Reuters 188

189 DISTRIBUTOR COMPANY MODELS 189

190 WARNINGDONOTEDIT_RRS4RL~FAST.O~ M O R G A N S T A N L E Y R E S E A R C H Fastenal Co. (FAST): Equal-weight, $51 Price Target Price Target $51 Bull $64 Base $51 $ Our methodology for deriving our target price is aligned with our Base Case scenario described below. Assuming a cyclical rebound in the short-cycle industrial market, with 26.0x Bull Case substantial outgrowth driven by contribution from industrial vending, onsite 2018e EPS of expansion and new store openings. We model 6%/6.5% p.a. organic growth over $2.47 (at 25% tax 2017/18e. Our model also bakes in ~30bps total margin expansion over 2017/18e, rate) with leverage on same store sales growth and sourcing savings partly offset by continued mix headwinds. Our 26.0x multiple assumes a reversion back to the stock's 10Y average valuation. 24.0x Base Case Assuming a slight growth acceleration and modest outperformance vs. 2018e EPS of industrial production trends, primarily driven by the vending and onsite growth $2.13 (at 30% tax initiatives. We expect organic growth to step up to ~4.5%/5% p.a. over 2017/18e. rate) We also bake in flat margins in 2017e and 20bps of margin expansion through Our 24.0x NTM multiple represents ~30% premium to the EE/MI and industrial distributor peers, slightly below its 1Y average, given recent ROIC pressure and moderating growth outperformance. $50.34 $64.00 (+27%) $51.00 (+1%) $35.00 (-30%) 0 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Price Target (Feb-18) Historical Stock Performance Current Stock Price Why Equal-weight? Growth outperformance will likely continue. We believe FAST's vending and onsite initiatives will continue to drive outgrowth vs. peers and IP trends, albeit at a slower pace than historical levels. Recent margin pressure is expected to persist, given continued headwinds from rising mix of non-fastener products and large customers. An uptick in e-commerce penetration could also drive further downside risks, due to potential pricing pressure and significant investment requirements. We expect FAST to maintain a premium valuation, given its bestin-class return profile among peers. However, recent ROIC pressure and slowing earnings growth will likely limit the case for multiple expansion. Potential Upside Catalysts Cyclical acceleration (+): A stronger than expected short-cycle rebound could drive upside to growth expectations, particularly the higher margin fasteners products. Capital allocation (+): FAST's under-levered B/S presents opportunities for more aggressive share repurchases and M&A. Potential Downside Risks e-commerce competition: A faster than expected step-up in e- Commerce competition could drive material downside to earnings estimates, and hence further multiple compression. Continued margin and ROIC erosion, driven by declining returns on FAST's key investment programs (e.g. vending, onsite stores), as well as continued pricing pressure. US tax reform: FAST has one of the highest US revenue exposure and thus tax rates in our universe, however their high mix of imported products limits their benefit on a border adjustability basis. Bear $35 20x Bear Case 2018e EPS of Assuming a modest industrial downturn, with rising competition and $1.75 (at 37% tax negative pricing trends, we forecast 6% organic decline in 2017 (vs. -18% in rate) 2009), following a modest 1% growth in 2016e. In this scenario, we expect volume deleverage and pricing pressure to drive 80bps total margin contraction over 2016/18e. Our 19.5x multiple assumes a reversion back to its 1Y minimum valuation, as EPS and return expectations ratchet lower. Source: Morgan Stanley Research, Thomson Reuters. 190

191 Fastenal Co.: Key Financial Statistics Revenue breakdown by geography Revenue breakdown by end market Electrical supplies 5% Welding supplies 4% Other 3% Cutting tools 6% Material handling 6% Hydraulics & pneumatics 7% Janitorial supplies 7% Tools 10% Fasteners 37% Safety supplies 15% % of Seg Revenue Op. Profit Breakdowns Revenus Key products and services Consolidated $3,962 $796 Fasteners 38% Safety supplies 14% Tools 10% Janitorial supplies 8% Hydraulics & pneumatics 7% Material handling 7% Cutting tools 6% Electrical supplies 5% Welding supplies 5% Other 2% Fastenal's original product offerings were fasteners and other industrial and construction supplies, many of which are sold under the Fastenal product name. This product line consists of two broad categories: threaded fasteners, such as bolts, nuts, screws, studs, and related washers; and miscellaneous supplies and hardware, such as various pins and machinery keys, concrete anchors, metal framing systems, wire rope, strut, rivets, and related accessories. The company introduced additional product lines over the years. Most recently, FAST started a direct ship business (2004) and introduced office supplies (2010) to its offerings Source: Company data, Morgan Stanley Research. 191

192 Fastenal Co. Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 3,134 3,326 3,734 3, ,014 1, ,962 1,026 1,060 1, ,145 4,352 YoY total revenue growth 13.3% 6.1% 12.2% 3.6% 3.5% 1.6% 1.8% 2.7% 2.4% 4.0% 4.5% 5.0% 5.0% 4.6% 5.0% YoY organic revenue growth 13.4% 6.3% 12.7% 4.8% 3.6% 1.4% 1.3% 2.7% 2.2% 3.6% 4.6% 5.0% 4.8% 4.5% 5.0% Cost of sales 1,519 1,607 1,836 1, , ,090 2,199 Gross Profit 1,615 1,719 1,897 1, , ,055 2,154 Margin 51.5% 51.7% 50.8% 50.4% 49.8% 49.5% 49.3% 49.8% 49.6% 49.6% 49.5% 49.5% 49.7% 49.6% 49.5% Selling & administrative expenses 941 1,007 1,111 1, , ,219 1,269 % of Sales 30.0% 30.3% 29.8% 29.0% 29.4% 28.8% 29.3% 30.6% 29.5% 29.4% 28.6% 29.1% 30.6% 29.4% 29.2% Reported Operating Income Margin 21.5% 21.4% 21.1% 21.4% 20.4% 20.6% 20.0% 19.3% 20.1% 20.2% 20.9% 20.4% 19.2% 20.2% 20.3% Exceptional Items Core Operating Income Margin 21.5% 21.4% 21.1% 21.5% 20.4% 20.6% 20.0% 19.3% 20.1% 20.2% 20.9% 20.4% 19.2% 20.2% 20.3% Yoy 17.2% 5.8% 10.5% 5.7% -1.3% -7.4% -7.7% -0.4% -4.4% 3.1% 5.8% 6.8% 4.6% 5.1% 5.8% Depreciation & Amortization Core EBITDA Margin 23.2% 23.3% 23.0% 23.7% 22.7% 23.1% 22.7% 22.3% 22.7% 22.8% 23.4% 23.0% 22.0% 22.8% 22.9% Net Interest 0 1 (0) (3) (1) (1) (2) (1) (6) (1) (1) (1) (1) (4) (5) Income before Tax Taxes Effective Rate 37.6% 37.1% 37.2% 37.5% 36.8% 36.7% 36.9% 36.5% 36.7% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% Continuing Income Adjustments Headline Income DWAC Headline EPS Yoy 17.0% 6.5% 10.3% 6.4% 1.3% -5.4% -6.6% 3.1% -2.3% 2.8% 5.4% 7.0% 4.1% 4.9% 5.9% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 192

193 Fastenal Co. Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Net Income Depreciation & Amortization Working Capital (102) (95) (95) (48) (79) (27) (34) 9 (131) (7) (33) (36) 14 (62) (74) Other 24 (1) 28 (8) 91 (42) 13 (20) (27) Operating Cash Flow Capex (138) (207) (189) (155) (30) (59) (73) (27) (189) (47) (47) (47) (47) (187) (187) Free Cash Flow FCF Margin 8.4% 6.5% 8.5% 10.4% 13.4% 2.9% 6.1% 11.3% 8.4% 15.4% 8.4% 9.5% 8.9% 10.5% 9.9% Acquisitions - - (6) (23) Disposals Other 27 (0) (5) (12) (0) (0) 0 (5) (5) Cash Flow Pre Financing Equity issuance Stock repurchase - (9) (53) (293) (59) (59) - (15) (16) (16) (47) (41) Dividends (367) (237) (297) (327) (87) (87) (87) (87) (347) (94) (94) (94) (93) (374) (393) Other (26) 10 (0) (1) Movement on Net Debt (38) (21) (34) (260) 17 (55) (23) 21 (41) 66 (18) (6) (19) 23 8 Cash Gross Debt Net Debt (236) (219) (275) (298) (277) (277) (211) (229) (235) (253) (255) (247) Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 193

194 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 M O R G A N S T A N L E Y R E S E A R C H FAST: Valuation and Performance Current NTM P/E NTM P/E vs. Distributors 28 NTM P/E 1Y Median 5Y Median 70% Premium/Discount vs. Sector Median 1Y Median 5Y Median % 50% 24 40% % 20% 20 10% % 15% 10% 5% 0% -5% -10% Organic Growth vs. EE/MI (2008/16) Core Operating Margins vs. EE/MI (2008/16) 25% 20% 15% 10% Core Op. Margin EE/MI Median -15% -20% -25% Organic Growth EE/MI Median 5% 0% 194 Source: Company data, Morgan Stanley Research estimates.

195 HD Supply (HDS): Overweight, $50 Price Target Price Target $50 Aligned with Base Case Bull $60 Base $50 Bear $ x NTM Tax-Adj EPS of $3.08 +$1.9 value for NOLs 17.5x NTM Tax-Adj EPS of $3.08 +$1.9 value for NOLs 13.5x NTM Tax-Adj EPS of $3.08 +$1.9 value for NOLs Top-line trends accelerate in We are modeling 6% organic growth in 2017 and 7% in 2018e, driven by continued strength in the construction and infrastructure end markets, with HDS achieving the high-end of its outgrowth target of ~300bps. We model 180bps of annual margin expansion driven by volume leverage. We also adjust our headline EPS for a normalized 29% tax rate (reflecting probably benefits from US tax reform). Our 19.0x bull case multiple represents expansion from the current level, but is largely in line with the EE/MI group. Moderating end market growth, with sustained market outgrowth. We see organic growth decelerating to ~5.4% in 2017e and 5% in 2018e vs. ~4% in 2016, assuming moderating (albeit still positive) growth in the non-residential construction and market outperformance slightly below the 300bps long-term target. Our 2017e assumes 1.8x core operating leverage, consistent with guidance. We also adjust our headline EPS for a normalized 29% tax rate. Our 17.5x target multiple is in line with represents a slight discount vs. the industrial group given HDS's above average financial leverage. Assuming a downturn one-third as severe as 2008/09. Growth decelerates to - 5% in 2018e, driven by cyclical declines in the construction and infrastructure markets. Op. leverage is expected to be at the low end of LT guidance at 1.5x driven by lower volume leverage. Our 13.5x bear case multiple is broadly in line with the multi-industry group cyclical lows. Why Overweight? HDS has the highest US sales exposure at 98% and hence the highest GAAP tax rate in the 39-40% range. As such, the company would be a major beneficiary of potential US tax reform The Waterworks and Commercial & Industrial businesses will likely be significant beneficiaries from infrastructure stimulus in the US, given leverage to water, wastewater and non-building construction We believe that the recent inventory and fulfillment issues that have crimped organic growth and operating leverage in its Facilities Management segment will become less of a factor and hence drive organic revenue acceleration. Potential Upside Catalysts B/S deleveraging: We believe that the recent run in high yield markets are supportive of a further debt refinancing of the Dec 17 calls and expect the company to approach its target leverage range of sub 3x EBITDA by Portfolio actions: HDS has been a seller of assets and the company could seek options to further simplify its portfolio, which would allow it to accelerate the B/S deleveraging processes. Potential Downside Risks Policy uncertainty creates an air pocket in US water and infrastructure markets during 2017, thus pushing organic growth acceleration to the right Rising competition from non-traditional competitors in the distributor space could exert increasing levels of share and price pressure through 2017 Border adjustment proposals could hurt distributors to the extent that product is sourced overseas. Source: Morgan Stanley Research, Thomson Reuters. 195

196 HD Supply: Key Financial Statistics Revenue breakdown by geography Revenue breakdown by end market Other Foreign 2% US 98% Facilities Maintenance Steven Margolius CEO: Joseph DeAngelo CFO: Evan Levitt % of Seg Revenue Adj EBITDA End Markets Revenus Key products and services Key Competitors Key Customers $2,762 $523 MRO 100% 35% 55% MRO products including plumbing, electrical / lighting, appliances, HVAC, hardware, tools, paint & sundries, textiles, FF&E. Property improvement services including renovations, installations and pre-fabricated products. Training and certification. Interline, Guest Supply, Direct Supply Building managers, contractors Waterworks Steve Leclair $2,622 $234 Residential 25% Complete line of water and wastewater transmission Ferguson Munis, Contractors 33% 24% Non-residential 25% products. Pipes, fittings, valves, hydrants and meters Power 50% used in construction, maintenance and repair of water and wastewater systems. Construction & $2,063 $224 Residential 25% Industrial - White Cap 26% 23% Non-residential 75% John Stegeman Concrete accessories, chemicals, tools and assessories, engineered materials and fasteners, safety, erosion and waterproofing. Rentals (braces, forming/shoring equipment) and tool repair. AH Harris, RAM Tool, Construction Materials Specialty Contractors Source: Company data, Morgan Stanley Research. 196

197 HD Supply Income Statement Estimates YE 31 January ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 6,387 6,970 7,123 1,781 2,016 2,008 1,634 7,439 1,865 2,124 2,119 1,732 7,841 8,205 YoY total revenue growth -19.6% 9.1% 2.2% 7.3% 4.1% 3.4% 3.2% 4.4% 4.7% 5.4% 5.6% 6.0% 5.4% 4.7% YoY organic revenue growth 8.1% 9.4% 6.2% 7.3% 4.1% 3.4% 3.2% 4.4% 4.7% 5.4% 5.6% 6.0% 5.4% 4.7% Cost of sales 4,307 4,706 4,734 1,172 1,336 1,325 1,074 4,907 1,229 1,401 1,390 1,127 5,147 5,345 Gross Profit 2,080 2,264 2, , ,693 2,860 Margin 32.6% 32.5% 33.5% 34.2% 33.7% 34.0% 34.3% 34.0% 34.1% 34.0% 34.4% 35.0% 34.4% 34.9% SG&A 1,443 1,510 1, , ,707 1,801 D&A Reported Operating Income Margin 6.7% 8.1% 10.3% 10.0% 11.8% 11.5% 8.9% 10.6% 10.3% 12.5% 12.6% 9.7% 11.4% 11.8% Exceptional Items (2) Core Operating Income Margin 7.2% 8.6% 10.7% 10.7% 12.3% 11.9% 8.8% 11.0% 10.6% 12.8% 12.9% 10.0% 11.7% 12.0% D&A Core EBITDA ,011 1,086 Margin 10.3% 11.1% 12.3% 12.1% 13.5% 13.1% 10.3% 12.4% 11.9% 13.9% 14.0% 11.4% 12.9% 13.2% Yoy -3.9% 17.8% 13.0% 0.0% 0.0% 0.0% 0.0% 5.1% 0.0% 0.0% 0.0% 0.0% 9.8% 7.4% Loss (gain) on extinguishment of d Other (Income)/Expenses 20 (3) Net Interest Pre-Tax Income (208) (22) Taxes (1,084) (8) Effective Rate -21.2% 0.0% % 36.4% 39.3% 40.2% 42.2% 39.9% 39.0% 39.0% 39.0% 39.0% 39.0% 39.0% Continuing Income (252) (42) 1,326 (14) Adjustments (975) Headline Income DWAC Headline EPS Yoy % % 94.7% 101.4% 49.9% 28.0% 62.5% 52.5% 32.1% 20.9% 24.1% 28.5% 24.1% 12.7% GAAP EPS - Diluted (1.31) (0.07) Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 197

198 HD Supply Segment Estimates YE 31 January ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Facilities Maintenance 2,331 2,510 2, , ,917 3,063 Waterworks 2,227 2,427 2, , ,727 2,836 White Cap C&I 1,293 1,481 1, , ,197 2,307 Retail and Design / Corp (9) (2) (2) (1) (3) (8) Sales 6,387 6,970 7,123 1,781 2,016 2,008 1,634 7,439 1,865 2,124 2,119 1,732 7,841 8,205 Facilities Maintenance 6.8% 7.7% 7.2% 6.6% 1.1% 1.1% 2.3% 2.7% 3.5% 6.0% 6.0% 7.0% 5.6% 5.0% Waterworks 9.8% 9.0% 3.4% 6.1% 4.4% 4.0% 3.4% 4.5% 5.0% 4.0% 3.5% 3.5% 4.0% 4.0% White Cap C&I 9.8% 14.5% 12.7% 9.6% 7.7% 5.5% 4.3% 9.2% 5.5% 6.0% 7.5% 7.0% 4.0% 0.0% Retail and Design / Corp -36.0% 3.0% 0.0% 0.0% -33.3% -50.0% 50.0% 0.0% % % % % 0.0% 0.0% Sales YoY -19.6% 9.1% 2.2% 7.3% 4.1% 3.4% 3.2% 4.4% 4.7% 5.4% 5.6% 6.0% 5.4% 4.7% Facilities Maintenance Waterworks White Cap C&I Retail and Design / Corp (28) (25) (59) (16) (16) (17) (11) (60) (16) (16) (17) (11) (60) (63) EBITDA ,007 1,082 Facilities Maintenance Waterworks White Cap C&I Retail and Design / Corp (52) (47) (71) (21) (22) (22) (14) (73) (19) (19) (20) (14) (73) (76) Operating Income Ex-Items Facilities Maintenance 13.2% 15.3% 17.8% 18.5% 19.2% 18.1% 14.5% 17.7% 17.4% 19.5% 19.5% 15.9% 18.2% 18.5% Waterworks 7.1% 7.6% 8.3% 7.4% 9.1% 9.7% 6.9% 8.4% 7.5% 9.2% 9.9% 7.4% 8.6% 8.9% White Cap C&I 3.3% 5.1% 8.2% 8.1% 11.0% 10.6% 6.7% 9.2% 8.8% 11.5% 11.4% 7.7% 10.0% 10.5% Retail and Design / Corp -9.7% -8.5% 788.9% % % % 466.7% 912.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Segment Margin 7.2% 8.6% 10.9% 10.7% 12.3% 11.9% 8.9% 11.1% 10.6% 12.7% 12.8% 9.9% 11.6% 12.0% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 198

199 HD Supply Cash Flow Estimates YE 31 January ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Net Income (218) 3 1,472 (14) Depreciation & Amortization Deferred taxes (839) (9) Non-cash debt (364) Working Capital (221) (137) (115) (32) (122) (67) 105 (116) (135) (31) (90) (57) Other (253) (14) (29) (64) (26) Operating Cash Flow (367) Capex (131) (119) (86) (17) (15) (27) (22) (81) (26) (28) (28) (25) (107) (112) Free Cash Flow (498) FCF Margin Acquisitions Disposals (7) Other (86) Cash Flow Pre Financing , Equity issuance 1, Stock repurchase - (52) (71) (9) (5) (10) (10) (34) (11) (11) (11) (12) (45) (121) Dividends Other (32) (21) 2 (16) (1) (3) (2) (22) Movement on Net Debt 1, ,130 (54) Cash & short-term investment ,217 Gross Debt 5,544 5,257 4,311 4,299 4,299 4,083 3,798 3,798 4,058 3,958 3,808 3,648 3,648 3,648 Net Debt 5,429 5,172 4,042 4,096 3,986 3,937 3,723 3,723 3,700 3,554 3,343 3,023 3,023 2,431 Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 199

200 1Q11 2Q11 Mar-15 3Q11 4Q11 1Q12 Jun-15 2Q12 3Q12 Sep-15 4Q12 1Q13 Dec-15 2Q13 NTM P/E 1Y Median 5Y Median 3Q13 4Q13 Mar-16 1Q14 2Q14 Jun-16 3Q14 4Q14 Sep-16 1Q15 2Q15 3Q15 Dec-16 4Q15 1Q16 Mar-17 2Q16 3Q16 4Q Mar Jun Sep-15 Dec Mar Jun Sep Dec Mar M O R G A N S T A N L E Y R E S E A R C H HDS: Valuation and Performance Current NTM P/E 20% NTM P/E vs. Distributors Premium/Discount vs. sector median 1Y Median 5Y Median 17 10% % 14-10% % 11-30% % 8-50% Organic Growth vs. EE/MI (2011/16) Core Operating Margins vs. EE/MI (2008/16) 14% 12% 16% 14% Core Op.Margin EE/MI Median 10% 8% 12% 10% 8% 6% 6% 4% 4% 2% 2% 0% 0% -2% -2% Organic Growth EE/MI Median 200 Source: Company data, Morgan Stanley Research estimates.

201 Price Target (Feb-18) Historical Stock Performance Current Stock Price M O R G A N S T A N L E Y R E S E A R C H W.W. Grainger (GWW): Underweight, $233 Price Target $ $ $ (+22%) $ (-9%) $ (-40%) 0 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Price Target $233 Aligned with Base Case Bull $311 Base $ x Bull Case 2018e EPS of $16.42 (at 25% tax rate) 17.0x Base Case 2018e EPS of $13.44 (at 30% tax rate) WARNINGDONOTEDIT_RRS4RL~GWW.N~ Short-cycle rebound with moderating pricing pressure. We model core sales accelerating to +6% in 2017e/18e as recent investments leads to an acceleration in market share gains atop a recovery in short-cycle demand trends. We model 30bps total margin expansion over 2017/18e as pricing headwinds more than offset by volume leverage and productivity gains. We also adjust our EPS estimates for a 25% normalized tax rate (vs. 37% GAAP ETR), reflecting probable benefits from US tax reform.our 20.0x multiple assumes reversion to 1Y highs. Modest recovery in the short-cycle industrial market, with continued price deflation. We estimate +4% in 2017/18e, with 170bps of cumulative core operating margin contraction over 2016/18e on weak pricing and unfavorable mix, partially offset by productivity initiatives. We also adjust our EPS estimates for a 30% normalized tax rate (vs. 29% GAAP ETR), reflecting probable benefits from US tax reform. Our 17.0x multiple assumes compression from its current valuation to peer average, driven by structural headwinds from negative price/mix and increasing competition from e-tailers. Why Underweight? Market outgrowth likely not sustainable: While we see the potential for US IP to re-accelerate into 2017 once we move beyond inventory and O&G headwinds, there is a growing body of evidence that GWW can no longer outgrow the underlying MRO market. Margin headwinds are expected to persist: Pricing will likely remain under pressure with increasing price transparency as a result of e-commerce penetration. This, combined with negative mix shift towards lower margin customers and elevated investment spending, suggests risks to GWW's above average US margins (~2x a typical distributor margin). The company has already adopted a more aggressive capital allocation strategy, taking leverage to ~1.5x gross debt/ebitda by YE16 (vs. 0.3x at YE14) to accelerate share repurchases, but this is not enough to offset downside pressure from core operations in the near term. We find it hard to justify GWW's historical premium. While we are cognizant that we are at risk of throwing in the towel at the bottom with the stock now trading at a discount to its long-term average valuation, we see scope for continued multiple compression given near term growth and margin concerns, and a higher leverage. Potential Upside Catalysts Accelerating price deflation. Greater than anticipated competitive encroachment from pure-play e- tailers. Potential Downside Risks Sharper than expected recovery in short cycle industrial markets. Faster than expected pace of buybacks, which could drive near-term EPS accretion. A potential US corporate tax reform. Bear $ x Bear Case 2018e EPS of $10.86 (at 37% tax rate) Short-cycle pressure worsens. Assuming short cycle weakness exacerbated by rising competition from pure-play ecommerce players and other MRO distributors, we model -3% in We see margin contracting ~190bps over 2016/18e on continued pricing/mix pressure and volume deleverage. We bake in a 37% tax rate in our bear case scenario, in line with its current GAAP ETR. Our 15.0x target multiple assumes a reversion to cycle lows. Source: Morgan Stanley Research, Thomson Reuters. 201

202 Grainger: Key Financial Statistics Revenue breakdown by geography Revenue breakdown by end market Chairman: James Ryan CEO: D.G. Macpherson CFO: Ronald Jadin % of Seg Revenue Op. Profit End Markets Revenues Key products and services United States $7,827 $1,259 Heavy Manufacturing 18% 75% 97% Commercial 15% Government 13% Canada $734 ($56) Contractor 12% 7% -4% Light Manufacturing 11% Other 10% Natural Resources 6% Other Businesses $1,885 $93 Retail/Wholesale 6% 18% 7% Transportation 5% Reseller 4% Safety and Security - emergency preparedness, facility safety, fire protection, first aid, alarms, fire panels, door hardware, exit devices, access controls, locksets, metal detectors, padlocks, radios Material Handling - carts and trucks, casters, lifts, tarps, hoists and rigging, foodservice, drum and dock, conveyors. Cleaning and Maintenance - cleaning chemical, equipment, supplies, hand and personal hygiene, paper products, restroom equipment, work uniforms HVAC - AC and refrigeration, air filters, air treatment, blowers, dehumidifiers, fans, heating equipment, thermostats Lighting - ballasts, batteries, controls, fixtures, lamps, LED, track lighting Electrical - circuit breakers, fuses, tape, cords, relays, solenoids, starters, wires, timers, transformers Metalworking - abrasives, blades, chemicals, cutting tools, welding, work holders Tools - chainsaws, mixers, cranes, jacks, shop tools, shovels, tool storage, power tools Power Transmission - bearings, belts, brakes, chains, couplings, motors, pulleys, Source: Company data, Morgan Stanley Research. 202

203 W. W. Grainger Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 9,438 9,965 9,973 2,507 2,564 2,596 2,471 10,094 2,526 2,620 2,673 2,588 10,402 10,765 YoY total revenue growth 5.4% 5.6% 0.1% 2.7% 1.6% 2.5% -0.3% 1.2% 0.8% 2.2% 2.9% 4.7% 3.1% 3.5% YoY organic revenue growth 4.5% 5.8% 1.3% -1.7% -2.4% -0.4% 2.1% -1.0% 1.0% 3.1% 3.8% 4.3% 3.8% 4.2% Cost of sales 5,301 5,651 5,742 1,461 1,524 1,557 1,481 5,979 1,503 1,571 1,604 1,551 6,225 6,457 Gross Profit 4,136 4,314 4,231 1,045 1,040 1, ,115 1,023 1,048 1,069 1,037 4,177 4,308 Margin 43.8% 43.3% 42.4% 41.7% 40.6% 40.0% 40.1% 40.8% 40.5% 40.0% 40.0% 40.1% 40.2% 40.0% Selling & administrative expenses 2,840 2,967 2, , ,954 3,010 Reported Operating Income 1,297 1,347 1, , ,223 1,298 Margin 13.7% 13.5% 13.0% 12.7% 11.9% 12.4% 7.1% 11.1% 11.9% 11.9% 12.3% 10.9% 11.8% 12.1% Exceptional Items Core Operating Income 1,332 1,413 1, , ,243 1,298 Margin 14.1% 14.2% 13.5% 13.4% 12.6% 12.8% 11.1% 11.7% 12.1% 12.0% 12.5% 11.1% 11.9% 12.1% Depreciation & Amortization Core EBITDA 1,513 1,621 1, , ,494 1,556 Margin 16.0% 16.3% 15.8% 15.7% 14.8% 15.3% 14.0% 14.2% 14.5% 14.3% 14.9% 13.7% 14.4% 14.5% Yoy 8.8% 7.1% -2.8% -9.3% 4.6% 4.2% 0.0% -9.3% 0.0% 0.0% 0.0% 0.0% 4.6% 4.2% Other Income/(Expenses) 4 (3) (16) 1 (0) (1) (2) (3) (0) 0 (0) (0) (0) 1 Net Interest (13) (10) (33) (14) (17) (18) (18) (66) (18) (19) (19) (20) (76) (85) Income before Tax 1,288 1,334 1, , ,116 1,183 Taxes Effective Rate 37.3% 39.1% 37.2% 35.6% 36.6% 34.0% 53.3% 37.9% 36.5% 36.5% 36.5% 36.5% 36.5% 36.5% Continuing Income Adjustments Headline Income DWAC Headline EPS Yoy 10.1% 6.7% -2.7% 2.5% -11.4% 0.9% -1.6% -2.7% -9.6% 2.9% 4.0% 10.6% 1.3% 5.7% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 203

204 W. W. Grainger Segment Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E US 7,414 7,926 7,963 1,966 1,979 2,028 1,897 7,827 1,966 2,018 2,052 1,949 7,943 8,182 Canada 1,114 1, Other businesses 1,040 1,182 1, , ,142 2,302 Sales 9,438 9,965 9,973 2,507 2,564 2,596 2,471 10,094 2,526 2,620 2,673 2,588 10,402 10,765 US 7.0% 6.9% 0.5% -0.3% -2.6% -1.3% -2.8% -1.7% 0.0% 2.0% 1.2% 2.8% 1.5% 3.0% Canada 0.8% -10.2% -8.5% -23.8% -18.8% -15.9% -10.8% 2.8% -7.7% -5.8% 4.4% 7.0% -0.5% 5.0% Other businesses 3.3% 13.6% 18.9% 49.5% 48.7% 35.9% 11.3% 34.1% 11.3% 9.4% 13.0% 14.6% 13.6% 7.5% Sales YoY 5.4% 5.6% 0.1% 2.7% 1.6% 2.5% -0.3% 1.2% 0.8% 2.2% 2.9% 4.7% 3.1% 3.5% US 1,421 1,580 1, , ,419 1,457 Canada (5) (6) (6) (6) (23) (9) (10) (2) 4 (17) 12 Other businesses 27 (17) (31) EBITDA 1,477 1,555 1, , ,478 1,565 US 15.3% 11.2% -3.2% -8.5% -5.1% -4.3% -10.0% -7.8% -4.3% -6.2% -1.4% 13.1% -0.5% 2.7% Canada 1.1% -31.0% -43.6% % % % % -11.5% 84.7% 74.3% -68.8% % -26.4% % Other businesses -30.7% % % 84.4% 72.3% 54.9% % 50.6% 14.7% 22.2% 32.7% % 140.8% 11.1% EBITDA YoY 6.3% 5.3% -1.5% -6.7% -7.4% -2.1% -23.0% -9.1% -4.1% -2.5% 1.1% 42.8% 6.1% 5.9% US 1,304 1,444 1, , ,263 1,299 Canada (12) (28) (15) (10) (56) (13) (13) (6) 0 (31) (8) Other businesses 8 (38) (36) Operating Income 1,297 1,347 1, , ,223 1,298 US 15.1% 10.7% -4.6% -9.4% -5.6% -4.7% -11.3% -8.6% -5.1% -7.2% -1.8% 14.7% 0.3% 2.8% Canada 1.1% -32.0% -68.8% % % % % % 2.2% -52.8% -63.5% % -44.0% -74.9% Other businesses -62.6% % % 128.7% 96.1% 74.2% % -15.3% 13.4% 22.5% 35.2% % 200.1% 13.2% Segment Income YoY 14.7% 3.9% -3.5% -9.7% -14.3% -5.3% -30.8% -13.9% -4.9% 1.7% 1.7% 62.4% 9.3% 6.1% US 17.6% 18.2% 17.3% 16.9% 17.6% 16.9% 13.3% 16.1% 16.0% 16.0% 16.4% 14.8% 15.9% 15.9% Canada 11.6% 8.4% 7.3% -6.9% -14.3% -8.4% -5.6% 9.9% -7.7% -7.2% -2.9% 0.1% 7.0% 8.1% Other businesses 0.7% -3.2% 3.4% 4.9% 6.3% 5.2% -7.4% 2.2% 5.0% 7.0% 6.2% 4.9% 5.7% 6.0% Segment Margin 13.7% 13.5% 13.0% 12.7% 11.9% 12.4% 7.1% 11.1% 11.9% 11.9% 12.3% 10.9% 11.8% 12.1% Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 204

205 W. W. Grainger Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Net Income Depreciation & Amortization Working Capital (68) (199) (15) (43) (4) (117) (14) 9 71 (50) (83) Other (46) (54) (34) Operating Cash Flow , , Capex (272) (387) (374) (52) (54) (108) (71) (284) (66) (66) (66) (70) (269) (258) Free Cash Flow FCF Margin 7.9% 6.0% 6.5% 4.6% 5.8% 9.3% 10.9% 7.7% 2.1% 4.8% 8.1% 11.4% 6.6% 6.7% Acquisitions (154) (31) (463) Disposals Other (0) 7 (12) (7) (4) (9) (13) (33) Cash Flow Pre Financing Equity issuance Stock repurchase (438) (525) (1,420) (172) (241) (201) (177) (790) (159) (162) (164) (166) (651) (387) Dividends (255) (291) (308) (73) (75) (74) (82) (303) (81) (85) (84) (83) (333) (343) Other Movement on Net Debt 0 (146) (1,441) (114) (143) (37) 19 (274) (166) (102) (9) 66 (211) 78 Cash Gross Debt ,989 2,092 2,271 2,278 2,247 2,247 2,447 2,447 2,497 2,497 2,497 2,497 Net Debt ,699 1,812 1,955 1,992 1,973 1,973 2,139 2,241 2,250 2,184 2,184 2,106 Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 205

206 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 M O R G A N S T A N L E Y R E S E A R C H GWW: Valuation and Performance NTM P/E NTM P/E 1Y Median 5Y Median NTM P/E Premium/(Discount) vs. EE/MI Median 30% 25% 20% 15% 10% 5% Premium/Discount vs. sector median 1Y Median 5Y Median % -5% -10% 15 Organic Growth vs. EE/MI (2008/16) Core Operating Margins vs. EE/MI (2008/16) 15% 16% Core Op.Margin EE/MI Median 10% 5% 14% 12% 10% 0% 8% -5% 6% -10% -15% -20% Organic Growth EE/MI Median 4% 2% 0% -25% 206 Source: Company data, Morgan Stanley Research estimates.

207 Price Target (Feb-18) Historical Stock Performance Current Stock Price M O R G A N S T A N L E Y R E S E A R C H Wesco (WCC): Equal-weight, $78 Price Target Price Target $78 Aligned with Base Case Bull $98 Base $78 Bear $40 $ x Bull Case NTM EPS of $5.44 (at 25% tax rate) 17.0x Base Case NTM EPS of $4.57 (at 27% tax rate) 12.0x Bear Case NTM EPS of $3.37 (at 29% tax rate) $71.20 $98.00 (+38%) $78.00 (+10%) $40.00 (-44%) 0 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 WARNINGDONOTEDIT_RRS4RL~WCC.N~ Assuming a sharp recovery in the infrastructure and industrial verticals, WCC could see core growth accelerate to ~4% p.a. in 2017/18e vs. -4% in We model core OM expansion of 60bps over 2017/18e driven by volume leverage, restructuring savings and higher supplier volume rebates. Our bull case scenario also assumes a 25% normalized tax rate (vs. 29% GAAP ETR), reflecting probable benefits from US tax reform. We embed multiple expansion to 18.0x, assuming partial reversion to its 1Y highs. Assuming a mild construction recovery and modest re-acceleration in the NAm industrial market, we model 2% core growth in 2017e followed by 4% growth in 2018 on moderating O&G headwinds and a recovery in the construction market. We see flattish core margin trends over 2017/18, with volume deleverage partly offset by restructuring savings. We also adjust our EPS estimates for a 27% normalized tax rate (vs. 29% GAAP ETR), reflecting probable benefits from US tax reform. Our 17.0x target multiple assumes its current valuation is sustainable, but represents a discount to the EE/MI group, in line with its long-term average. Further O&G weakness and continued slowdown in the industrial market, we model a 2% organic decline in 2017 followed by flat growth in We model 30bps cumulative margins contraction vs driven by volume deleverage and further pricing pressure. We bake in a 29% tax rate in our bear case scenario, in line with its current GAAP ETR. Our 12.0x multiple implies partial reversion to WCC s 1Y minimum multiple as EPS expectations ratchet lower. Why Equal-weight? M&A-driven growth model. Management has a long track record for sourcing and executing on accretive acquisitions. However, leverage remains elevated (3.6x in 3Q16), thus limiting the potential for a large deal in the near term. Operating leverage is key. WCC's core OM has continued to contract in 2016 on weaker volume trends. Despite mgmt's commentary on stable billing margins, we continues to see a challenging pricing environment into In absence of a volume recovery, it remains to be seen to what extent benefits from the company's global sourcing initiatives and restructuring savings will offset price/cost and incentive comps headwinds. Limited scope for re-rating in absence of market stabilization. The stock is trading at ~15x our 2016e, above its long-term average of ~13.5x. However, we have yet to see any signs of substantial improvement, and so the upside for further multiple re-rating is likely limited. Potential Upside Catalysts Signs of stability in short cycle industrial markets and visibility on the degree to which restructuring benefits can offset decremental margins. Acceleration in construction demand driven by a rebound in institutional and infrastructure verticals. Potential Downside Risks M&A execution risk as a result of higher valuations and increased competition for deals Continued margin erosion caused by negative mix, pricing pressure and / or increased investments. Large, dilutive acquisition. Source: Morgan Stanley Research, Thomson Reuters. 207

208 Wesco: Key Financial Statistics Revenue breakdown by geography Revenue breakdown by end market CEO: John Engel CFO: David S. Shulz % of Seg Revenue Op. Profit End Markets Revenus Key products and services Consolidated $7,336 $332 Industrial 42% Construction 31% Utility 14% Consumer / Institutional / Gov't 13% General Supplies - Consumables, lighting, janitorial supplies, maintenance, safety and security, fall protection, personal protection. Data & Broadband Communication - Fiber optics, cables, wireless networking, LAN and WAN equipment, racks and cabinets Wire, Cable & Conduit - copper and aluminum building wire, flexible cable, conduits, raceways, boxes and enclosures, termination, taping, splicing and marking equipment. Distribution Equipment - electro-static, drive isolation, mini power, buck-boost, harmonic mitigating industrial control transformers, power protection Lighting & Controls - Ballasts, fixtures, lamps Controls & Motors - adjustable freq drives, enclosed controls, instrumentation, relays, timers, proximity switches Source: Company data, Morgan Stanley Research. 208

209 Wesco Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 7,513 7,890 7,518 1,776 1,912 1,855 1,793 7,336 1,757 1,934 1,934 1,862 7,488 7,794 YoY total revenue growth 14.2% 5.0% -4.7% -2.2% -0.3% -3.6% -3.7% -2.4% -1.1% 1.2% 4.2% 3.9% 2.1% 4.1% YoY organic revenue growth 0.0% 5.6% -3.3% -6.7% -3.1% -6.2% -3.6% -4.9% -1.6% 0.7% 3.9% 3.9% 1.7% 4.1% Cost of sales 5,968 6,279 6,025 1,421 1,532 1,490 1,445 5,888 1,412 1,550 1,550 1,500 6,012 6,232 Gross Profit 1,546 1,611 1, , ,476 1,561 Margin 20.6% 20.4% 19.9% 20.0% 19.9% 19.7% 19.4% 19.7% 19.7% 19.8% 19.9% 19.4% 19.7% 20.0% Selling & administrative expense 997 1,077 1, , ,067 1,110 Reported Operating Income Margin 6.4% 5.9% 5.0% 3.9% 4.6% 5.0% 4.6% 4.5% 3.8% 4.6% 5.2% 4.6% 4.6% 4.9% Exceptional Items (36) Core Operating Income Margin 5.9% 5.9% 5.0% 3.9% 4.6% 5.0% 4.6% 4.5% 3.8% 4.6% 5.2% 4.6% 4.6% 4.9% Depreciation & Amortization Core EBITDA Margin 6.8% 6.8% 5.8% 4.8% 5.5% 5.9% 5.5% 5.4% 4.7% 5.5% 6.1% 5.5% 5.5% 5.8% Yoy 25.5% 4.2% -17.9% -9.0% 376.4% 329.5% 344.3% -9.0% 0.0% 0.0% 0.0% 0.0% 376.4% 329.5% Other Income/(Expenses) (16) (124) - (124) Net Interest (86) (82) (70) (19) (20) (21) (18) (77) (18) (18) (18) (18) (71) (71) Income before Tax (52) Taxes (21) Effective Rate 27.2% 28.3% 31.4% 32.0% 27.2% 40.5% 26.0% 23.2% 30.0% 30.0% 30.0% 30.0% 30.0% 29.0% Continuing Income (32) Adjustments (12) Headline Income DWAC Headline EPS Yoy 12.5% 3.3% -19.0% -14.6% 2.6% -17.8% -6.0% -9.1% -9.1% -1.6% 12.1% 0.9% 1.1% 16.0% GAAP EPS - Diluted (0.65) Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 209

210 Wesco Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Net Income (32) Depreciation & Amortization Working Capital (2) (108) (13) (4) (37) (1) (58) (19) (11) Other (27) (36) (34) 19 (307) (263) (35) Operating Cash Flow (25) Capex (28) (21) (22) (4) (4) (6) (5) (18) (5) (5) (5) (5) (22) (22) Free Cash Flow (30) FCF Margin 3.8% 2.9% 3.5% 4.2% 3.0% 3.9% 4.4% 3.9% 6.2% -1.6% 3.6% 7.0% 3.7% 2.9% Acquisitions - (139) (152) (50) (1) 0 (0) (51) (0) Disposals Other (8) (2) Cash Flow Pre Financing (30) Equity issuance Stock repurchase - - (154) - - (2) - (2) (7) (7) (7) (7) (29) (17) Dividends Other (12) (30) (12) 31 (8) (172) (13) (162) Movement on Net Debt (54) (98) (37) Cash Gross Debt 1,488 1,416 1,501 1,441 1,405 1,455 1,385 1,385 1,385 1,385 1,385 1,385 1,385 1,385 Net Debt 1,364 1,287 1,341 1,293 1,245 1,343 1,275 1,275 1,173 1,211 1,148 1,025 1, Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 210

211 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 M O R G A N S T A N L E Y R E S E A R C H WCC: Valuation and Performance NTM P/E NTM P/E Premium/(Discount) vs. EE/MI Median 20 NTM P/E 1Y Median 5Y Median 0% Premium/Discount vs. sector median 1Y Median 5Y Median -5% 18-10% 16-15% -20% 14-25% 12-30% 10-35% -40% 8 20% 10% Organic Growth vs. EE/MI (2008/16) Core Operating Margins vs. EE/MI (2008/16) 16% 14% 12% Core Op.Margin EE/MI Median 10% 0% 8% 6% -10% 4% 2% -20% Organic Growth 0% EE/MI Median -30% 211 Source: Company data, Morgan Stanley Research estimates.

212 Watsco (WSO): Underweight, $152 Price Target Price Target $152 Aligned with Base Case Bull $ x $7.59 Acceleration in residential markets driven by a perfect storm of pent up demand, favorable mix and a strong US market. We assume mid to highsingle digit organic growth in e We model 22% incremental margins across that period, which is consistent with peak levels seen during the prior up-cycle, and assumes productivity gains atop volume leverage. Our 25.5x multiple assumes peak-ish levels (~95th percentile) are sustainable through a robust growth cycle. We apply a tax adjustment (25% vs. 31%) based on expert commentary. Why Underweight? We are not bearish US HVAC markets but volumes have returned to prior peak levels and we see scope for lumpier and slower growth in a rising rate environment Operating margins have been adversely impacted by IT-related investment spending and while this likely continues we see scope for OM expansion through 2018, albeit somewhat limited by the low operating leverage nature of the distributor business model WSO should be a beneficiary of US tax reform, although we believe the market is over-estimating potential benefits given WSO's relatively low tax rate vs. US exposure. It is also not clear to what extent WSO could be impacted by proposed border adjustments given HVAC leverage to Mexico production. We believe the risk/reward on WSO's multiple is negative and likely comes under pressure as the premium for consumer-centric safety dissipates in a more risk-on environment. Potential Upside Catalysts WSO's earnings performance has been more volatile over the past several quarters and we see outlook for continued volatility as the residential HVAC market growth rates begin to normalize. This could pressures both earnings estimates and the multiple. Rising rate environment means more focus on DCF. We view WSO as one of the most over-valued stocks on DCF. Base $ x $6.91 Leverage to a strong residential replacement cycle supports mid-single digit growth through 2018.We see a modest acceleration to 5% growth in 2017 and mid-single-digit growth thereafter. We model ~20% incremental margins as we believe both gross margin and SG&A leverage is likely, but still need visibility on investment payback sustainable. Our base case target assumes a ~22.0x multiple, representing compression vs. current levels. We apply a tax adjustment (25% vs. 31%) based on expert commentary. Potential Downside Risks Macro conditions remain challenging and hence the market continues to place a premium on WSO's consumer-centric business model. WSO has ample balance sheet reserves and so could engage in accretive acquisitions in keeping with the company's stated strategy within what is a relatively fragmented industry. WSO also has a history of returning surplus capital via special dividends. Bear $ x $4.34 A general slowdown in US economic activity weighs on strength of the residential replacement cycle. We assume growth dissipates in 2017 and turns negative thereafter. We expect slight margin pressure as volume deleverage, investment spend and a slight shift toward repair vs. replace is only partly offset by higher-margin equipment sales and productivity. Our 17.0x multiple assumes valuation reverts to the 25th percentile. We apply a tax adjustment (25% vs. 31%) based on expert commentary. Source: Morgan Stanley Research, Thomson Reuters. 212

213 Watsco: Key Financial Statistics Revenue breakdown by geography Canada 8% Revenue breakdown by end market HVAC/R (Non- Residential) 15% United States 85% Latin America & Caribbean 7% HVAC/R (Residential) 80% Retail Refrigeration & Food Prep 5% Revenue breakdown by demand type Revenue breakdown by product type Commercial 20% Parts & Supplies 29% Refrigeration 5% New Housing 13% Replacement 67% Other HVAC equipment 14% Split Systems & Furnaces 52% Source: Company data, Morgan Stanley Research. 213

214 Watsco Income Statement Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Sales 3,743 3,945 4, ,214 1, , ,296 1, ,437 4,630 YoY total revenue growth 9.1% 5.4% 4.3% 5.2% -0.7% 5.5% 1.1% 2.6% 4.7% 6.7% 4.2% 4.7% 5.1% 4.3% YoY organic revenue growth 6.6% 5.4% 4.3% 5.2% -0.7% 5.5% 1.1% 2.6% 4.7% 6.7% 4.2% 4.7% 5.1% 4.3% Cost of sales 2,844 2,988 3, , ,331 3,461 Gross Profit , , ,106 1,169 Margin 24.0% 24.2% 24.5% 25.0% 24.0% 24.3% 25.0% 24.5% 25.6% 24.7% 24.5% 25.2% 24.9% 25.2% Selling & administrative expense Reported Operating Income Margin 7.2% 7.8% 8.2% 6.0% 9.7% 9.6% 6.4% 8.2% 6.8% 10.6% 9.9% 6.9% 8.8% 9.4% Exceptional Items Core Operating Income Margin 7.2% 7.8% 8.2% 6.0% 9.7% 9.6% 6.4% 8.2% 6.8% 10.6% 9.9% 6.9% 8.8% 9.4% Depreciation & Amortization Core EBITDA Margin 7.7% 8.2% 8.7% 6.5% 10.2% 10.3% 6.4% 8.7% 7.2% 11.1% 10.4% 7.4% 9.3% 9.8% Yoy 20.0% 12.0% 9.9% 2.8% 12.9% 10.2% 5.2% 2.8% 0.0% 0.0% 0.0% 0.0% 12.9% 10.2% Other Income/(Expenses) Net Interest (6) (5) (6) (1) (1) (1) (1) (4) (1) (1) (1) (1) (3) (3) Income before Tax Taxes Effective Rate 29.3% 30.6% 31.6% 31.2% 30.1% 31.9% 30.5% 31.0% 31.0% 31.0% 31.0% 31.0% 31.0% 31.0% Continuing Income Adjustments Headline Income DWAC Headline EPS Yoy 21.6% 18.2% 13.5% 10.4% -1.6% 8.3% 11.1% 4.2% 25.6% 14.0% 9.1% 18.5% 16.2% 10.3% GAAP EPS - Diluted Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 214

215 Watsco Cash Flow Estimates YE 31 December ($m) Q16 2Q16 3Q16 4Q Q17E 2Q17E 3Q17E 4Q17E 2017E 2018E Net Income Depreciation & Amortization Working Capital (75) (95) (43) (3) (92) (50) (109) (35) (24) Other (1) Operating Cash Flow (5) Capex (14) (19) (22) (3) (2) (3) (35) (43) (6) (6) (6) (6) (22) (24) Free Cash Flow (2) (4) (11) FCF Margin 3.6% 3.2% 4.8% 4.6% -0.2% 8.1% 10.6% 5.6% -0.5% -0.8% 10.3% 12.9% 5.4% 6.0% Purchase of businesses Sale of businesses Net ST investments Other Cash Flow Pre Financing (2) (4) (11) Equity issuance Stock repurchase Dividends (40) (70) (99) (30) (30) (30) (37) (128) (41) (41) (41) (48) (171) (190) Other (69) (131) (40) (7) 0 (19) (56) (82) (8) (19) (18) (9) (54) (60) Movement on Net Debt 32 (68) 69 5 (33) (53) (70) Cash Gross Debt Net Debt Source: Company Information, Morgan Stanley Research; E = Morgan Stanley Research estimates 215

216 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 M O R G A N S T A N L E Y R E S E A R C H Watsco: Valuation and Performance NTM P/E NTM P/E 1Y Median 5Y Median NTM P/E Premium/(Discount) vs. EE/MI Median 70% 65% 60% 55% 50% 45% 40% 35% Premium/Discount vs. sector median 1Y Median 5Y Median 20 30% 18 25% 20% 16 Organic Growth vs. EE/MI (2008/16) Core Operating Margins vs. EE/MI (2008/16) 15% 16% Core Op.Margin EE/MI Median 10% 5% 14% 12% 10% 0% 8% -5% -10% 6% 4% 2% -15% 0% -20% -25% Organic Growth EE/MI Median Source: Morgan Stanley Research, Company Data, Thomson Reuters 216

217 KEY PERFORMANCE INDICATORS 217

218 Key Performance Indicators Sales Total Revenue M 24,462 25,269 23,123 26,662 29,611 29,904 30,871 31,821 30,273 30,109 Ametek 2,137 2,531 2,098 2,471 2,990 3,334 3,594 4,022 3,974 3,840 Dover 7,317 7,569 5,776 7,133 7,950 6,981 7,516 7,753 6,956 6,794 Eaton Corporation 13,033 15,376 11,873 13,715 16,049 16,311 22,046 22,552 20,855 19,747 Emerson Electric 22,714 24,702 20,328 21,746 23,996 24,656 24,722 24,518 21,430 18,735 SPX Flow ,788 2,197 2,846 2,805 2,770 2,389 1,996 Fortive Corp ,785 5,962 6,337 6,179 6,214 General Electric 99, , ,457 84,022 95, , , , , ,157 Honeywell 34,589 36,556 30,908 33,370 36,529 37,665 39,055 40,306 38,581 39,302 Hubbell 2,534 2,704 2,356 2,541 2,872 3,044 3,184 3,359 3,390 3,505 Illinois Tool Works 16,110 17,100 13,892 15,848 17,787 14,791 14,135 14,484 13,405 13,599 Ingersoll Rand 8,763 13,227 13,195 14,081 14,835 11,988 12,351 12,891 13,301 13,509 Johnson Controls, Inc. 35,898 35,914 29,569 35,434 41,713 41,960 40,798 38,876 34,621 29,589 Lennox 3,746 3,462 2,848 3,096 3,222 2,949 3,199 3,367 3,467 3,642 Pentair 3,281 3,352 2,692 3,031 3,457 6,716 7,000 7,039 4,616 4,890 Regal 1,802 2,246 1,826 2,238 2,808 3,167 3,096 3,257 3,510 3,225 Rockwell Automation 5,190 5,555 4,211 5,155 6,109 6,275 6,454 6,606 6,160 5,943 Stanley Black & Decker 4,361 4,426 3,737 8,410 9,436 10,173 10,893 11,339 11,172 11,407 United Technologies 54,759 59,757 52,425 54,326 55,754 57,708 62,626 65,100 56,040 57,244 Total Revenue 340, , , , , , , , , ,446 Grainger 6,418 6,850 6,222 7,182 8,078 8,950 9,438 9,965 9,973 10,094 Fastenal 2,062 2,340 1,930 2,269 2,767 3,134 3,326 3,734 3,869 3,962 HD Supply 9,741 8,198 6,313 6,449 7,028 7,943 6,387 6,970 7,123 7,423 WESCO 6,003 6,111 4,624 5,064 6,126 6,579 7,513 7,890 7,518 7,336 Wastco 1,758 1,700 2,002 2,845 2,978 3,432 3,743 3,945 4,113 4,257 Source: Company data, Morgan Stanley Research estimates. *Emerson, Rockwell and Tyco are on calendar year basis; GE excludes GE Capital. Excludes FLOW and WSO as we have not published our post-quarter estimates. 218

219 Key Performance Indicators Organic Growth Organic Growth M 4.9% -1.9% -7.7% 13.5% 4.7% 2.6% 3.4% 4.9% 1.3% -0.1% Ametek 7.0% 4.0% -21.0% 13.0% 11.0% 1.0% 1.7% 3.1% -1.5% -6.7% Dover 2.3% 1.2% -23.7% 20.2% 11.9% 6.4% 1.9% 4.0% -9.7% -5.6% Eaton Corporation 1.0% 3.0% -22.0% 14.0% 13.0% -0.4% 0.1% 4.1% -1.9% -4.1% Emerson Electric 6.0% 5.0% -15.6% 5.9% 7.3% 3.9% 0.9% 3.5% -8.6% -4.6% SPX Flow -4.1% 15.1% 5.1% -1.4% -1.1% -6.0% -14.3% Fortive Corp 0.0% 0.0% 0.0% 0.0% 0.0% -0.5% -0.2% 4.3% 2.5% 1.1% General Electric 9.8% 11.2% -4.5% -3.8% 6.3% 6.6% 0.0% 7.0% 3.3% -2.0% Honeywell 7.3% 1.7% -14.5% 7.0% 8.2% 2.6% 2.1% 3.2% 1.4% -1.6% Hubbell 3.0% 2.7% -19.9% 0.9% 12.0% 5.0% 1.3% 2.3% 0.0% 0.7% Illinois Tool Works 1.9% -2.7% -18.2% 10.1% 7.6% 1.7% 0.1% 2.6% -0.4% 1.2% Ingersoll Rand 6.1% -2.1% -14.7% 6.8% 6.2% 1.9% 2.9% 5.2% 4.8% 2.7% Johnson Controls, Inc. 4.4% -3.0% -13.8% 20.2% 10.2% 2.0% -0.5% 2.8% 2.7% 2.1% Lennox -1.2% -8.0% -16.0% 7.0% -1.5% 4.1% 8.9% 6.2% 6.8% 5.5% Pentair 6.1% 0.7% -18.5% 12.6% 5.0% 0.0% 8.7% 1.9% 1.1% -1.4% Regal 3.3% 2.2% -21.0% 15.6% 2.4% -5.7% -2.4% 1.6% -6.0% -8.1% Rockwell Automation 6.9% 3.4% -21.0% 21.4% 15.4% 5.0% 3.2% 3.9% 0.0% -2.0% Stanley Black & Decker 2.0% -3.0% -18.0% 4.9% 4.0% 2.0% 2.1% 4.5% 5.3% 4.4% United Technologies 9.0% 5.0% -7.0% 2.0% 6.0% -0.5% 1.2% 4.2% 1.6% 2.0% Median 4.7% 1.4% -17.0% 7.0% 7.3% 2.0% 1.3% 3.9% 1.1% -1.4% Average 4.4% 1.1% -15.4% 8.8% 7.6% 2.3% 1.8% 3.6% -0.2% -1.6% Grainger 5.7% 5.0% -9.0% 9.0% 10.0% 9.0% 4.5% 5.8% 1.3% -1.0% Fastenal 14.0% 13.5% -17.5% 16.9% 21.2% 13.4% 6.3% 12.7% 4.8% 2.2% HD Supply 0.0% -11.2% -21.6% 2.2% 8.6% 11.5% 8.1% 9.4% 6.2% 4.2% WESCO 1.6% 3.5% -23.4% 7.8% 13.8% 4.4% 0.0% 5.6% -3.3% -4.9% Wastco -7.6% -10.0% -17.0% 11.0% -1.0% 4.0% 6.6% 5.4% 4.3% 3.5% Source: Company data, Morgan Stanley Research estimates. *Emerson, Rockwell and Tyco are on calendar year basis; GE excludes GE Capital. Excludes FLOW and WSO as we have not published our post-quarter estimates. 219

220 Key Performance Indicators Core Operating Income Core Op. Income M 5,430 5,528 5,023 5,918 6,178 6,483 6,666 7,135 6,818 7,167 Ametek Dover 998 1, ,035 1,208 1,118 1,219 1, Eaton Corporation 1,225 1, ,211 1,647 1,732 2,310 2,603 2,389 2,257 Emerson Electric 3,610 4,059 3,098 3,627 4,078 4,444 4,283 4,526 3,652 3,295 SPX Flow Fortive Corp ,128 1,143 1,245 1,231 1,265 General Electric 11,712 13,290 12,176 12,471 10,040 10,909 10,634 12,868 13,524 6,851 Honeywell 3,724 3,529 3,194 3,605 4,376 5,113 5,552 6,080 6,895 6,969 Hubbell Illinois Tool Works 2,627 2,503 1,506 2,319 2,731 2,573 2,628 2,988 2,929 3,124 Ingersoll Rand 1,058 1, ,323 1,482 1,108 1,188 1,417 1,517 1,609 Johnson Controls, Inc. 1,881 1, ,775 2,108 2,183 2,256 2,664 2,855 3,152 Lennox Pentair , Regal Rockwell Automation ,055 1,153 1,264 1,214 1,105 Stanley Black & Decker ,318 1,207 1,346 1,368 1,540 1,586 1,643 United Technologies 7,082 7,803 7,071 7,800 8,049 8,093 9,467 10,352 9,168 9,012 Total Core Op. Income 42,428 45,363 37,365 44,882 46,231 50,003 52,922 59,336 57,934 51,411 Grainger ,071 1,231 1,332 1,413 1,347 1,179 Fastenal HD Supply (44) WESCO Wastco Source: Company data, Morgan Stanley Research estimates. *Emerson, Rockwell and Tyco are on calendar year basis; GE excludes GE Capital. Excludes FLOW and WSO as we have not published our post-quarter estimates. 220

221 Key Performance Indicators Core Operating Margin Core Op. Margin M 22.2% 21.9% 21.7% 22.2% 20.9% 21.7% 21.6% 22.4% 22.5% 23.8% Ametek 18.1% 18.7% 17.4% 19.5% 21.3% 22.4% 22.7% 22.8% 23.7% 21.9% Dover 13.6% 13.8% 10.2% 14.5% 15.2% 16.0% 16.2% 16.2% 14.0% 12.8% Eaton Corporation 9.4% 8.9% 6.0% 8.8% 10.3% 10.6% 10.5% 11.5% 11.5% 11.4% Emerson Electric 15.9% 16.4% 15.2% 16.7% 17.0% 18.0% 17.3% 18.5% 17.0% 17.6% SPX Flow 8.7% 8.5% 7.5% 8.3% 10.1% 8.8% 6.9% Fortive Corp 19.5% 19.2% 19.7% 19.9% 20.4% General Electric 11.7% 11.9% 11.8% 14.8% 10.5% 10.8% 10.5% 12.0% 12.7% 6.1% Honeywell 10.8% 9.7% 10.3% 10.8% 12.0% 13.6% 14.2% 15.1% 17.9% 17.7% Hubbell 12.0% 12.9% 12.8% 14.5% 14.8% 15.5% 15.9% 15.8% 15.1% 14.6% Illinois Tool Works 16.3% 14.6% 10.8% 14.6% 15.4% 17.4% 18.6% 20.6% 21.9% 23.0% Ingersoll Rand 12.1% 10.6% 7.2% 9.4% 10.0% 9.2% 9.6% 11.0% 11.4% 11.9% Johnson Controls, Inc. 5.2% 4.5% 3.0% 5.0% 5.0% 5.2% 5.5% 6.8% 8.3% 10.6% Lennox 7.8% 7.4% 5.5% 6.7% 5.9% 7.4% 9.4% 10.1% 10.8% 12.4% Pentair 12.0% 11.3% 9.2% 11.0% 11.3% 11.1% 13.7% 15.1% 16.3% 17.1% Regal 11.5% 10.3% 8.7% 10.6% 10.8% 10.2% 9.6% 9.4% 10.9% 9.7% Rockwell Automation 17.0% 15.1% 8.5% 13.5% 16.3% 16.8% 17.9% 19.1% 19.7% 18.6% Stanley Black & Decker 14.1% 14.0% 12.8% 15.7% 12.8% 13.2% 12.6% 13.6% 14.2% 14.4% United Technologies 12.9% 13.1% 13.5% 14.4% 14.4% 14.0% 15.1% 15.9% 16.4% 15.7% Median 12.1% 12.9% 10.3% 13.9% 12.4% 13.6% 14.2% 15.1% 15.1% 14.6% Average 13.1% 12.6% 10.9% 12.9% 12.9% 13.7% 14.1% 15.0% 15.4% 15.1% Grainger 10.4% 11.5% 11.0% 11.5% 13.3% 13.8% 14.1% 14.2% 13.5% 11.7% Fastenal 18.3% 19.2% 15.3% 18.9% 20.8% 21.5% 21.4% 21.1% 21.5% 20.1% HD Supply 2.8% 0.9% -0.7% 0.7% 2.2% 4.4% 7.2% 8.6% 10.7% 11.0% WESCO 6.6% 5.7% 3.4% 4.2% 5.4% 5.6% 5.9% 5.9% 5.0% 4.5% Wastco 6.3% 5.8% 4.0% 5.8% 6.7% 6.6% 7.2% 7.8% 8.2% 8.2% Source: Company data, Morgan Stanley Research estimates. *Emerson, Rockwell and Tyco are on calendar year basis; GE excludes GE Capital. Excludes FLOW and WSO as we have not published our post-quarter estimates. 221

222 Key Performance Indicators EPS EPS M Ametek Dover Eaton Corporation Emerson Electric SPX Flow Fortive Corp General Electric Honeywell Hubbell Illinois Tool Works Ingersoll Rand Johnson Controls, Inc Lennox Pentair Regal Rockwell Automation Stanley Black & Decker United Technologies Total EPS Grainger Fastenal HD Supply (1.71) (4.87) (4.50) (0.99) WESCO Wastco Source: Company data, Morgan Stanley Research estimates *Emerson, Rockwell and Tyco are on calendar year basis. Excludes FLOW and WSO as we have not published our post-quarter estimates. 222

223 Key Performance Indicators EPS Y/Y Growth EPS Y/Y Growth M 11.1% 3.7% -9.3% 22.6% 3.7% 6.1% 6.3% 11.4% 1.3% 7.6% Ametek 24.2% 23.6% -27.2% 38.7% 34.4% 19.0% 11.7% 15.3% 5.3% -9.4% Dover 17.7% 14.4% -46.7% 74.4% 22.7% -14.8% 19.4% 3.3% -18.9% -10.7% Eaton Corporation 10.2% 2.3% -61.8% 116.4% 40.9% -0.6% 4.8% 13.2% -8.0% -1.6% Emerson Electric 19.3% 10.9% -27.2% 20.5% 17.3% 11.8% 2.1% 7.9% -22.6% -0.3% SPX Flow -34.0% 119.7% 13.8% -0.3% -16.3% -47.0% Fortive Corp na 14.5% -4.3% -1.6% 5.6% General Electric 18.2% -20.7% -42.8% 17.0% 20.2% 10.4% 7.8% 0.8% -20.9% 13.6% Honeywell 25.5% 19.0% -28.1% 11.0% 34.9% 10.9% 11.0% 11.8% 9.6% 8.3% Hubbell 21.6% 15.2% -17.8% 15.8% 18.2% 13.0% 9.4% 0.2% -7.5% 3.3% Illinois Tool Works 11.4% -1.3% -43.2% 62.1% 25.2% -10.4% 8.4% 28.7% 9.8% 9.9% Ingersoll Rand 29.3% -8.4% -50.6% 55.5% 26.4% -10.4% 4.4% 26.9% 11.8% 10.7% Johnson Controls, Inc. 19.2% -54.1% -29.1% 223.4% -7.3% -8.1% 28.1% 0.2% -1.4% -28.1% Lennox 14.8% 8.4% -34.8% 35.4% -8.5% 22.9% 37.3% 18.2% 17.5% 35.1% Pentair 21.5% 5.1% -33.0% 35.9% 20.7% -1.8% 28.8% 23.6% -24.8% 7.7% Regal 6.5% 10.8% -32.0% 45.9% 22.9% 0.4% -7.9% -1.7% 24.3% -16.7% Rockwell Automation 36.6% -2.7% -63.8% 152.1% 42.7% 2.9% 14.2% 6.4% -1.5% -0.7% Stanley Black & Decker 11.4% -12.4% -27.2% 57.7% 17.5% 0.4% 7.2% 15.1% 4.6% 9.9% United Technologies 15.1% 14.8% -16.0% 15.0% 12.2% 0.4% 16.4% 9.7% -7.0% 4.2% Median 18.2% 5.1% -32.0% 38.7% 20.4% 1.7% 11.0% 9.7% -1.5% 4.2% Average 18.4% 1.7% -34.7% 58.8% 17.2% 9.5% 12.5% 9.8% -2.4% 0.1% Grainger 21.0% 23.5% -12.1% 26.7% 33.1% 15.3% 10.1% 6.7% -2.7% -2.7% Fastenal 17.3% 21.6% -33.9% 44.8% 34.4% 17.0% 6.5% 10.3% 6.4% -2.3% HD Supply 0.0% 0.0% % 185.1% -7.7% -78.0% % % 94.7% 50.2% WESCO 12.9% 1.6% -59.5% 31.1% 57.1% 12.0% 12.5% 3.3% -19.0% -9.5% Wastco -18.3% -13.1% -33.0% 77.2% 10.4% 10.2% 21.6% 17.6% 13.0% 4.2% Source: Company data, Morgan Stanley Research estimates *Emerson, Rockwell and Tyco are on calendar year basis. Excludes FLOW and WSO as we have not published our post-quarter estimates. 223

224 Key Performance Indicators Free Cash Flow FCF M 2,853 3,062 4,038 4,083 3,905 3,816 4,152 5,133 4,959 5,242 Ametek Dover Eaton Corporation , ,071 1,671 1,246 1,865 2,055 Emerson Electric 2,422 2,473 2,966 2,410 2,550 2,623 2,987 2,834 1,973 2,051 SPX Flow (72) Fortive Corp ,007 General Electric 9,611 13,739 14,152 12,328 9,100 7,340 4,590 8,201 8,258 6,194 Honeywell 3,242 2,960 3,368 3,566 2,041 2,638 3,403 3,948 4,397 4,424 Hubbell Illinois Tool Works 2,153 1,883 1,928 1,219 1,640 1,720 2,198 1,283 2,045 2,040 Ingersoll Rand , ,318 Johnson Controls, Inc. 1, ,486 (91) (636) , (1,380) Lennox Pentair (51) Regal Rockwell Automation , Stanley Black & Decker ,138 United Technologies 4,177 4,945 4,527 5,041 5,531 5,216 5,816 5,624 4,817 4,713 Total 29,766 33,120 38,202 32,646 28,768 30,115 31,924 36,427 35,237 32,686 Grainger Fastenal HD Supply (280) (796) (498) WESCO Wastco Source: Company data, Morgan Stanley Research estimates. *Emerson, Rockwell and Tyco are on calendar year basis; GE excludes GE Capital. Excludes FLOW and WSO as we have not published our post-quarter estimates. 224

225 Key Performance Indicators Free Cash Flow Margin FCF Margin M 11.7% 12.1% 17.5% 15.3% 13.2% 12.8% 13.4% 16.1% 16.4% 17.4% Ametek 11.3% 8.0% 15.8% 15.5% 15.3% 16.6% 16.6% 16.3% 15.2% 18.4% Dover 10.0% 11.0% 11.8% 10.8% 9.9% 13.8% 11.4% 10.3% 11.4% 10.3% Eaton Corporation 6.2% 6.5% 10.2% 6.5% 4.2% 6.6% 7.6% 5.5% 8.9% 10.4% Emerson Electric 10.7% 10.0% 14.6% 11.1% 10.6% 10.6% 12.1% 11.6% 9.2% 10.9% SPX Flow 4.4% 8.6% 9.5% 6.6% -3.6% Fortive Corp. 15.1% 15.9% 13.3% 14.4% 16.2% General Electric 9.6% 12.3% 13.7% 14.7% 9.6% 7.3% 4.5% 7.6% 7.8% 5.5% Honeywell 9.4% 8.1% 10.9% 10.7% 5.6% 7.0% 8.7% 9.8% 11.4% 11.3% Hubbell 11.0% 10.0% 15.6% 8.6% 9.7% 9.9% 10.1% 9.9% 7.5% 9.4% Illinois Tool Works 13.4% 11.0% 13.9% 7.7% 9.2% 11.6% 15.6% 8.9% 15.3% 15.0% Ingersoll Rand 8.1% 0.2% 11.6% 3.7% 6.4% 7.7% 5.1% 5.7% 4.5% 9.8% Johnson Controls, Inc. 3.2% 1.5% 5.0% -0.3% -1.5% 0.1% 2.4% 3.6% 1.7% -4.7% Lennox 4.5% 3.5% 5.9% 4.5% 1.0% 5.8% 4.1% 2.9% 7.5% 7.4% Pentair 8.5% 4.5% 7.6% 7.0% 7.1% -0.8% 10.8% 12.5% 13.1% 15.2% Regal 9.1% 4.5% 15.4% 5.8% 7.4% 8.2% 7.2% 6.5% 8.2% 11.6% Rockwell Automation 6.1% 7.1% 12.2% 5.5% 5.1% 15.1% 13.8% 14.4% 16.3% 14.0% Stanley Black & Decker 10.5% 9.5% 11.9% 6.6% 7.3% 5.7% 4.6% 8.7% 7.8% 10.0% United Technologies 7.6% 8.3% 8.6% 9.3% 9.9% 9.0% 9.3% 8.6% 8.6% 8.2% Median 9.4% 8.1% 11.9% 7.7% 7.4% 8.2% 9.3% 9.5% 8.9% 10.4% Average 8.9% 7.5% 11.9% 8.4% 7.7% 8.8% 9.6% 9.6% 10.1% 10.1% Grainger 4.2% 4.9% 9.5% 6.5% 6.8% 6.3% 7.6% 5.7% 6.4% 7.1% Fastenal 8.3% 7.0% 13.1% 7.4% 5.4% 8.2% 6.3% 8.3% 10.1% 8.2% HD Supply 5.3% 5.7% 0.2% 7.8% -4.0% -10.0% -7.8% 2.5% 4.7% 6.9% WESCO 4.1% 4.0% 6.0% 2.2% 2.2% 4.0% 3.8% 2.9% 3.5% 3.9% Wastco 5.8% 6.4% 4.1% 5.1% 1.6% 4.7% 3.6% 3.1% 4.8% 4.8% Source: Company data, Morgan Stanley Research estimates. *Emerson, Rockwell and Tyco are on calendar year basis; GE excludes GE Capital. Excludes FLOW and WSO as we have not published our post-quarter estimates. 225

226 DISCLOSURE SECTION 226

227 Morgan Stanley is acting as financial advisor to General Electric Company ("GE") in relation to its agreement with Baker Hughes Inc. ("Baker Hughes") to combine GE s oil and gas business and Baker Hughes as announced on October 31, The proposed transaction is subject to approval by Baker Hughes shareholders, regulatory approvals, and other customary closing condition. This report and the information provided herein is not intended to (i) provide voting advice, (ii) serve as an endorsement of the proposed transaction, or (iii) result in the procurement, withholding or revocation of a proxy or any other action by a security holder. Please refer to the notes at the end of this report. Morgan Stanley & Co. International plc ("Morgan Stanley") is acting as financial advisor to GE Capital EMEA Services Limited ( GE ) in relation to their receipt of a binding offer from an affiliate of Cerberus Capital Management, L.P. for the potential sale of its French consumer finance business, GE Money Bank, and its operations in the French Overseas Territories, as announced on June 23, The completion of the transaction is subject to customary conditions including regulatory and antitrust approvals. Morgan Stanley may receive fees for its financial services. Please refer to the notes at the end of this report. Morgan Stanley & Co. International plc ( Morgan Stanley ) is acting as financial advisor and providing financing services to Suez S.A. Environment ("Suez Environment") together with Caisse de Depot et placement du Quebec ( CDPQ ) for the proposed acquisition of GE Water & Process Technologies ( GE Water ) from General Electric Company as announced on 8th March The transaction is subject to regulatory and other customary closing conditions. Suez Environment has agreed to pay fees to Morgan Stanley for its financial services, including transaction fees and financing fees that are subject to the consummation of the transaction. Please refer to the notes at the end of the report. 227

228 DISCLOSURE SECTION 228

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Within the last 12 months, Morgan Stanley has received compensation for investment banking services from 3M Co., Fortive Corp, General Electric Co., Honeywell International, Illinois Tool Works, Lennox International, Siemens, SPX Flow, United Technologies Corp, W.W. Grainger Inc., WESCO International Inc.. In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from 3M Co., Ametek Inc., Dover, Eaton Corp PLC, Emerson Electric, Fastenal Co., Fortive Corp, General Electric Co., HD Supply Holdings Inc, Honeywell International, Hubbell Inc., Illinois Tool Works, Ingersoll Rand, Johnson Controls International, Lennox International, Pentair plc, Regal Beloit Corp, Rockwell Automation, Siemens, SPX Flow, Stanley Black & Decker, United Technologies Corp, W.W. Grainger Inc., Watsco Inc., WESCO International Inc.. Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from 3M Co., Dover, Eaton Corp PLC, General Electric Co., Honeywell International, Hubbell Inc., Illinois Tool Works, Johnson Controls International, Regal Beloit Corp, Siemens, Stanley Black & Decker, W.W. Grainger Inc., WESCO International Inc.. Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: 3M Co., Ametek Inc., Dover, Eaton Corp PLC, Emerson Electric, Fastenal Co., Fortive Corp, General Electric Co., HD Supply Holdings Inc, Honeywell International, Hubbell Inc., Illinois Tool Works, Ingersoll Rand, Johnson Controls International, Lennox International, Pentair plc, Regal Beloit Corp, Rockwell Automation, Siemens, SPX Flow, Stanley Black & Decker, United Technologies Corp, W.W. Grainger Inc., Watsco Inc., WESCO International Inc.. Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: 3M Co., Dover, Eaton Corp PLC, Emerson Electric, Fortive Corp, General Electric Co., Honeywell International, Hubbell Inc., Illinois Tool Works, Johnson Controls International, Lennox International, Regal Beloit Corp, Rockwell Automation, Siemens, Stanley Black & Decker, United Technologies Corp, W.W. Grainger Inc., WESCO International Inc. Morgan Stanley & Co. LLC makes a market in the securities of 3M Co., Ametek Inc., Dover, Eaton Corp PLC, Emerson Electric, Fastenal Co., General Electric Co., HD Supply Holdings Inc, Honeywell International, Hubbell Inc., Illinois Tool Works, Ingersoll Rand, Johnson Controls International, Lennox International, Pentair plc, Regal Beloit Corp, Rockwell Automation, SPX Flow, Stanley Black & Decker, United Technologies Corp, W.W. Grainger Inc., Watsco Inc., WESCO International Inc.. 229

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233 Disclosure Section (cont d) 233