MARKET DIGEST ARGUS IN THIS ISSUE:

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1 ARGUS Independent Equity Research Since DJIA: DJIA: 19, WEDNESDAY, NOVEMBER 1, 2017 OCTOBER 31, DJIA 23, UP Good Morning. This is the Market Digest for Wednesday, November 1, 2017, with analysis of the financial markets and comments on Amgen Inc., Dunkin Brands Group Inc., Flex Ltd., Nabors Industries Ltd., Ventas Inc., Vishay Intertechnology Inc., Comcast Corp., Genuine Parts Co. and Hershey Co. IN THIS ISSUE: * Change in Rating: Amgen Inc.: Downgrading to HOLD on slower sales growth (David Toung) * Growth Stock: Dunkin Brands Group Inc.: Reaffirming BUY with $68 target (John Staszak) * Growth Stock: Flex Ltd.: Revenue grows 4%, tops Street; raising target to $23 (Jim Kelleher) * Growth Stock: Nabors Industries Ltd.: Maintaining HOLD on challenging outlook (David Coleman) * Growth Stock: Ventas Inc.: Maintaining HOLD on supply and occupancy concerns (Jacob Kilstein) * Growth Stock: Vishay Intertechnology Inc.: Accelerating momentum; raising target to $28 (Jim Kelleher) * Value Stock: Comcast Corp.: Strong profit growth in 3Q (Joseph Bonner) * Value Stock: Genuine Parts Co.: Maintaining $100 price target (Chris Graja) * Value Stock: Hershey Co.: Maintaining BUY and $125 target (David Coleman) CONFERENCE CALL ANNOUNCEMENT: Argus Research will host a conference call for clients at 11 a.m. ET on Wednesday, November 1, The call is entitled Automotive: Charging into the Future. Argus Director of Research Jim Kelleher, CFA, will host the call, which will be in webinar format. Our fully pun-intended title reflects the reality of electric vehicle development, where upstart Tesla is racing to stay in front of multiplying competitors. Even as electric cars position for acceptance, a range of technology and automotive companies are racing to develop autonomous vehicles amid still-undefined standards. The next few years could represent the most monumental change in transportation since the introduction of internal combustion vehicles over a century ago. In line with our thematic approach to investment topics, Argus will draw on a range of analysts whose industries will be impacted by the future shape of the automotive industry. These include Senior Analyst Bill Selesky, who covers traditional (GM, F) automakers working to develop all-electric vehicles as well as non-traditional names such as Tesla. John Eade, whose industrial coverage companies participate in internal combustion drive train, will analyze how these companies must evolve to provide an all-electric drive train. Looking a little further out, Jim Kelleher, CFA, and Joe Bonner, CFA, will discuss how software, semiconductor, computing and telecommunications companies are developing the technologies to power and connect vehicles that are not only electric but also self-driving. Along the way, our analysts will discuss coverage companies that appear well-positioned in this transition. Please note that IMCA has accepted Argus Monthly Conference Call for one (1) hour of continuing education (CE) credit toward the CIMA/CIMC/CPWA certifications. The program also has been accepted by CFP Board for one (1) hour of CE credit. Please visit to register for this call. Once on the site, follow simple instructions to sign up for the call and receive a call-in number and passcode. If you have any problems registering, please contact us at clientservices@argusresearch.com or by calling (212) The call, as always, will be interactive with a question-and-answer period. We will be recording the call, and a rebroadcast will be available on the password-protected portion of our website. Slides related to the presentation will be posted on our website the day of the call and also will be available via the webcast itself. A R G U S R E S E A R C H C O M P A N Y 6 1 B R O A D W - A 1 Y - N E W Y O R K, N. Y ( ) LONDON SALES & MARKETING OFFICE TEL / FAX

2 MARKET REVIEW: Among our market indicators, we recently saw a pullback in our technical composite to the bullish/neutral line on a sharp drop in NYSE breadth, which was hurt by a decline in stocks above their 150-day moving average and NYSE advance/declines. However, CBOE trading measures stayed healthy, as an adverse move in volatility was more than offset by a positive move in net up/down volume. Our strategic composite held steady, with market internals benefiting from gains in Financials, Materials and Industrials, as well as weakness in Staples and Healthcare. External indicators were little changed, as better U.S. credit spreads and rising emerging markets versus developed currencies offset weakness in emerging market stocks and a small decline in Australian versus Japanese stocks. With a nod to Halloween, we ll note that the only creatures running scared are Wall Street bears. The market is savoring a 2% gain for October, and good Octobers often beget good Novembers, which often beget good Decembers. That said, we best be getting to the topic of this technical analysis which is that the major index (S&P 500) has built a seemingly ironclad chart heading into the final two months of the year. Still, it is worth noting that the trading year has ripped up the script; stocks were up sharply this summer, for instance. That sometimes mean other unpredictable trends might emerge, so it is not a slam-dunk that 4Q17 will be a great quarter. But as noted, we are encouraged by the chart. Even with the selloff on 10/30/2017, the index had built such a large buffer (to even near-term support) that no trendlines were threatened. With the S&P 500 closing in the 2,570 area, the 20-day simple moving average trendline closed the session on 10/30/ 2017 at a comfortable 13 points below at 2,557. The 50-day SMA ended the day (and will likely end October) in the 2,510 range, or about 60 points below the 10/30/17 close. Finally, in terms of simple moving average support, the 200-day trendline is down in the 2,420 range. (Jim Kelleher, CFA, Director of Research) - 2 -

3 AMGEN INC. (NGS: AMGN, $175.22)... HOLD AMGN: Downgrading to HOLD on slower sales growth * We are concerned about the secular slowdown in sales of Amgen s top three products Enbrel, Neulasta and Aranesp which together accounted for 55% of 3Q17 revenue. Sales of these products fell a combined 5.7% in the third quarter. * At the same time, sales of products with stronger growth prospects (Prolia, Kyprolis and Repatha) are not yet large enough to offset the declines in the three established drugs. * Management said that it would continue to carefully manage expenses in 2018, signaling that it will restrict spending on R&D and marketing activities. * We are maintaining our 2017 adjusted EPS estimate of $12.55, but are lowering our 2018 estimate to $12.80 from $ ANALYSIS INVESTMENT THESIS We are lowering our rating on Amgen Inc. (NGS: AMGN) to HOLD from BUY on concerns about slowing top-line growth. The company s three largest products Enbrel, Neulasta and Aranesp which account for 55% of revenue, saw their combined sales decline 5.7% in 3Q17, steepening the slide from the prior quarter. Because these drugs have lost patent protection and face competition from biosimilars, we view the declines as secular rather cyclical. We also note that Amgen s most promising new drugs account for just 14% of revenue, not enough to offset the declines in Enbrel, Neulasta and Aranesp. In addition, although the company topped the consensus EPS estimate in 3Q17, its earnings growth and margin expansion were driven by cost-cutting rather than higher sales. Management said that it would continue to manage expenses carefully in 2018, suggesting that spending on R&D and marketing activities will grow more slowly than revenue. We would consider a more constructive stance on AMGN on signs of stronger contributions from the company s new drug pipeline or from its biosimilars portfolio. We note, however, that Amgen may not generate commercial revenue from biosimilars until 2019 due to regulatory and legal hurdles. RECENT DEVELOPMENTS On October 25, Amgen posted adjusted 3Q17 EPS of $3.27, up 8% from the prior year and above the consensus forecast of $3.11. GAAP net income came to $2.021 billion or $2.76 per share, compared to $2.017 billion or $2.68 per share a year earlier. Nonrecurring items included a $67 million ($0.07 per share) negative impact from expenses related to Hurricane Maria at the company s facilities in Puerto Rico. Worldwide product revenue came to $5.8 billion, down 1% as reported and flat on an operational basis. As noted above, sales of the company s top three products continued to weaken in 3Q, falling at a faster rate than in the second quarter. Sales fell 6% for Enbrel, 6% for Neulasta, and 3% for Aranesp. In all, sales of the three products fell 5.7%. These drugs have seen their patents expire and now face competition from biosimilars. For this reason, we think the declines are secular rather than cyclical. Biosimilar versions of Enbrel have been approved in both Europe and the U.S., but have been launched only outside the U.S. Enbrel saw slippage in both market share and pricing in 3Q, and further declines are likely next year. Although the company posted stronger sales of several newer drugs, Prolia (+22%), Kyprolis (+13%) and Repatha (+122%), sales of these products accounted for just 14% of third-quarter product revenue. The adjusted gross margin was 86.5%, down 50 basis points. The adjusted operating margin was 55.6%, up 270 basis points. The higher adjusted operating margin was driven by lower SG&A and R&D spending, and the discontinuation of Enbrel royalty payments. Although Amgen is facing competition from biosimilars for several of its own drugs, it is also playing offense on biosimilars. It has received regulatory approval for a biosimilar version (Mvasi) of Roche s oncology drug Avastin and a biosimilar version (Amjevita) of AbbVie s Humira. Amgen does not plan to launch Mvasi in the near term as Avastin has patent protection in the U.S. until 2019 and in Europe until Amgen and Roche are also engaged in litigation over Avastin, which had nearly $7 billion in global sales in Meanwhile, Amgen and AbbVie have settled their legal dispute and have reached an agreement that will allow Amgen to launch Amjevita in October 2018 in Europe and in January 2023 in the U.S

4 In other words, Amgen is unlikely to see biosimilar revenue until It currently has 10 programs underway to develop biosimilar oncology drugs. EARNINGS & GROWTH ANALYSIS Amgen has updated its 2017 guidance. It now expects adjusted EPS of $12.50-$12.70, up from a prior view of $ $ It looks for revenue of $22.7-$23.0 billion, up from its prior estimate of $22.3-$23.1 billion. In assessing Amgen s growth prospects, we note that the company s newer drugs still generate too little revenue to offset the declines in its mature drugs, which are facing increased competition from biosimilars. Enbrel, in particular, is facing both pricing pressure and the loss of market share. Meanwhile, Repatha has been hurt by its high cost ($14,000 for a single injection) and restricted reimbursement coverage. Based on our assessment of the company s slower growth prospects and management s revised guidance, we are maintaining our 2017 adjusted EPS estimate of $12.55, but are lowering our 2018 estimate to $12.80 from $ FINANCIAL STRENGTH & DIVIDEND Our financial strength rating for Amgen is Medium-High, the second-highest point on our five-point scale. RISKS Risks for Amgen include product development setbacks, currency headwinds, and competition for existing products, including major drugs such as Enbrel. Amgen also faces the risk that insurers and larger payers may restrict reimbursement coverage of its drugs. In Europe and other overseas markets, national agencies typically make coverage decisions, often forcing manufacturers to make pricing concessions. COMPANY DESCRIPTION Amgen, based in Thousand Oaks, California, is a leading global biotech company. Its key products include Aranesp, Epogen, Neulasta, Neupogen and Enbrel. The shares are a component of the S&P 500. INDUSTRY Our recommended weighting on the Healthcare sector is Over-Weight. The sector accounts for 14.4% of the S&P 500, and includes companies in the pharmaceuticals, medical devices, healthcare services, and insurance industries. After underperforming in , the sector has bounced back in 2017 and outperformed the S&P 500, with a gain of 15.6%. While pharma stocks have attracted attention due to the high prices of certain specialty and oncology drugs, stocks of medical device and insurance companies as a group have outperformed pharma stocks over the past year. VALUATION AMGN shares trade at 13.6-times our 2018 EPS estimate, below the mean of 14.1 for our coverage universe of largecap pharmaceutical stocks. However, we do not find the discount attractive given the slowing sales of Amgen s major products. Our rating is now HOLD. On October 31, HOLD-rated AMGN closed at $175.22, up $0.63. (David Toung, 10/31/17) - 4 -

5 DUNKIN BRANDS GROUP INC.: (NGS: DNKN, $59.07)... BUY DNKN: Reaffirming BUY with $68 target * We believe that DNKN has strong opportunities to expand its brand both in the U.S. and internationally, and that this distinguishes the company from most other restaurant chains in our coverage group. * In addition, we expect the company s fully franchised business model, which provides a steady source of revenue with low capital requirements, to result in significant free cash flow going forward. * We are reiterating our 2017 EPS estimate of $2.48 and our 2018 estimate of $2.76. Our long-term earnings growth rate estimate is 13%. * DNKN shares rose nearly 8% on October 30 on rumors of a potential buyout by JAB Holdings, which also owns Krispy Kreme and Panera Bread. ANALYSIS INVESTMENT THESIS We are maintaining our BUY rating and $68 target price on Dunkin Brands Group Inc. (NGS: DNKN). We believe that the company has strong opportunities to expand its brand both in the U.S. and internationally, and that this distinguishes it from most other restaurant chains in our coverage group. In particular, we look for the company to open new stores in the western United States and in the Asia Pacific region. In addition, we expect the company s fully franchised business model, which provides a steady source of revenue with low capital requirements, to result in significant free cash flow going forward. As such, we believe that DNKN shares warrant a higher valuation. Over the long term, we remain optimistic about Dunkin s strong franchise program, established brands, digital sales initiatives, and opportunities to expand into new sales channels and geographic regions. Our five-year rating remains BUY. RECENT DEVELOPMENTS On October 30, DNKN shares rose nearly 8% on rumors that JAB Holdings, which owns Krispy Kreme and Panera Bread, could acquire Dunkin Brands. On October 26, Dunkin Brands reported adjusted 3Q17 net income of $55.8 million, down from $56.0 million in the prior-year period. Adjusted operating income rose to $127.9 million from $114.8 million last year, and the adjusted operating margin rose to 57.1% from 55.4%. The operating margin came in above the consensus estimate of 54.0%. Based on a share count of 91.4 million (down 1.2 million from the prior year), adjusted EPS rose to $0.61, in line with the consensus estimate and up from $0.60 in 3Q16. Overall revenue rose 8.2% to $224.2 million and topped the consensus estimate of $216.0 million. Baskin-Robbins saw domestic same-store sales fall 0.4%, down from 2.0% growth in the prior-year period. Comps fell less than the consensus forecast, which called for a decrease of 0.9%. Same-store sales rose 0.6% at Dunkin Donuts in the U.S., below the consensus growth estimate of 0.9% and down from a 2.0% gain in 3Q16. Customer traffic fell the fifth straight quarter of declining traffic at Dunkin Donuts U.S. locations though this was offset by a higher average ticket. Hurricanes Harvey and Irma reduced comps at U.S. Dunkin Donuts by 50 basis points. International same-store sales fell 4.3% at Baskin-Robbins but rose 1.3% at Dunkin Donuts locations. Consensus estimates had called for a decline of 2.7% at Baskin-Robbins International and a decline of 0.3% at Dunkin Donuts International. Management expects overall revenue to grow at a low to mid-single-digit pace this year, below its long-term target of mid- to high single-digit growth. It forecasts low single-digit comp growth at Dunkin Donuts and Baskin Robbins in the U.S. It plans to add new stores in the U.S., down from previously. Management reduced its unit expansion goal because of a shortage of construction workers. It also looks for operating income to grow at a mid- to high single-digit pace, below its longterm target of 10% growth. Management expects a full-year weighted-average share count of 93 million. Reflecting the use of a new accounting standard for stock-based compensation, it projects adjusted EPS of $2.40-$2.43. In 2016, adjusted earnings rose 16% to $2.25 per share. Full-year revenue grew 2% to $829 million, driven by 1.6% comp growth at U.S. Dunkin Donuts and the addition of 723 restaurants worldwide. EARNINGS & GROWTH ANALYSIS Driven by new initiatives, we now look for same-store sales at U.S. Dunkin Donuts locations to grow 1.5% on average over the next months, up from a prior 1.2%. To reduce wait times at domestic Dunkin Donuts locations, the company is streamlining its menu. In addition, it is accelerating the launch of new items that should result in higher overall pricing. To increase customer traffic, Dunkin Donuts is ramping up marketing efforts and expanding its Perks loyalty program, which accounts for more than 10% of revenue

6 Management s plans to add Dunkin Donuts locations in the western U.S. remain important to the company s future growth. In addition, we think the overseas market for Baskin-Robbins is largely underpenetrated and look for the company to add international locations. Based on a record of positive earnings surprises, the company s growth initiatives and management s guidance, we are reaffirming our 2017 EPS estimate of $2.48 and our 2018 estimate of $2.76. Our long-term earnings growth rate estimate is 13%. FINANCIAL STRENGTH & DIVIDEND Our financial strength rating on Dunkin Brands is Medium, the midpoint on our five-point scale. In 3Q17, adjusted operating income of $127.9 million covered interest expense by a factor of 5.2. We believe a ratio above 5.0 indicates manageable leverage. Long-term debt at the end of the quarter was $2.39 billion, down slightly from the end of The shareholders deficit totaled $174 million, up from $163 million at the end of In March 2017, Dunkin raised its quarterly dividend by 7.5% to $ per share, or $1.29 annually, for a yield of about 2.4%. We expect the company s strong free cash flow (franchisees pay for stores and the company collects 5% of sales) to support further dividend hikes. Our dividend estimates are $1.29 for 2017 and $1.40 for RISKS With more than 50% of its stores in the Northeast U.S., Dunkin Brands is vulnerable to economic weakness and severe weather in that region. Difficulty growing beverage sales and average unit volume in new markets, as well as fierce competition from Starbucks and McDonald s, may also limit the company s growth. In addition, although Baskin-Robbins represents only 6% of company earnings, the turnaround at this chain is still not certain. The company s high debt could also cause some investors to avoid the shares. COMPANY DESCRIPTION Dunkin Brands is among the top franchisors of quick-service restaurants serving coffee, baked goods and ice cream. Dunkin Brands franchises restaurants under its Dunkin Donuts and Baskin-Robbins brand names and has approximately 18,900 locations in 57 countries. The company generates about 78% of its revenue from the U.S., and is organized into four segments: Dunkin Donuts U.S., Dunkin Donuts International, Baskin-Robbins U.S., and Baskin-Robbins International. The company operates stand-alone restaurants, many with drive-thru windows, as well as kiosks in malls and locations at convenience stores and gas stations. VALUATION We have a positive view of the company s growth initiatives and plans to open stores in the Asia Pacific region and the western U.S. We continue to estimate a fair value for DNKN of $68 per share, 12% above current levels and consistent with a BUY rating. As noted above, the stock rose strongly on October 30 on rumors of a buyout by JAB Holdings. Our target of $68 assumes a multiple of 27.4-times our revised 2017 EPS forecast, significantly below the multiples of BUY-rated Wendy s Co. (WEN) and BUY-rated Domino s Pizza (DPZ). On October 31, BUY-rated DNKN closed at $59.07, down $0.02. (John Staszak, CFA, 10/31/17) - 6 -

7 FLEX LTD. (NGS: FLEX, $17.80)... BUY FLEX: Revenue grows 4%, tops Street; raising target to $23 * Flex posted fiscal 2Q18 revenue that was up 4% annually and above consensus. * Non-GAAP EPS declined 5% year-over-year, as costs associated with the Nike ramp continue to drag on operating profits; EPS did top the $0.26 consensus call. * We look for the Nike partnership to be a long-term profit driver, eventually boosting consumer segment margins back into target range. * FLEX remains attractive on historical comparable valuation and on discounted free cash flow valuation. We are reiterating our BUY rating to a 12-month target price of $23 (raised from $20). ANALYSIS INVESTMENT THESIS BUY-rated Flex Ltd., (NGS: FLEX) formerly Flextronics International Ltd. posted revenue of $6.27 billion for fiscal 2Q18, which was up 4% annually and above consensus. Non-GAAP EPS of $0.27 dipped 5% lower, as costs associated with the Nike ramp continue to drag on operating profits; EPS did top the $0.26 consensus call. Moving outside technology manufacturing carries risk; in addition to the failed partnership with Lego, Flex has encountered early challenges in its Nike partnership, based on Nike s own struggles amid declining name brand sneaker sales and intense competition from Adidas and others. Generally, however, Flex has been vindicated in building out its High Reliability Solutions (HRS) and Industrial & Emerging Industries (IEI) business. Both businesses grew in mid-teens on a year-over-year basis in 2Q18, and profits for both increased in mid-single-digits. We look for the Nike partnership to be a long-term profit driver, eventually boosting consumer segment margins back into target range. Flex has historically benefited from the diversity of its customer base, as well as its unmatched ability to meet the global design, manufacturing, and logistics needs of even the world s largest companies. Disengagement from former major customers (Lenovo, in the personal devices space, and bankrupt SunEdison, in solar panels) should improve both revenue comps and the quality of revenue over time. After three years (FY15-FY17) of flat to down top-line comparisons, we are modeling positive revenue comparisons across the March 2018 fiscal year and again in FY19. Given the expected improvements in revenue mix, we look for margin expansion and positive EPS growth in fiscal 2019, following expected flat EPS in FLEX remains attractive on historical comparable valuation and on discounted free cash flow valuation. We are reiterating our BUY rating to a 12-month target price of $23 (raised from $20). RECENT DEVELOPMENTS FLEX shares are up 24% year-to-date in 2017, ahead of the 6% gain for the peer group of Argus-covered electronic manufacturing services (EMS) companies. FLEX shares rose 28% in 2016, in line with peers. FLEX appreciated less than 1% in 2015, while the peer group was down 3%; and in 2014 finished with a 44% gain while outpacing the 31% gain for the peer group. For fiscal 2Q18 (calendar 3Q17), Flex reported revenue of $6.27 billion, which was up 4% annually and 4% sequentially; toward the high end of management s $5.9-$6.3 billion guidance range; and above the $6.09 billion consensus forecast. Non- GAAP earnings totaled $0.27 per diluted share, which was down 5% year-over-year though up $0.03 sequentially; toward the top of management s $0.24-$0.28 guidance range; and one cent above the consensus estimate. Although 4% top-line growth may not sound like much, Flex posted its strongest annual revenue growth in 2Q18 since 1Q15. According to CFO Chris Collier, Flex is recognizing benefits from monetization of significant bookings and new business wins. For the past few years, Flex has offered its sketch to scale portfolio while executing a shift into new markets. In 1Q18, Flex broke its string of 14 consecutive annual improvements in non-gaap operating margin. During 2Q18, non-gaap operating margin held steady sequentially at 3.0%, even as non-gaap gross margin compressed slightly; non-gaap operating margin declined 30 basis points year-over-year. Flex is characterizing fiscal 2018 as an investment year, reflecting pursuit of new business opportunities that may temporarily penalize margins. The CFO warned that Flex would continue to purposefully elevate our level of spend to support new business systems, expand design & engineering capabilities, and further invest in innovation

8 On an end markets basis for 1Q18, Consumer Technology Group (CTG) revenue of $1.76 billion (28% of total) was up 5% annually and 16% sequentially in its highly seasonal pre-holiday-build quarter. CTG operating margin remains challenged, coming in at 1.8% in 2Q18 up from to 1.2% in 1Q18 but down from 3.3% a year earlier. CTG operating margin missed the 2%- 4% target range. Beyond anticipated margin pressure attributable to elevated costs for the Nike partnership, most parts of this business experienced sequential improvement in profits. CTG has recovered from its 1Q17 low, which included most of the costs associated with closure of the Lenovo-Motorola China operations. With the Lenovo wind-down out of the way and with Flex better managing Nike costs, we look for CTG margins to recover back into the target range in coming quarters. Flex s largest business, Communications & Enterprise Compute, posted a 10% annual sales decline to $1.90 billion (30% of revenue). CEC operating margin of 2.3% was just below the low end of the 2.5%-3.5% target range, and operating profit declined 19% year-over-year. Margin pressure in CEC reflected both lower overhead absorption on decreased volumes along with costs related to building the cloud data center business. Outside of CTG and CEC, sales and margin performance was solid in the company s two highest-margined businesses. Industrial & Emerging Industries (IEI) group revenue of $1.45 billion (23% of total) increased 17% annually and 5% sequentially. The IEI operating margin slipped sequentially to 3.5% in 2Q18 from 4.0% in 1Q18, compared to 4.1% in 4Q17; margin missed the target range of 4%-6%. Impacts from the bankruptcy at SunEdison, at one time IEI s largest customer, continue to recede. IEI is now encountering costs related to ramping substantial new business, while positive for the long term, this investment could weigh on IEI margins in coming quarters. For the long term, IEI is building a much more diversified energy business, with a particular focus on its NEXTracker technology (which positions solar panels to take advantage of the movement of the sun). Since acquiring the business, IEI has doubled the number of NEXTracker customers and countries in which this business operates. Other IEI new customers and projects should help this business sustain 4%-6% operating margins in the coming quarters. High Reliability Systems (HRS) revenue of $1.16 billion was up 16% year-over-year and 2% sequentially. The HRS operating margin edged down to 7.9% for 2Q18 from 8.0% in 1Q18; but margin remained above the midpoint of the 6%-9% target range, as the group continues its solid operational execution. Flex is making investments to ramp up programs, particularly in the automotive and medical groups. For all of fiscal 2018, Flex is modeling at least 10% growth for both IEI and HRS. The CEC business is historically slowgrowing with low margins, and that is unlikely to change. Flex expects CEC margins to remain under pressure in most of 2018 and improve heading into late 2018 or fiscal CTG still has the potential to emerge as the margin differentiator for Flex. Among the global contract manufacturers, Flex has historically engaged with the largest customer opportunities, based on its size, global campus structure, logistics reach, and sketch to scale offerings. With these opportunities come risk, as well as high launch costs. The key for Flex going forward will be its ability to turn the massive Nike opportunity into a profit center, rather than a cost drain. The dominant product in the consumer category has been the mobile phone, which is always declining in price and thus in profit contribution to Flex. We believe the shift in consumer toward leading global brands (Nike, Bose, etc.) as opposed to single product reliance is a very healthy long-term development. During fiscal 2018, CTG expects to begin booking meaningful revenues from its Nike relationship. CTG in FY18 should also begin to benefit from ramp of new business with Bose. By the end of FY19, Nike could be among Flex s top-10 customers. Over time, Flex also expects the operating margin on Nike production to be significantly higher than CTG baseline margins EARNINGS & GROWTH ANALYSIS For fiscal 2Q18 (calendar 3Q17), Flex reported revenue of $6.27 billion, which was up 4% annually and 4% sequentially; toward the high end of management s $5.9-$6.3 billion guidance range; and above the $6.09 billion consensus forecast. Non-GAAP gross margins contracted to 6.7% in 2Q18 from 6.8% in 1Q18 and 6.9% a year earlier. Despite gross margin contraction, non-gaap operating margin for 2Q18 stabilized at 3.0%, flat with 1Q18 though down from 3.3% a year earlier. Non-GAAP earnings totaled $0.27 per diluted share, which was down 5% year-over-year though up $0.03 sequentially; toward the top of management s $0.24-$0.28 guidance range; and one cent above the consensus estimate. For all of FY17, sales of $23.9 billion declined 2% from the $24.4 billion recorded in FY16. On a non-gaap basis, Flextronics earned $1.17 per diluted share in FY17, up 14% from $1.03 per diluted share in FY

9 For fiscal 3Q18, which will reflect a portion of holiday build for OEM customers, Flex forecast revenue of $6.3-$6.7 billion; non-gaap operating profit in the $205-$235 million range; and non-gaap EPS of $0.28-$0.32. At respective guidance midpoints, revenue would be 6% year-over-year, while non-gaap EPS would be down about 10% from 3Q17. The Street had gone into the quarterly report expecting revenue of $6.35 billion, below the $6.5 billion guidance midpoint, but non-gaap EPS closer to $0.31, above the $0.30 guidance midpoint. We note that Flex s blended non-gaap tax rate for FY18 will be in the low-double-digit to low teens area, or at least 200 bps higher that in FY17. Despite higher taxes and the Nike impact on earnings, IEI and HRS are showing signs of top-line acceleration, which should aid in margin recovery even in this investment year. On that basis, we are nudging up our non-gaap earnings forecast for the March 2018 fiscal year to $1.12 per diluted share from a prior $1.11. We are also increasing our non-gaap forecast for FY19 to $1.37 per diluted share, from $1.36. For FY18, the stronger outlook is crimped by higher tax assumptions. On a GAAP basis, our forecasts are $1.01 for FY18 and $1.02 for FY19. Our long-term earnings growth rate forecast is 10%. FINANCIAL STRENGTH & DIVIDEND Our financial strength rating for FLEX remains Medium-High, the second-highest rank on our five-point scale. In our view, the company s cash management during its transition to higher-margin businesses has been solid. Debt was $2.96 billion at the end of 2Q18. Debt was $2.874 billion at the end of FY17. $2.77 billion at the end of FY16 and $2.08 billion at the end of FY15. During FY14, Flex refinanced various term loans formerly carried as current debt or debt due within one year into a $600 million term loan maturing in As a result, it reduced its weighted-average interest rate relative to the beginning of the fiscal year. Debt was $2.10 billion at the end of FY14, $2.07 billion at the end of FY13, and $2.05 billion at the end of FY12. Debt/cap was 50.7% at the close of 2Q18. Debt/cap was 52.0% at the close of FY17, 51.6% at the end of FY16, 46.5% at year-end FY15, 47.9% at the end of FY13, and 46.9% at the end of FY12. Cash & equivalents were $1.37 billion at the end of 2Q18. Cash & equivalents were $1.83 billion at the end of FY17, $1.61 billion at year-end FY16, reduced from $2.33 billion at the end of 1Q16 by the cost of acquiring MCi as well as by capital allocation. Cash & equivalents were $1.63 billion at year-end FY15, compared with $1.59 billion at the end of FY14. Cash was $1.59 billion at the end of FY13 and $1.52 billion at the end of FY12. Cash flow from operations was $1.15 billion in FY17. Cash flow from operations was $1.14 billion in FY16, $794 million in FY15, $1.22 billion in FY14, $1.12 billion in FY13 and $804 million in FY12. Free cash flow was $600 million in FY17, $626 million in FY16, $554 million in FY15, $701 million in FY14, and $626 million in FY13. Flex has spent over $140 million to repurchase shares in the fiscal 2018 year to date. Since launching its capital return program in 2011, Flex has spent more than $2.5 billion on buybacks, reducing its share count by over 34%. We do not expect Flex to pay a common dividend in FY19 or FY19. MANAGEMENT & RISKS Mike McNamara has served as CEO since January Christopher Collier became CFO in May Francois Barbier is president of Global Operations and Components, and Paul Humphries is president of High Reliability Solutions. The chief risk for globally diversified Flex is that its operations will need substantial restructuring in the event of a global economic crisis. We think the company has in the past shown a willingness to act decisively in response to dynamic situations, and we believe that it has the financial solvency to survive. Flex faces risks related to the integration of assets, though it is adept at integrating smaller acquisitions. Flex is also at risk from its vertical manufacturing strategy, which includes ownership of significant component assets. The company is a leader in non-ems adjacencies, such as plastic and metal enclosures, PCB fabrication, and power modules. We believe that risks in these noncore businesses are offset by their higher margins. COMPANY DESCRIPTION Flex is the largest global provider of electronic manufacturing services (EMS) and related competencies. In addition to its core printed circuit board (PCB) assembly and systems assembly businesses, the company provides design, logistics, components, enclosures and PCB manufacturing. Flex has expanded its customer base from OEM companies in traditional electronics and technology to nontraditional niches, such as consumer, medical and instrumentation, aerospace-defense and automotive. In FY15, revenue was $26.1 billion, flat with FY14 and up from $23.6 billion in FY

10 INDUSTRY We have raised our rating on the Technology sector to Over-Weight from Market-Weight. Technology is showing clear investor momentum, topping the market in the year-to-date and trailing one-month and three-month periods. At the same time, the average two-year-forward EPS growth rate exceeds our broad-market estimate and sector averages. This has kept technology sector valuations from becoming too rich, and resulted in PEG ratios that are below the median for all sectors. Over the long term, we expect the Tech sector to benefit from pervasive digitization across the economy, greater acceptance of transformative technologies, and the development of the Internet of Things (IoT). Healthy company and sector fundamentals are also positive. For individual companies, these include high cash levels, low debt, and broad international business exposure. In terms of performance, the sector rose 12.0% in 2016, above the market average, after rising 4.3% in The sector is outperforming thus far in 2017, with a gain of 23.7%. Fundamentals for the Technology sector look reasonably balanced. By our calculations, the P/E ratio on projected 2018 earnings is 17.5, above the market multiple of Earnings are expected to grow 14.8% in 2018 and 29.3% in 2017 following low single-digit growth in The sector s debt ratios are below the market average, as is the average dividend yield. VALUATION FLEX shares are trading at 15.9-times our FY18 non-gaap EPS forecast and at 13.1-times our FY19 forecast, versus a five-year (FY13-FY17) average multiple of Given that the entire market has appreciated, relative P/E is also important. FLEX is trading at a relative P/E of 0.78 for FY18 and FY19, not much above its historical relative P/E of Based on historical price-based comparisons, FLEX shares now trade above calculated fair value; we believe the premium is warranted, given topline growth and margin expansion potential. Our discounted free cash flow model, which captures the accelerating cash generation driven by a more favorable product mix along with reduced capital expenditures on traditional technology production, indicates a fair value in the low-$40s, in an accelerating trend. Our blended valuation model indicates a fair value in the low $30s, also in a positive trend. FLEX remains attractive, particularly on discounted free cash flow valuation. Appreciation to our 12-month target price of $23 (raised from $20) implies a risk-adjusted return in excess of our forecast for the broad market. Based on valuation and the company s accelerating fundamentals, we believe that FLEX shares warrant both near- and long-term BUY ratings. On October 31, BUY-rated FLEX closed at $17.80, down $0.07. (Jim Kelleher, CFA, 10/31/17)

11 NABORS INDUSTRIES LTD. (NYSE: NBR, $5.63)... HOLD NBR: Maintaining HOLD on challenging outlook * On October 24, Nabors reported 3Q17 operating revenue of $662.1 million, up from $519.7 million in 3Q16. The company posted an adjusted operating loss of $74.2 million or $0.42 per share, compared to a loss of $71.9 million or $0.35 per share in 3Q16. The loss was wider than our loss forecast of $0.32 per share. * NBR shares have underperformed over the past three months, falling 15.2% while the S&P 500 has risen 4.0%. Over the past year, they have fallen 50.5%, compared to a gain of 19.4% for the index. The beta on the stock is * We are widening our 2017 loss estimate to $1.63 per share from $1.50 following the wider-than-expected 3Q loss. We are also widening our 2018 loss estimate to $0.71 per share from $0.35. * We see limited upside for NBR based on its continued losses and current energy sector volatility. We also believe that Nabors will be unable to react quickly enough to move to profitability before ANALYSIS INVESTMENT THESIS We are maintaining our HOLD rating on Nabors Industries Ltd. (NYSE: NBR). While P/E is not meaningful for valuation purposes given our 2017 and 2018 loss forecasts, the shares are trading near the midpoint of their five-year historical range for most other valuation metrics, and appear fully valued given the company s current challenges. We see limited upside for NBR based on its continued losses and current energy sector volatility. We also believe that Nabors will be unable to react quickly enough to move to profitability before RECENT DEVELOPMENTS NBR shares have underperformed over the past three months, falling 15.2% while the S&P 500 has risen 4.0%. Over the past year, they have fallen 50.5%, compared to a gain of 19.4% for the index. The beta on the stock is On October 24, Nabors reported 3Q17 operating revenue of $662.1 million, up from $519.7 million in 3Q16. The company posted an adjusted operating loss of $74.2 million or $0.42 per share, compared to a loss of $71.9 million or $0.35 per share in 3Q16. The loss was wider than our loss forecast of $0.32 per share. Adjusted EBITDA fell to $142.9 million from $148.7 million in 3Q16 but rose from $138.8 million in the second quarter. On September 5, NBR acquired Robotic Drilling Systems (RDS). It expects to integrate RDS technology into its global rig footprint. EARNINGS & GROWTH ANALYSIS In the third quarter, the U.S. Drilling segment posted a 14% increase in adjusted EBITDA, to $43 million. It had an average of 107 operating rigs, up from 101 in the second quarter. Nabors deployed its first of two Quad rigs in late July in the Lower 48. On the international side, third-quarter adjusted EBITDA rose to $137 million from $135 million in 2Q. The improvement was attributable to higher average daily rig margins of $18,233 per rig day, partly offset by a slight decline in the rig count. In Canada, the average number of rigs working during the third quarter was 14, with average daily rig margins of $3,497. In all, NBR had an average of 212 working rigs and an average day rate of $10,749 in the third quarter, compared to 206 working rigs at an average day rate of $10,809 in 2Q17. During the 3Q conference call, CEO Anthony Petrello highlighted notable sequential improvement in drilling operations, particularly given the impact of lower oil prices during the quarter. We are widening our 2017 loss estimate to $1.63 per share from $1.50 following the wider-than-expected 3Q loss. We are also widening our 2018 loss estimate to $0.71 per share from $0.35, though we still expect an increase in the rig count and higher pricing next year. FINANCIAL STRENGTH & DIVIDEND We rate Nabors financial strength as Medium, the midpoint on our five-point scale. The company s debt is rated BB/ stable by Standard & Poor s and BB+/negative by Fitch. As of September 30, 2017, NBR had cash and short-term investments of $220.3 million and $3.96 billion in long-term debt. It has $272.0 million outstanding under its $2.25 billion revolving credit facility and commercial paper program. It ended the third quarter with a debt/cap ratio of 56%, compared to 50% at the end of

12 Nabors pays a quarterly dividend of $0.06 per share or $0.24 annually, for a yield of about 3.7%. Our dividend estimates are $0.24 per share for both 2017 and MANAGEMENT & RISKS Like its peers, Nabors continues to face pressure from low commodity prices and weak drilling activity. The company s international results could also be hurt by political instability, war, or acts of terrorism. COMPANY DESCRIPTION Nabors Industries Ltd. owns approximately 450 land drilling rigs and offshore rigs. It also manufactures specialty rigs, rig components and drilling instrumentation systems. The company was founded in 1968 and is headquartered in Hamilton, Bermuda. VALUATION NBR shares have traded between $5.65 and $18.40 over the past 52 weeks. On a technical basis, the shares have been in a bearish pattern of lower highs and lower lows that dates to January 2017, though they appear to be approaching a bottom. While P/E is not meaningful for valuation purposes given our 2017 and 2018 loss forecasts, the shares are trading near the midpoint of their five-year historical range for most other valuation metrics, and appear fully valued given the company s current challenges. We see limited upside for NBR based on its continued losses and current energy sector volatility. We also believe that Nabors will be unable to react quickly enough to move to profitability before As such, our rating remains HOLD. On October 31, HOLD-rated NBR closed at $5.63, up $0.09. (David Coleman, 10/31/17)

13 VENTAS INC. (NYSE: VTR, $62.75)... HOLD VTR: Maintaining HOLD on supply and occupancy concerns * Although Ventas has strong opportunities in the senior housing and healthcare real estate market, we expect growth to be constrained by rising supply and lower occupancy. We also expect asset sales and dilutive equity issuance to limit growth in FFO per share. * On October 27, Ventas reported 3Q17 normalized FFO of $373 million, up 2% on better property performance; however, FFO per share rose just 1% to $1.04 due to an increase in the share count. The result matched both our estimate and the consensus forecast. * We are lowering our 2017 FFO estimate to $4.16 per share from $4.18 based on disposition activity and management s guidance. However, we are raising our 2018 estimate to $4.30 per share from $4.27 based on our expectations for improved property performance next year. * VTR shares appear fairly valued at 14.6-times our 2018 FFO per share estimate, in line with the peer median for healthcare REITs but below the midpoint of the five-year historical range of ANALYSIS INVESTMENT THESIS We are maintaining our HOLD rating on Ventas Inc. (NYSE: VTR), a REIT focusing on senior housing and medical office properties. We believe that Ventas has strong opportunities in the senior housing and healthcare real estate market, driven by favorable demographic trends, increased healthcare spending, and growing demand for low-cost medical outpatient facilities. We also like its experienced management team and access to low-cost capital. However, the shares appear fairly valued by historical standards and relative to peers. Additionally, we do not expect FFO multiples to rise given the likely increase in interest rates over the next two years, as higher rates make REIT dividend yields less attractive and raise the cost of debt. Efforts to scale back or repeal the Affordable Care Act under the Trump administration have been unsuccessful thus far, which should ease concerns about reimbursement for services such as skilled nursing and senior housing. That said, Ventas appears relatively well insulated from moves to repeal the ACA, as services subject to reimbursement make up a relatively low 7% of its business. We are more concerned about rising supply and lower occupancy, which could hold back NOI growth over the next two years. RECENT DEVELOPMENTS VTR shares have underperformed the S&P 500 over the last three months, declining 7%, compared to a 4% increase in the broad market. The shares have also underperformed over the last year, with a loss of 7% compared to a gain of 21% for the market. The beta on VTR is 0.72, compared to a peer average of On October 27, Ventas reported 3Q17 revenue of $900 million, slightly above our estimate of $898 million, in line with the consensus estimate, and up 4% from the prior-year period. Normalized FFO rose 2% to $373 million, driven by better property performance; however, FFO per share rose only 1% to $1.04 due to an increase in the share count. The result matched both our estimate and the consensus forecast. NAREIT FFO rose 3% to $335 million, but rose 2% per share basis, to $1.02, also due to the higher share count. Cash NOI in the same-store portfolio rose 2.1% from the prior year, up from 1.5% growth in 2Q17 but down from 3.9% in 1Q17. During the third quarter, Ventas funded investments of $80 million, including $67 million in development and redevelopment projects. The company issued about 358,000 common shares during the quarter, for proceeds of $23 million, which it will use to fund investments. It also received a combined $630 million from the sale of properties and repayments on loans receivable. This included $570 million from the sale of 29 Kindred Healthcare skilled nursing facilities, a business that Ventas would like to exit. In 2017, the company plans to sell a total of 36 skilled nursing facilities for $700 million and expects to complete $900 million in total sales. (Following the sales, skilled nursing will make up about 1% of NOI.) The proceeds will be invested in new assets, primarily in the life science and acute care hospital segments. Along with the 3Q17 results, management narrowed its 2017 normalized FFO guidance to $4.13-$4.16 per share from $4.12-$4.18 per share. It also narrowed its NAREIT diluted FFO forecast to $4.07-$4.12 per share from $4.10-$4.19 to reflect expenses related to natural disasters in the third quarter. Management raised its same-store cash NOI growth forecast to 2.0%- 2.5% from 1.5%-2.5%. Management noted that the third quarter was relatively soft due to lower occupancy and new supply and expects those trends to continue

14 EARNINGS & GROWTH ANALYSIS We are lowering our 2017 FFO estimate to $4.16 per share from $4.18 based on disposition activity and management s guidance. However, we are raising our 2018 estimate to $4.30 per share from $4.27 based on our expectations for improved property performance next year. Third-quarter operating performance and management s full-year forecasts by business segment are summarized below. In the Triple-Net segment, third-quarter NOI grew 3.8% from the prior-year period, driven by lease escalations; the increase was greater than the 2.0% achieved in 2Q17 but down from 4.7% in 1Q17. The segment accounted for 38% of portfolio income in 3Q17. Triple-net leases require tenants to pay for property taxes, insurance, and maintenance. Management expects fullyear NOI growth of 3.0%-3.5% in this segment, up from a prior estimate of 2.5%-3.5% growth. In Seniors Housing, NOI rose 0.6% year-over-year, compared to 0.4% in 2Q17 and 2.9% in 1Q17. Occupancy fell 210 basis points to 88.7%. CFO Robert Probst said that the lower occupancy reflected the impact of new supply. The Seniors Housing segment accounted for 30% of 3Q portfolio income. Management expects segment NOI to rise 0.5%-1.5% this year, up from its prior forecast of 0%-2.0% growth. Ventas sees its 40% stake in Atria, a senior housing company, as an acquisition platform in the growing New York market. New York is by far VTR s largest market, accounting for 21% of annual NOI. In the Medical Office segment, same-property cash NOI rose 1.5% from 3Q16, down from 2.2% in 2Q17 and 3.7% in 1Q17. Occupancy declined 10 basis points to 91.8%. The Medical Office segment accounted for 25% of third-quarter portfolio income. Management s guidance calls for 1.5%-2.0% NOI growth in 2017, up from a prior 1.0%-2.0% with help from new leasing activity. Loans account for the remaining 7% of annualized NOI. FINANCIAL STRENGTH & DIVIDEND Our financial strength rating on VTR is Medium-Low, the second-lowest rank on our five-point scale, reflecting the company s below-peer-average cash flow growth. The company has investment-grade credit ratings of BBB+ from S&P, Baa1 from Moody s, and BBB+ from Fitch. As of September 30, Ventas s debt totaled $11.4 billion, up from $11.2 billion at the end of 3Q16. Cash and cash equivalents declined to $85 million from $89 million a year earlier and available credit stood at $2.9 billion. The net debt/ebitda ratio declined to 5.7 from 5.8 a year earlier, and was above the peer average ratio of 5.5. The total debt/capital ratio was 51% at the end of the quarter, unchanged from the prior year but above the peer median of 47%. During the third quarter, EBITDA covered interest expense by a factor of 4.5, unchanged from the prior year and in line with the peer average. Ventas pays a quarterly dividend of $0.775 per share, or $3.10 annually, for a yield of about 4.9%. Our 2017 dividend estimate is $3.14 and our 2018 estimate is $3.32 (raised from $3.28). MANAGEMENT & RISKS Debra Cafaro, 59, has been the CEO of the company since Prior to joining Ventas, she served as president of Ambassador Apartments, a REIT. In 2016, Ms. Cafaro was recognized by Forbes as one of the World s 100 Most Powerful Women and by Harvard Business Review as one of The Best-Performing CEOs in the World. Ventas faces risks associated with volatile income in its senior living portfolio, and with its lack of sole decision-making authority in joint venture operations. It also faces risks from healthcare regulation, including changes in reimbursement rates for care at senior living facilities. REITs face interest rate risk, which may be exacerbated if acquisitions are funded with floating-rate debt, or if existing debt matures and credit conditions are tight. The high yield of 4.9% may cause the stock to act more like a bond if interest rates continue to rise, as they are expected to over the next two years. As such, the stock could fall along with bond prices. COMPANY DESCRIPTION Ventas, Inc. is a real estate investment trust that invests primarily in real estate serving the healthcare industry. The company acquires, develops, leases, and manages about 1,300 senior housing and medical office properties. The company was founded in 1998 as a spinoff of Vencor, a healthcare services company. Since 2004, Ventas has completed nine major acquisitions for about $19 billion. VTR shares are a component of the S&P 500. VALUATION VTR shares have traded between $56 and $72 over the last 52 weeks, and are currently below the midpoint of this range. On price/affo, the shares trade at 14.6-times our 2018 estimate, in line with the peer median for healthcare REITs and below the midpoint of the five-year historical range of We believe that the stock is fairly valued at current levels and are maintaining our HOLD rating. On October 31, HOLD-rated VTR closed at $62.75, down $0.50. (Jacob Kilstein, CFA, 10/31/17)