4Q13 Earnings Preview

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1 Citi Research Equities 15 January pages Diversified Industrials North America 4Q13 Earnings Preview It s All about 2014 Guidance 4Q EPS is mostly an afterthought As is typically the case, 4Q earnings tend to be all about the forward guidance. Based on the seven companies that set 2014 guidance back in the December Fifth Earnings Season, the playbook has been to offer conservative targets that assume no material change to the US economy and stabilization in Europe. We expect much of the same this quarter. We continue to believe that valuation looks stretched, underpinning our recent downgrade of the sector to Neutral. Fundamentals remain solid, including positives in the ISM and capex cycle, but there is likely to be modest multiple compression. The rising-tidelifting-all-boats market that prevailed in 2013 is unlikely to be repeated in Instead, we favor company-specific growth stories, including those with nonresi exposure. We also believe there is still ample opportunity for alpha among the Control Your Own Destiny names with company-specific catalysts. Our Buy ratings are GE (top pick), ROP, TYC, WCC, PNR, AME, EMR, DHR, and ETN. Deane M. Dray, CFA deane.dray@citi.com Matthew W. McConnell, CFA matthew.w.mcconnell@citi.com Jessica Mullin jessica.mullin@citi.com David Lu david.lu@citi.com Reiterate our Neutral Sector View The sector s 18.7x forward P/E is now bumping up towards the upper-end of historical ranges on both absolute and relative measures. Upside from here should come less from multiple expansion and more from the expected 2014 earnings growth from nonresi, stabilization in Europe, and ample capital allocation optionality fueled by historically robust balance sheets. Favorite stocks into earnings: TYC, AME, ROP TYC: Conservative initial guidance should be revised higher on multiple earnings levers and accretive bolt-on deals. AME: Positioned for organic rev acceleration, and expecting guidance to reflect pickup in demand; further M&A remains a potential catalyst, with $1B capacity. ROP: Initial 2014 guidance offers mgmt chance to refresh expectations after shaky year and remind investors why ROP is among highest quality Industrials. Least favorites into earnings: XYL, SPW, HON XYL: Priced for perfection, and even upside to anticipated 2014 guidance may become a Sell-the-news event. SPW: Lack of near-term catalysts in pare down story and mixed fundamentals suggest recent outperformance unwarranted; initial guidance likely to disappoint. HON: Potential for disappointing 1Q guidance, with organic revenue trending towards low-end of forecasts due to ongoing Aero softness. See Appendix A-1 for Analyst Certification, Important Disclosures and non-us research analyst disclosures. Citi Research is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Certain products (not inconsistent with the author s published research) are available only on Citi's portals.

2 Data Summary Rating Target Price Current Year Earnings Estimates Company Ticker Old New Old New Old New Ametek AME 1 1 US$61.00 US$61.00 US$2.10 US$2.10 Crane CR 2 2 US$74.00 US$74.00 US$4.16 US$4.16 Carlisle CSL 2 2 US$82.00 US$82.00 US$3.73 US$3.73 Danaher Corp DHR 1 1 US$88.00 US$88.00 US$3.41 US$3.41 Dover DOV 2 2 US$ US$ US$5.62 US$5.62 Emerson Electric EMR 1 1 US$79.00 US$79.00 US$3.80 US$3.80 Federal Signal FSS 2H 2H US$16.00 US$16.00 US$0.88 US$0.88 General Electric GE 1 1 US$32.00 US$32.00 US$1.65 US$1.65 WW Grainger GWW 2 2 US$ US$ US$11.50 US$11.50 Honeywell Intl HON 2 2 US$99.00 US$99.00 US$4.95 US$4.95 IDEX IEX 2 2 US$74.00 US$74.00 US$3.07 US$3.07 Ingersoll Rand IR 2 2 US$64.00 US$62.00 US$2.60 US$2.60 Illinois Tool ITW 2 2 US$91.00 US$91.00 US$3.61 US$3.61 3M Co MMM 2 2 US$ US$ US$6.70 US$6.70 Pentair Ltd PNR 1 1 US$91.00 US$91.00 US$3.19 US$3.19 Roper Ind ROP 1 1 US$ US$ US$5.62 US$5.62 SPX Corp SPW 3 3 US$93.00 US$93.00 US$3.90 US$3.90 United Tech UTX 2 2 US$ US$ US$6.15 US$6.15 WESCO Intl WCC 1 1 US$ US$ US$5.14 US$5.14 Xylem XYL 2 2 US$36.00 US$36.00 US$1.62 US$1.62 2

3 Setup for 4Q13 Earnings Season We downgraded our Multi-Industry sector view from Positive to Neutral on Jan-8 due to elevated valuation. We expect upside from here hinges more on earnings growth than multiple expansion. For details, please see our report: Still in Sweet Spot of the Cycle: But Shifting to Neutral Sector View on Valuation We are expecting mostly uneventful fourth quarter results including 3.0% organic revenue growth vs. 2.0% in 3Q13 underpinning 13% EPS growth. That said, investors will likely be honing in on the 10 of 21 Multi-Industry names expected to give 2014 EPS guidance. The early read on 2014 from the Fifth Earnings Season in December is that managements are likely to continue to set achievable initial EPS guidance, with potential upside coming from the December ISM of 57.0 (seven months above 50), evidence of Europe stabilizing, emerging markets regaining traction, more bipartisanship in Washington, and tailwinds from higher capex investments, restructuring savings, pension, and FX. Another sticking point for 4Q13 earnings season will be 1Q14 guidance. With recent out-quarter guidances falling below expectations, we expect some negative estimate revisions as 1Q is viewed in the context of the full-year guidance. Figure 1. Multi-Industry 4Q13 Earnings Preview Actionable Ideas into 4Q13 Earnings Five Strategies for Steady Growth Phase of Cycle Focus will be on forward guidance (1) Best Positioned to Control Their Own Destiny 10 out of 21 companies expected to provide initial 2014 guidance GE, DHR, PNR, ROP, ETN (all Buy-rated) Mgmts likely to set achievable EPS guidance, assuming no change to global macro Forecasting 12% 2014 EPS growth, 4.5% org growth, 80bps margin expansion (2) Turnaround Stories Capital allocation remains key theme IR, EMR, XYL, FSS Expecting modestly light initial F1Q14 guidance Favorite stocks into earnings: TYC, AME, ROP (3) Highest Exposures to Nonresi + TYC: Could raise conservative initial guide on multiple earnings levers and bolt-ons IR, TYC, HDS, WCC, ETN + AME: Expecting org rev acceleration on pickup in demand; $1B capacity for M&A + ROP: Chance to refresh expectations after shaky year; hint at next $1B deal (4) Highest Total Payout Ratio using Buybacks + Dividends Least favorites into earnings: XYL, SPW, HON SPW, ITW, CSL, MMM, IR - XYL: Priced for perfection; upside to 2014 may become "Sell-the-news" event - SPW: Lack of near-term catalysts + mixed fundamentals suggest weak initial guide (5) Highest Recurring Revenues & FCF - HON: Potential for disappointing 1Q guidance with low org rev on Aero softness UTX, DHR, ROP, GE Balanced Setup into Earnings Downgraded Sector View from Positive to Neutral on Jan-8 + Dec ISM of 57.0 solid; forward indicators trending positive Sector valuation stretched + Interest rates historically low; Europe stabilizing; US momentum 18.7x forward P/E vs 16.0x average, 19% premium to S&P500 + Early signs of resi & nonresi uptick; oil & gas and aero remaining strong Multiple expansion drove 3/4 of 2013's 40% share gains vs. earnings growth + Ample balance-sheet capacity for cap allocation; avg net debt-to-cap of 17% But still in sweet spot of the economic cycle + DHR positively preannounced on Jan-15 with +LSD growth in US and Europe stable Sector historically performs well in Steady Growth stage of cycle - ATU F1Q14 miss due to company-specific Energy pushouts; F2Q guidance light Modeling 10% stock upside on 12% EPS growth; modest multiple compression - FAST Dec daily sales downticked; 4Q13 EPS missed consensus Capex increase of 10% for 2014E bodes well for sector Upgraded TYC & WCC to Buy and Downgraded UTX & HON to Neutral on 1/8 Source: Citi Research 3

4 Companies Set to Provide Initial 2014 Guidance Out of the 21 Multi-Industry companies reporting, nine have already provided their 2014 guidance during previous outlook meetings, conference calls, or earnings, and we expect another 10 to issue their initial full-year range during 4Q earnings season (GE and CSL do not provide annual guidance). Overall, we are estimating 12.3% earnings growth on average in 2014, driven by an acceleration in organic revenue growth to 4.5% and operating margin expansion of 80 bps. We note that initial guidance for Dover, Ingersoll-Rand, and SPX will be subject to some noise from planned spins and divestitures in Our expectations for the initial guidance range vs. current estimates and consensus are as follows: Figure 2. Initial 2014 Guidance Expectations vs. Citi Ests and Consensus Ticker Citi Est Consensus Expected Range Comments AME $2.40 $2.34 $2.35 to $2.40 Expecting organic growth uptick to mid-single-digits and high-single-digit/low-double-digit total growth including recent M&A. CR $4.60 $4.58 $4.50 to $4.70 Segment guidance will be withheld until Feb-27 Analyst Meeting. Our estimate includes 20c contribution from MEI. DOV $5.95 $5.97 $4.90 to $5.20 Mgmt plans to issue 2014 guidance on a post-spin basis, excluding Knowles, which would not be comparable to current consensus. On a post-spin basis, our est would be roughly ~$5.15. FSS $0.80 $0.78 NA Last year, FSS issued only 1H guidance. The company could be positioned to give a full year outlook for IEX $3.35 $3.36 $3.30 to $3.40 Expecting mid-single-digits organic revenue growth and high 30%s incremental margin. IR $3.35 $3.32 $3.15 to $3.35 Allegion spin was $1.00 dilutive to 2013, but we expect buybacks and margin expansion to offset most dilution in ROP $6.30 $6.28 $6.15 to $6.35 Upside will likely come from accretion on any $1B deal the company plans to complete in SPW $4.75 $5.11 $4.60 to $5.00 Consensus does not fully include the EGS JV sale dilution. Guidance for 2014 will depend on timing of $500M buyback. WCC $6.05 $5.99 $5.70 to $6.10 Initially revealed at August analyst day, but expected to be formalized/solidified during 4Q earnings. XYL $1.85 $1.91 $1.85 to $1.95 Expecting low-to-mid-single-digits revenue growth on 30%+ incremental margins. Source: Citi Research, First Call 4Q13 organic revenue growth is expected to modestly accelerate to 3.0% from 2.0% in 3Q13. Figure 3. Multi-Industry Sector Organic Growth and Operating Margin Forecasts % 12.6% 13.3% 14.2% 14.8% 2014E 15.6% 3.7% 3.6% 2.3% 11.3% 8.0%10.7%10.5% 11.2% 9.2% 8.3% 6.6% 7.7% 4.9% 2.7% 2.0% 0.8% 2.0% 3.0% 4.5% 1.9% 1.4% -0.1% -3.4% -11.2% -14.1% -17.4%-17.4% -1.4% Organic Growth (Quarterly and Annual) Operating Margin (Annual) 2014E 2013E Q13E 3Q13 2Q13 1Q13 4Q12 3Q12 2Q12 1Q12 4Q11 3Q11 2Q11 1Q11 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09 1Q09 4Q08 3Q08 2Q08 1Q08 Source: Citi Research, Company Reports 4

5 Figure 4. TYC Valuation Summary Tyco International (TYC) Price 1/15/2014 $41.27 Market cap ($M) Framework Subsector: $19,203 Hybrid Rating Buy Target, Exp. Total Return $49, +20.4% Price/Earnings 2014E 2015E Relative P/E Historical Range Price/FCF Dividend Yield EV/EBITDA Sum-of-the-Parts Discounted Cash Flow Source: Citi Research 18.3x 15.7x -5.0% (10%) to 10% 22.1x 1.7% 10.9x $43 $37 Our Favorite Long Ideas into Earnings Are TYC, AME, ROP Tyco (TYC, Buy, $49 target price) Bottom line: Conservative initial guidance should be revised higher on multiple earnings levers and accretive bolt-on M&A potential Our call into the quarter and what to watch for: We expect to see a number of Buy-rated Tyco s earnings levers in action in its F1Q14, including cost takeout, sourcing initiatives, and reductions in corporate expense and perhaps tax rate. We continue to view the initial 2014 guidance of $2.05-$2.15 as conservative/ beatable, and expect it to be narrowed to the high-end. Organic growth in NA Installation & Services is expected to be negative this quarter due to tough comps, but management is forecasting a sequential ramp through Having lapped the start of project selectivity, installations order growth is expected to turn positive and track market activity this year, which should benefit from the nascent recovery in nonresi. Profitability should also improve on the mix shift towards services and an installations backlog running 150 bps higher margins Y/Y. Higher interest could be a headwind as management planned to raise $500 mil of debt in 1Q to settle legacy obligations. We also expect management to maintain the M&A pace set in 2013 with roughly one accretive bolt-on each quarter. Stock setup into earnings: TYC has outperformed peers by 70 bps over the past three weeks, but still remains below the midpoint of its relative P/E range and should benefit from investor sentiment having a risk-on tilt towards more cyclical names in the beginning of the year. Options implied move is +/- 2.2%. Figure 5. AME Valuation Summary Ametek (AME) Price 1/15/2014 $52.76 Market cap ($M) Framework Subsector: $12,913 Hybrid Rating Buy Target, Exp. Total Return $61, +16.2% Price/Earnings 2014E 2015E Relative P/E Historical Range Price/FCF Dividend Yield EV/EBITDA Sum-of-the-Parts Discounted Cash Flow Source: Citi Research 22.0x 19.9x 20.8% 5% to 35% 20.1x 0.6% 13.7x $53 $51 Ametek (AME, Buy, $61 target price) Bottom line: Positioned for organic rev acceleration on pickup in demand; further M&A remains a potential catalyst, with $1B capacity Our call into the quarter and what to watch for: Ametek is poised to show its first quarter of organic revenue acceleration and to issue initial 2014 guidance that should show sustained pickup in demand into next year. The small bolt-on deals over the past quarter should have a modest positive contribution to the outlook and further deals remain a potential catalyst with nearly $1 billion of M&A capacity. Ametek has been busy with three bolt-on deals since the end of 3Q13 that should add a total of ~$200 million in 2014 sales. In addition, organic revenue growth has been tepid YTD but the 7% organic order growth last quarter and 1.05x book-to-bill setup an acceleration in 4Q13. Recently stepped-up investments should also fuel a sustained improvement in growth in Recent strength has come from aero, oil & gas, precision motion control, and even floorcare motors. Power & Industrial remains the biggest drag but saw an improvement in orders in 3Q. Stock setup into earnings: AME has underperformed peers by 150 bps over the past three weeks, but we expect to see its first quarter of organic revenue acceleration and signs of a sustained pickup in demand into next year. Options implied move is +/- 2.8%. 5

6 Figure 6. ROP Valuation Summary Roper Industries (ROP) Price 1/15/2014 $ Market cap ($M) Framework Subsector: $13,960 Prime Rating Buy Target, Exp. Total Return $167, +19.4% Price/Earnings 2014E 2015E Relative P/E 22.3x 20.4x 23.4% Historical Range Price/FCF Dividend Yield EV/EBITDA Sum-of-the-Parts Discounted Cash Flow 20% to 45% 16.7x 0.6% 12.9x $178 $136 Source: Citi Research Roper (ROP, Buy, $167 target price) Bottom line: Initial 2014 guidance should refresh expectations after disappointing 2Q13 and 3Q13; when is the next deal coming? Our call into the quarter and what to watch for: Buy-rated Roper is entering its 4Q with something to prove. Following two quarters of uncharacteristic earnings misses and noise from nuclear plant closures, we expect the company is looking to refresh expectations with a strong initial 2014 guidance. Management should remind investors why Roper is one of the highest quality names in the sector by ending the year strong, and aggressively promoting its goal of delivering the next $1 bil deal in We believe the company has properly calibrated earnings expectations into the quarter, with the primary headwind being the falloff in the Zetec nuclear business, weakness in oil & gas, and the perpetually-challenged scientific imaging. That said, offsetting the negatives is strength in Medical and double-digit organic growth from RF Tech. Similar to Danaher, Roper has not seen attractive asking prices in M&A and has remained disciplined throughout We remain confident in its ability to deliver another high-quality deal, potentially in the SaaS space. Stock setup into earnings: After three quarters of disappointing stock reactions, we believe investors are expecting a return to form for Roper, having outperformed peers by 70 bps over the past three weeks. The stock is still near the low-end of its historical relative P/E range. Options imply a +/- 1.7% move. Figure 7. XYL Valuation Summary Xylem (XYL) Price 1/15/2014 $36.37 Market cap ($M) Framework Subsector: $6,710 Hybrid Rating Neutral Target, Exp. Total Return $36, 0.3% Price/Earnings 2014E 2015E Relative P/E Price/FCF EV/EBITDA Sum-of-the-Parts Discounted Cash Flow Source: Citi Research 19.6x 17.3x 4.7% 15.8x 11.6x $36 $32 Our Least Favorite Ideas into Earnings Are XYL, SPW, HON Xylem (XYL, Neutral, $36 target price) Bottom line: Priced for perfection, and even upside to anticipated 2014 guidance may become a Sell-the-news event Our call into the quarter and what to watch for: We believe the stock has been priced for perfection and even upside to our anticipated 2014 guidance range of $1.85-$1.95 may become a sell-the-news event. That said, we expect new/old CEO Steve Loranger has appropriately recalibrated expectations to avoid a repeat of 2Q s miss. The stock has rebounded sharply without a material change in underlying demand, indicating high confidence he can deliver on costcutting. Orders increased 6% in 3Q following declines in 1H13 and there are some improving trends in commercial and nonresi markets, but large project activity remains weak and we do not see many near-term catalysts aside from benefits from restructuring activities. Pricing is also expected to remain negative near-term. The company plans to issue 2014 guidance which could include 30%- 40% incremental margins due to restructuring savings on modest topline growth. Stock setup into earnings: XYL shares have outperformed peers by 410 bps over the past three weeks, and short interest has modestly declined from 3.2 to 2.6 days to cover. On current elevated valuation, we would expect shares to underperform on earnings. 6

7 Figure 8. SPW Valuation Summary SPX Corp. (SPW) Price 1/15/2014 $ Market cap ($M) Framework Subsector: $4,706 Cyclical Rating Sell Target, Exp. Total Return $93, -9.4% Price/Earnings 2014E 2015E Relative P/E Historical Range Price/FCF Dividend Yield EV/EBITDA Sum-of-the-Parts Discounted Cash Flow Source: Citi Research 21.9x 16.6x 0.6% (20%) to 10% 19.7x 1.0% 11.5x $94 $83 SPX Corp (SPW, Sell, $93 target price) Bottom line: Lack of near-term catalysts in pare down story and mixed fundamentals suggest initial guidance likely to disappoint Our call into the quarter and what to watch for: SPX continues to execute on its break-up strategy, focusing in recent months on selling some of its smaller pieces, including the EGS JV back to its partner EMR. However, before it can pare-down to a Flow pure play, the remaining big assets Thermal, transformers, and the $200 mil of Industrial businesses that were moved to disc ops in 3Q will likely require a much lengthier restructuring and sale process. In addition, the upsized $500 mil buyback, while aggressive, will be insufficient to offset the JV sale dilution. While debatable if it matters, fundamentals also remain mixed, with comp headwinds and project ramp downs in Thermal driving further organic declines. We expect initial 2014 guidance to fall short of expectations, suggesting recent outperformance in the stock is unwarranted. In addition, current consensus does not fully bake in the dilution from the sale of the JV. Stock setup into earnings: SPX shares have outperformed peers by 380 bps over the past three weeks, but we see more downside risk from a potentially lackluster guidance and estimate revisions as consensus begins to factor in the JV sale dilution. Options implied move is +/-4.0%. Figure 9. HON Valuation Summary Honeywell (HON) Price 1/15/2014 $89.91 Market cap ($M) Framework Subsector: $70,550 Hybrid Rating Neutral Target, Exp. Total Return $99, +12.1% Price/Earnings 2014E 2015E Relative P/E Historical Range Price/FCF Dividend Yield EV/EBITDA Sum-of-the-Parts Discounted Cash Flow Source: Citi Research 16.2x 14.7x -10.7% (15%) to 5% 17.9x 2.0% 9.0x $96 $88 Honeywell (HON, Neutral, $99 target price) Bottom line: Potential for disappointing 1Q guidance, with organic revenue trending towards low-end of forecasts due to Aero softness Our call into the quarter and what to watch for: The Dec-17 Outlook call set expectations for 3%-4% organic growth in 2014, driven by commercial aero and a recovery in short-cycle businesses. As of Dec-17, 4Q organic revenue growth was tracking to the low-end of the 3%-5% range, mainly due to softness in Aerospace; demand in Transportation, PMT, and ACS were holding up well. Sale of Friction will include a 4c charge, likely offset with a gain. Build-up of cash is a high-quality problem, but Honeywell does not appear enthusiastic about the M&A pipeline or opportunity for buybacks. Resolution of Defense & Space operating issues should help this business recover from the 11% revenue decline in 3Q. Purchase accounting from Intermec should drag ACS incremental margins. Stock setup into earnings: HON has already issued 2014 guidance and discussed expectations for 4Q revenue to come in at the low-end of guidance, eliminating some of the surprise for the quarter. Soft 1Q14 guidance could pressure the shares on earnings.. 7

8 Pair Trade Idea Recommending TYC over HON. We recommend owning TYC over HON into 4Q13 earnings. We like Buy-rated TYC s multiple levers for earnings upside in 2014, and view initial guidance of $2.05-$2.15 as conservative/beatable; we would not be surprised to see it raised to the high-end. We also expect management to maintain the M&A pace set in 2013 with roughly one accretive bolt-on each quarter. By contrast, we see risk to Neutral-rated HON s initial 1Q14 guidance, which could fall short of consensus expectations for $1.29. Management also does not appear enthusiastic about the M&A pipeline or opportunity for buybacks. Given the seasonal January-Effect and traction in the US economy, we believe cyclical/ growthier names with direct nonresi leverage like TYC are better positioned to outperform in a risk-on environment. Company Previews On the following pages, we provide one-page snapshots for each company with key issues for the quarter, potential stock reaction, projected guidance, recent financial performance and our estimates, conference call logistics, stock set-up, recent earnings trends, valuation summary, and our investment thesis. These one-page snapshots are also available in an Excel sheet with a drop-down function for each company. Please contact your Citi Research salesperson for the Excel version of this 4Q13 preview tool. Previews for the 21 Multi-Industry companies are on the following pages: 8

9 Figure 10. 3M Earnings Preview Sheet 3M Co. Citi Research 3M Co. 4Q13E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker MMM Earnings Date 1/30/2014 Rating Neutral Conference Call Time (ET) 9:00 AM Price (1/15/2014) $ Dial in Number NA Target Price $145 Passcode NA Dividend Yield 2.3% Expected Total Return 7.1% Stock Set-up Net Debt/Cap (3Q13) 10% Options Implied One-Day Stock Price Move +/- 1.4% Average Move Last Ten Earnings Days +/- 2.4% Key Issues for the Quarter 3M is still basking in the afterglow of its game-changing Dec Outlook meeting where it announced Three Week Performance: Absolute 1.1% bold intentions to lever-up for buybacks and bigger M&A. 3M posted the sector best organic revs of Vs Multi-Industry Peers -80 bps 5.9% in 3Q but has a tougher 4Q comp of 4.1% plus headwinds of a shorter holiday season. We expect to hear more specifics on 2014 guidance including pension, tax, and FX. Western Europe is Short Interest (Days to Cover): Current 2.3 expected to stay positive as well on Health Care. We expect any upside in the quarter could go 3-Mo. Average 4.2 toward helping fund 2014 ERP costs. Analyst Sentiment: Buy 8 Hold 12 Sell 1 Potential Stock Reaction 3M has outperformed its peers by 260bps since its Dec 17 analyst day. The shares are above the midpoint of their historical rel P/E range suggesting a balanced risk-reward. Options imply an inline 1.4% move on earnings. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $1.75 $ % 2Q13 $1.71 $ % Projected Guidance 1Q13 $1.66 $1.61 (2.8%) We expect there to be no change to recently issued EPS guidance of $7.30-$7.55 and 3%-6% 4Q12 $1.41 $ % organic revs, barring material currency changes, more clarity on pension expense, and the tax rate given the uncertainty around the R&D tax credit. Valuation Summary Price/Earnings 2014E 18.6x Our Investment Thesis 2015E 17.1x A favorite name among PMs, 3M is among the highest quality companies in the sector but we have been Neutral on the stock as its high short-cycle mix leaves it susceptible to earnings surprises. Margin expansion has also been tepid on higher internal investment spending and the potential risk for moderating margins in emerging markets (+30% and 9ppts above developed mkt average). We continue to prefer companies with more late-cycle, big backlog exposure, or nonresi leverage. Deane M. Dray, CFA Relative P/E to Peers 3.6% Historical Range Vs Peers (15%) to 10% Price/FCF 19.2x EV/EBITDA 11.4x Sum-of-the-Parts $130 Discounted Cash Flow $119 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $ $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue 7, , , % 7, , ,292.4 Organic Growth 4.1% 5.9% 4.4% 3.8% 3.6% 4.4% Operating Income 1, , , % 1, , ,113.3 Operating Margin 19.5% 22.0% 20.3% 73 bps 22.2% 21.4% 22.0% Incremental Margin 27% 15% 37% 42% 15% 36% Segment Profit Industrial % , ,393.8 Health Care % , ,780.4 Safety & Graphics % , ,270.8 Consumer % ,003.2 Electronics & Energy % ,003.0 Interest Expense (34.0) (23.0) (23.0) (32%) (23.0) (106.0) (104.0) Pretax Income 1, , , % 1, , ,009.3 Tax Rate 28.7% 27.4% 28.7% -4 bps 28.5% 28.1% 28.5% Net Income 1, , , % 1, , ,011.7 Diluted Shares (3%) Diluted EPS $1.41 $1.78 $ % $1.81 $6.70 $7.45 Guidance 0 NA $6.65-$6.75 $7.30-$7.55 Consensus EPS mean $1.62 $1.80 $6.72 $7.48 Street Low Estimate $1.59 $1.75 $6.69 $7.35 Street High Estimate $1.65 $1.83 $7.00 $7.55 Source: Citi Research, Company Reports, Bloomberg, FactSet 9

10 Figure 11. Ametek Earnings Preview Sheet Ametek Citi Research Ametek 4Q13E Earnings Preview Deane M. Dray, CFA Jessica Mullin David Lu Conference Call Logistics Ticker AME Earnings Date 1/29/2014 Rating Buy Conference Call Time (ET) 8:30 AM Price (1/15/2014) $52.76 Dial in Number Target Price $61 Passcode NA Dividend Yield 0.6% Expected Total Return 16.2% Stock Set-up Net Debt/Cap (3Q13) 25% Options Implied One-Day Stock Price Move +/- 2.8% Average Move Last Ten Earnings Days +/- 2.8% Key Issues for the Quarter Focus of the quarter will be initial EPS guidance, which we expect to be strong including an uptick in Three Week Performance: Absolute 0.4% organic revenue growth and the impact of recent deals. Ametek has been busy with three bolt-on Vs Multi-Industry Peers -150 bps deals since the end of 3Q13 that should add a total of ~$200 million in 2014 sales. Organic revenue growth has been tepid YTD but the 7% organic order growth last quarter and 1.05x book-to-bill setup Short Interest (Days to Cover): Current 3.4 an acceleration in 4Q13. Recently stepped-up investments should also fuel a sustained 3-Mo. Average 1.7 improvement in growth in Recent strength has come from aero, oil & gas, precision motion Analyst Sentiment: control, and even floorcare motors. Power & Industrial remains the biggest drag but saw an Buy 9 improvement in orders in 3Q. Hold 5 Sell 0 Potential Stock Reaction Ametek is poised to show its first quarter of organic revenue acceleration and to issue initial 2014 guidance that should show sustained pickup in demand into next year. The small bolt-on deals over the past quarter should have a modest positive contribution to the outlook. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $0.52 $ % 2Q13 $0.52 $0.52 (3.4%) Projected Guidance 1Q13 $0.51 $0.51 (0.5%) We expect initial 2014 guidance to include an uptick in organic growth to the mid-single-digits from 4Q12 $0.48 $ % 1% in 2013, and deals already completed should drive high single-digit / low double-digit total growth. We expect $2.35-$2.40 guidance vs $2.34 consensus and our $2.40 estimate. For 1Q, we expect $0.56-$0.57. Valuation Summary Price/Earnings 2014E 22.0x Our Investment Thesis 2015E 19.9x Ametek is among the best-in-class Multi-Industry companies with a proven M&A and organic growth strategy to drive 15% total revenue growth through the cycle at premium profitability. M&A is a critical value driver and our work shows that the setup is now favorable with ample capacity and potential upside from recent deals. We also like its position in mid and late-cycle markets including oil & gas, power, and aero, and ability to flex cost savings higher as end market conditions warrant. We believe AME should be a core long-term Industrials holding. Matt McConnell, CFA Relative P/E to Peers 20.8% Historical Range Vs Peers 5% to 35% Price/FCF 20.1x EV/EBITDA 13.7x Sum-of-the-Parts $53 Discounted Cash Flow $51 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $52.76 $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue % , ,925.6 Organic Growth (2.3%) 1.0% 4.6% 5.0% 1.0% 4.5% Operating Income % Operating Margin 22.6% 23.0% 23.1% 49 bps 22.4% 22.9% 23.3% Incremental Margin 29% 33% 28% 23% 30% 28% Segment Profit Electronic Instruments Group (EIG) % Electromechanical Group (EMG) % Interest Expense (18.8) (18.2) (18.2) (3%) (18.2) (73.0) (69.0) Pretax Income % Tax Rate 29.8% 29.0% 29.0% -80 bps 29.0% 29.1% 29.0% Net Income % Diluted Shares % Diluted EPS $0.49 $0.52 $ % $0.57 $2.10 $2.40 Guidance ~$0.54 NA ~$ Consensus EPS mean $0.54 $0.57 $2.09 $2.34 Street Low Estimate $0.52 $0.54 $2.03 $2.23 Street High Estimate $0.55 $0.59 $2.15 $2.44 Source: Citi Research, Company Reports, Bloomberg, FactSet 10

11 Figure 12. Carlisle Earnings Preview Sheet Carlisle Citi Research Carlisle 4Q13E Earnings Preview Deane M. Dray, CFA Jessica Mullin David Lu Conference Call Logistics Ticker CSL Earnings Date 2/6/2014 Rating Neutral Conference Call Time (ET) 8:00 AM Price (1/15/2014) $78.20 Dial in Number Target Price $82 Passcode NA Dividend Yield 1.2% Expected Total Return 6.0% Stock Set-up Net Debt/Cap (3Q13) 16% Options Implied One-Day Stock Price Move NA Average Move Last Ten Earnings Days +/- 4.7% Key Issues for the Quarter We expect an EPS miss as margin pressures offset a strong topline in Construction Materials, but Three Week Performance: Absolute -1.8% the stock has been resilient on soft earnings for the past two quarters. Deeper restructurings are Vs Multi-Industry Peers -200 bps mostly completed at Brake & Friction but margins should still be in the mid single-digits on another revenue decline and a seasonally soft quarter; we expect this weakness to push well into Short Interest (Days to Cover): Current 3.1 Construction Materials should also see margin pressure with negative price/cost as the industry 3-Mo. Average 4.6 absorbs new capacity. The M&A pipeline has been bare and we do not expect management to sit on Analyst Sentiment: the $375 million of proceeds from the Transportation sale, implying an uptick in buybacks. Buy 5 Interconnect should be strong due to Boeing ramp and new content on Airbus. Hold 4 Sell 0 Potential Stock Reaction We expect an EPS miss, but investors have recently been inclined to brush off quarterly earnings volatility in Carlisle as they remain enthused on the portfolio reshaping, uptick in non-residential construction, and capital allocation. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $1.21 $ % 2Q13 $1.36 $ % Projected Guidance 1Q13 $0.84 $0.85 (3.1%) Carlisle does not provide EPS guidance but should issue high-level comments on revenue and 4Q12 $0.78 $ % margin expectations for Our $3.85 estimate is meaningfully below the $4.11 consensus on expectations that Brake & Friction should remain weak for most of 1H14. Valuation Summary Price/Earnings 2014E 19.4x Our Investment Thesis 2015E 16.5x We remain Neutral rated on Carlisle as favorable positioning for the uptick in US non-residential construction is mostly offset by likely margin headwinds from the Brake & Friction downturn and as new Construction Materials capacity comes online. We like the long-term portfolio shaping that has culminated with the divestiture of Transportation Products (20% of sales), and should lead to longterm multiple expansion. Matt McConnell, CFA Relative P/E to Peers 0.2% Historical Range Vs Peers (15%) to 0% Price/FCF 19.9x EV/EBITDA 11.2x Sum-of-the-Parts $75 Discounted Cash Flow $65 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $78.2 $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue (12.5%) , ,195.2 Organic Growth 3.6% 3.7% 4.2% 8.2% (0.5%) 6.6% Operating Income % Operating Margin 9.1% 12.7% 12.0% 283 bps 8.8% 11.4% 12.3% Incremental Margin 44% 22% (11%) 6% 29% 3% Segment Profit Construction Materials (0%) Transportation Products Brake & Friction (54%) Interconnect Technologies % FoodService Products % Interest Expense (6.3) (8.5) (8.5) 35% (7.5) (33.9) (30.0) Pretax Income % Tax Rate 5.7% 7.9% 7.1% 143 bps 5.1% 6.9% 7.5% Net Income % Diluted Shares % Diluted EPS $0.74 $1.18 $0.80 8% $0.54 $3.73 $3.85 Guidance 0 NA 0 0 Consensus EPS mean $0.87 $0.63 $3.87 $4.11 Street Low Estimate $0.80 $0.54 $3.45 $3.85 Street High Estimate $0.96 $0.66 $4.75 $4.25 Source: Citi Research, Company Reports, Bloomberg, FactSet 11

12 Figure 13. Crane Earnings Preview Sheet Crane Citi Research Crane 4Q13E Earnings Preview Deane M. Dray, CFA Jessica Mullin David Lu Conference Call Logistics Ticker CR Earnings Date 1/28/2014 Rating Neutral Conference Call Time (ET) 10:00 AM Price (1/15/2014) $68.87 Dial in Number NA Target Price $74 Passcode NA Dividend Yield 1.6% Expected Total Return 9.1% Stock Set-up Net Debt/Cap (3Q13) -6% Options Implied One-Day Stock Price Move +/- 0.6% Average Move Last Ten Earnings Days +/- 2.8% Key Issues for the Quarter The recently completed MEI deal will be included in initial 2014 EPS guidance; this will also be the Three Week Performance: Absolute 2.8% first update on MEI s financial performance since the deal was announced in Dec Fluid Vs Multi-Industry Peers +260 bps expectations could be conservative even if there is a late 2014 ramp coming (Pentair guided conservatively for 2%-3%, though expects 4%-6% through 2016). We expect solid inquiries on lg. Short Interest (Days to Cover): Current 2.9 projects but do not expect a big impact on orders or revenue until later in Crane has more 3-Mo. Average 1.5 exposure to Pharma, which is expected to grow slower than Energy. Soft YTD orders in 2013 setup Analyst Sentiment: another modest organic revenue growth quarter; most of the growth should be led by Engineered Buy 5 Materials. Aero should be stabilizing as it laps completed aftermarket contracts. Hold 1 Sell 0 Potential Stock Reaction We expect Crane could guide conservatively for 2014 as the ramp in Fluid could come later in the year than expected. The shares look reasonably valued below the midpoint of its historical valuation range, even after recent modest outperformance. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $1.06 $ % 2Q13 $1.04 $1.06 (1.2%) Projected Guidance 1Q13 $1.03 $ % Crane is expected to issue initial 2014 revenue and EPS guidance on the 4Q call; a detailed 4Q12 $0.96 $ % segment update will come at the Feb-27 Analyst Meeting. Our $4.60 estimate includes 4.3% organic growth and a 20c contribution from MEI. We expect guidance of $4.50-$4.70. Crane does not provide quarterly EPS guidance. Valuation Summary Price/Earnings 2014E 15.0x Our Investment Thesis 2015E 13.1x We remain enthusiastic about the potential for a long-term revaluation higher for Crane, but the stock looks less compelling over the near-term as it faces headwinds from the 2013 order declines and delay in the MEI close that pushes any accretion upside to later in Crane's late-cycle mix in Aero and Fluid Handling positions it well at this point in the cycle, but valuation is no longer appealing enough for a Buy rating. Matt McConnell, CFA Relative P/E to Peers (20.6%) Historical Range Vs Peers (25%) to (5%) Price/FCF 15.9x EV/EBITDA 8.5x Sum-of-the-Parts $74 Discounted Cash Flow $71 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $68.87 $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue % , ,043.8 Organic Growth 1.6% (1.0%) 2.5% 3.7% (0.4%) 4.3% Operating Income % Operating Margin 13.4% 14.4% 14.2% 85 bps 13.9% 14.4% 14.4% Incremental Margin 41% NM 43% 12% (204%) 14% Segment Profit Aerospace & Electronics % Engineered Materials % Merchandising (23%) Fluid Handling % Crane Controls Interest Expense (6.1) (6.4) (6.4) 4% (11.6) (25.5) (46.2) Pretax Income % Tax Rate 31.1% 27.6% 30.0% -105 bps 30.0% 28.7% 30.0% Net Income % Diluted Shares % Diluted EPS $0.92 $1.04 $1.01 9% $1.08 $4.16 $4.60 Guidance ~$0.97-$1.07 NA $4.10-$ Consensus EPS mean $1.01 $1.07 $4.09 $4.58 Street Low Estimate $1.01 $1.07 $3.77 $4.45 Street High Estimate $1.10 $1.18 $4.30 $4.85 Source: Citi Research, Company Reports, Bloomberg, FactSet 12

13 Figure 14. Danaher Earnings Preview Sheet Danaher Citi Research Danaher 4Q13E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker DHR Earnings Date 1/28/2014 Rating Buy Conference Call Time (ET) 8:00 AM Price (1/15/2014) $78.21 Dial in Number Target Price $88 Passcode NA Dividend Yield 0.1% Expected Total Return 12.6% Stock Set-up Net Debt/Cap (3Q13) 6% Options Implied One-Day Stock Price Move +/- 2.0% Average Move Last Ten Earnings Days +/- 2.3% Key Issues for the Quarter Danaher has now slipped into double-overtime in its M&A hunt, still looking to put its expanding Three Week Performance: Absolute 1.8% +$8B in bal sheet capacity to work. On Jan-14, the company followed-up positive 4Q commentary at Vs Multi-Industry Peers 0 bps its outlook meeting with an official positive preannouncement: core rev and EPS are at the high end of the guidance range. We view this as a positive especially given its $100 million of planned 4Q Short Interest (Days to Cover): Current 3.3 restructuring. Estimated 4Q core rev of ~3% reflects a tough 4Q12 comp of 3.5% due to pull-forward 3-Mo. Average 2.7 med tech and dental spend a year ago. We expect the improving macro backdrop to provide some Analyst Sentiment: support in Test & Measurement and Industrial, while Water Quality is likely to see more stabilization Buy 22 especially as some larger muni orders are released. Hold 4 Sell 0 Potential Stock Reaction Valuation remains towards the low-end of its historical rel P/E range and the stock has traded inline with peers over the last three weeks. Options imply a 2.0% move on earnings suggesting a muted reaction and we would agree given the positive preannouncement. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $0.83 $ % 2Q13 $0.86 $0.87 (1.0%) Projected Guidance 1Q13 $0.76 $0.75 (2.8%) We expect DHR to maintain $3.60-$ guidance barring more clarity on the R&D tax credit 4Q12 $0.86 $ % which would be a $0.05 boost to EPS at the midpoint. We expect 1Q guidance to be in the $0.77- $0.82 range, inline with consensus and normal seasonality. Valuation Summary Price/Earnings 2014E 20.9x Our Investment Thesis 2015E 18.8x Danaher is one of the elite high quality companies in the sector with consistent FCF conversion. High margin aftermarket consumables and services now represent 40% of sales, providing good earnings visibility. The balance sheet has been reloaded with +$8 bil in M&A capacity and we expect the company to eventually complete some deals but this is not reflected in our estimates. We remain positive on valuation, with the shares trading near the low-end of the historical rel P/E range. Deane M. Dray, CFA Relative P/E to Peers 14.2% Historical Range Vs Peers 10% to 25% Price/FCF 17.0x EV/EBITDA 12.0x Sum-of-the-Parts $75 Discounted Cash Flow $74 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $78.21 $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue 4, , , % 4, , ,119.1 Organic Growth 3.5% 3.0% 2.9% 3.3% 2.3% 3.8% Operating Income % , ,627.1 Operating Margin 17.0% 17.4% 17.5% 50 bps 17.0% 17.3% 18.0% Incremental Margin 27% 30% 26% 26% 25% 32% Segment Profit Test & Measurement % Environmental % Life Sciences & Diagnostics % ,161.2 Dental % Industrial Technologies % Net Income from Tools JV Interest Expense (39.8) (33.6) (32.6) (18%) (32.3) (142.3) (121.7) Pretax Income % , ,505.4 Tax Rate 24.0% 23.3% 23.3% -64 bps 24.7% 23.5% 24.8% Net Income % , ,634.4 Diluted Shares (0%) Diluted EPS $0.89 $0.84 $0.96 8% $0.81 $3.41 $3.75 Guidance $0.91-$0.96 NA $3.37-$3.42 $3.60-$3.75 Consensus EPS mean $0.95 $0.82 $3.41 $3.77 Street Low Estimate $0.94 $0.79 $3.35 $3.66 Street High Estimate $0.97 $0.84 $3.70 $4.25 Source: Citi Research, Company Reports, Bloomberg, FactSet 13

14 Figure 15. Dover Earnings Preview Sheet Dover Corp Citi Research Dover Corp 4Q13E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker DOV Earnings Date 1/30/2014 Rating Neutral Conference Call Time (ET) 10:00 AM Price (1/15/2014) $96.36 Dial in Number Target Price $103 Passcode Dividend Yield 1.6% Expected Total Return 8.5% Stock Set-up Net Debt/Cap (3Q13) 26% Options Implied One-Day Stock Price Move +/- 1.7% Average Move Last Ten Earnings Days +/- 2.1% Key Issues for the Quarter We have much more confidence in Dover hitting its 4Q targets after mgmt lowered guidance during Three Week Performance: Absolute 0.9% 3Q and removed the steep, aspirational second-half ramp. We still expect a sequential uptick in Vs Multi-Industry Peers -100 bps almost every segment, with Engineered Systems benefiting from Anthony Int l and Comm Tech steadily improving ahead of its spin. Mgmt also anticipates strong growth in Energy driven by a Short Interest (Days to Cover): Current 4.5 recovery in production. Europe could see another positive datapoint after delivering 4% growth in 3-Mo. Average 3.9 3Q, although it is premature to declare a recovery in the region. Expect details on the Knowles spin Analyst Sentiment: in early Initial 2014 guidance will be provided on a post-spin basis, excluding Knowles; mgmt Buy 14 will also provide sales guidance on a total company post-spin basis, and not by segment. Hold 6 Sell 0 Potential Stock Reaction The set-up is slightly favorable as DOV has underperformed peers by 100bps over the past three weeks and valuation is currently right below the midpoint of its historical relative range. Options implied move is +/-1.7%. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $1.50 $1.53 (1.0%) 2Q13 $1.28 $ % Projected Guidance 1Q13 $1.08 $1.12 (3.2%) Mgmt plans to provide initial 2014 guidance on a post-spin basis, which will exclude Knowles. We 4Q12 $1.10 $1.09 (1.6%) expect a range of $4.90-$5.20, not comparable to our current 2014 est and consensus, but note that the actual guide will depend heavily on the post-spin corp expense and tax rate. Adjusted for the spin, our est would be roughly ~$5.15. Dover typically does not provide quarterly guidance. Valuation Summary Price/Earnings 2014E 16.2x Our Investment Thesis 2015E 15.2x We like Dover's ongoing transformation to a higher-margin and higher-growth Multi-Industry, but our investment framework at this point in the cycle favors those companies with bigger backlogs and visibility in late-cycle markets, which does not align well to Dover's strengths and mix at this time. We like the simplifying spin of Knowles, as it removes the fickle consumer electronics business and refocuses the portfolio on its industrial elements. Deane M. Dray, CFA Relative P/E to Peers (8.1%) Historical Range Vs Peers (20%) to 10% Price/FCF 16.3x EV/EBITDA 9.5x Sum-of-the-Parts $101 Discounted Cash Flow $92 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $96.36 $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue 2, , , % 2, , ,205.4 Organic Growth 2.1% 3.0% 4.5% 5.7% 3.1% 5.3% Operating Income % , ,516.8 Operating Margin 15.1% 17.5% 15.2% 16 bps 15.3% 15.7% 16.5% Incremental Margin 13% 25% 17% 27% 19% 29% Segment Profit Communication Technologies % Energy % Engineered Systems % Printing & Identification (0%) Interest Expense (31.0) (30.2) (30.2) (2%) (27.7) (121.0) (110.9) Pretax Income % , ,405.8 Tax Rate 28.5% 27.4% 27.8% -77 bps 27.5% 22.1% 27.5% Net Income % ,019.2 Diluted Shares (5%) Diluted EPS $1.09 $1.53 $ % $1.29 $5.62 $5.95 Guidance 0 NA $5.57-$ Consensus EPS mean $1.28 $1.29 NA $5.97 Street Low Estimate $1.25 $1.20 NA $3.33 Street High Estimate $1.38 $1.38 NA $6.35 Source: Citi Research, Company Reports, Bloomberg, FactSet 14

15 Figure 16. Emerson Earnings Preview Sheet Emerson Citi Research Emerson 1Q14E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker EMR Earnings Date 2/4/2014 Rating Buy Conference Call Time (ET) 2:00 PM Price (1/15/2014) $69.78 Dial in Number NA Target Price $79 Passcode NA Dividend Yield 2.5% Expected Total Return 15.7% Stock Set-up Net Debt/Cap (4Q13) 16% Options Implied One-Day Stock Price Move +/- 0.8% Average Move Last Ten Earnings Days +/- 2.0% Key Issues for the Quarter We are not expecting much change to current $3.68-$3.80 guidance ahead of its Feb-13 Boston Three Week Performance: Absolute 0.0% analyst meeting where it will provide segment guidance. Recent orders have been stable with two Vs Multi-Industry Peers -190 bps months of sequential upticks in Network Power, consistent with mgmt s commentary for 3%-5% total rev growth in We expect to hear more color on the $571 mil EGS JV buy-in from SPX. We Short Interest (Days to Cover): Current 3.0 also expect some more specifics and sizing on the 2014 growth investments such as ERP 3-Mo. Average 3.5 implementation which underpin the current mid-to-high single digit EPS growth expectations limiting incremental profitability and the potential levers for 2014 upside. Analyst Sentiment: Buy 19 Hold 5 Sell 1 Potential Stock Reaction Valuation is below the low-end of its historical rel P/E range and the stock has underperformed peers by 190 bps over the last three weeks. Options imply a 0.8% move on earnings suggesting a muted reaction vs its 2.0% average. Recent Earnings Trends Consensus Reported EPS Stock Move 4Q13 $1.11 $1.11 (0.8%) 3Q13 $0.99 $ % Projected Guidance 2Q13 $0.78 $0.77 (1.3%) We do not expect the company to make any material changes to its 4%-7% EPS growth ahead of its 1Q13 $0.62 $0.62 (1.0%) February analyst day. Valuation Summary Price/Earnings 2014E 18.0x Our Investment Thesis 2015E 16.1x We like EMR as a turnaround story as the shares look to be compelling value, trading below its historical relative P/E range. It has tested the patience of its longer-term supporters, posting nearly two years of modestly below-consensus quarterly earnings. There is an ongoing debate about the robustness of its Network Power and Industrial Automation portfolios. But notwithstanding the string of modest earnings misses, EMR still ranks among the sector best in quality metrics with ~16% margins, mid-teens ROIC, and solid FCF. Process Controls remains the key growth driver. Deane M. Dray, CFA Relative P/E to Peers (2.7%) Historical Range Vs Peers 0% to 15% Price/FCF 18.7x EV/EBITDA 9.7x Sum-of-the-Parts $66 Discounted Cash Flow $72 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $69.78 $ Millions, except for per share data 1Q13 4Q13 1Q14E Y/Y Change 2Q14E 2014E 2015E Revenue 5, , , % 6, , ,163.2 Organic Growth 5.6% 1.0% 1.6% 3.2% 3.9% 6.0% Operating Income , % 1, , ,975.8 Operating Margin 14.4% 19.9% 15.0% 56 bps 16.6% 17.5% 18.3% Incremental Margin 45% 62% 89% NM 26% 29% Segment Profit Commercial & Residential Solutions % Network Power % Climate Technologies % Industrial Automation (7%) Process Management % , ,114.9 Interest Expense (54.0) (56.0) (57.0) 6% (57.0) (228.0) (188.0) Pretax Income , % , ,299.8 Tax Rate 30.8% 31.6% 31.0% 24 bps 31.0% 31.0% 31.0% Net Income % , ,966.8 Diluted Shares (2%) Diluted EPS $0.62 $1.11 $0.67 8% $0.86 $3.80 $4.25 Guidance 0 NA $3.68-$ Consensus EPS mean $0.68 $0.86 $3.81 $4.24 Street Low Estimate $0.63 $0.84 $3.72 $4.03 Street High Estimate $0.78 $0.93 $4.48 $4.59 Source: Citi Research, Company Reports, Bloomberg, FactSet 15

16 Figure 17. Federal Signal Earnings Preview Sheet Federal Signal Citi Research Federal Signal 4Q13E Earnings Preview Deane M. Dray, CFA Jessica Mullin David Lu Conference Call Logistics Ticker FSS Earnings Date NA Rating Neutral Conference Call Time (ET) NA Price (1/15/2014) $14.12 Dial in Number NA Target Price $16 Passcode NA Dividend Yield 0.6% Expected Total Return 13.9% Stock Set-up Net Debt/Cap (3Q13) 26% Options Implied One-Day Stock Price Move +/- 6.1% Average Move Last Ten Earnings Days +/- 6.5% Key Issues for the Quarter Federal Signal has guided to 4Q performance roughly consistent with 2Q and 3Q levels, implying Three Week Performance: Absolute -3.2% $0.23-$0.27, a potentially conservative outlook as revenue seasonally increases in 4Q. Operating Vs Multi-Industry Peers -330 bps results have been improving substantially faster than expected under the turnaround plan executed by CEO Dennis Martin and team. Results in 4Q should benefit from slow and steady improvement in Short Interest (Days to Cover): Current 3.3 municipal markets and new products, but backlog burn should no longer be a tailwind. Higher 3-Mo. Average 2.1 Jetstream sales (part of plan to increase Industrial from 40% of sales to 60%) should buoy Analyst Sentiment: profitability. There could be a discussion of capital allocation plans given the improving balance Buy 2 sheet; options include resumption of a modest dividend or small bolt-on deals. Hold 3 Sell 0 Potential Stock Reaction FSS has sharply lagged peers recently after a blistering We still see near-term risk to municipal markets and to Europe, two critical markets, even as the long-term turnaround is progressing substantially faster than initial expectations. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $0.17 $ % 2Q13 $0.14 $ % Projected Guidance 1Q13 $0.10 $0.12 (1.5%) Last year Federal Signal only issued 1H guidance as the operating outlook was uncertain and recent 4Q12 $0.10 $0.08 (4.3%) operating results were inconsistent. The company could be positioned to give a full year outlook this time. Our $0.80 estimate is consistent with consensus, and implies a Y/Y decline mostly due to higher GAAP tax. Valuation Summary Price/Earnings 2014E 17.7x Our Investment Thesis 2015E 14.9x The turnaround story continues to make impressive strides as CEO Dennis Martin implements an 80/20 business simplification in the face of soft municipal end markets. The manageable debt load since the FSTech divestiture positions Federal Signal to proactively invest for growth, particularly in Industrial markets. A shift from a majority municipal sales would be a positive for revenue growth, profitability, and valuation. We remain Neutral in light of the risks to a turnaround where expectations have recently moved significantly higher. Matt McConnell, CFA Relative P/E to Peers (9.5%) Historical Range Vs Peers (15%) to 20% Price/FCF 13.6x EV/EBITDA 11.3x Sum-of-the-Parts $15 Discounted Cash Flow $10 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $14.12 $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue % Organic Growth 13.1% 13.1% 3.1% 3.6% 6.6% 1.7% Operating Income % Operating Margin 6.0% 9.0% 8.7% 277 bps 8.1% 8.0% 8.8% Incremental Margin 4% 26% 99% 66% NM NM Segment Profit Safety & Security Group (4%) Fire Rescue % Environmental Solutions % Interest Expense (5.7) (1.5) (1.5) (74%) (1.3) (9.2) (5.0) Pretax Income % Tax Rate 29.0% 2.9% 8.0% bps 30.0% 5.6% 30.0% Net Income % Diluted Shares % Diluted EPS $0.08 $0.26 $ % $0.17 $0.88 $0.80 Guidance ~$0.23-$0.27 NA $0.85-$ Consensus EPS mean $0.25 $0.18 $0.86 $0.78 Street Low Estimate $0.13 $0.17 $0.48 $0.64 Street High Estimate $0.26 $0.17 $0.88 $0.80 Source: Citi Research, Company Reports, Bloomberg, FactSet 16

17 Figure 18. General Electric Earnings Preview Sheet General Electric Citi Research General Electric 4Q13E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker GE Earnings Date 1/17/2014 Rating Buy Conference Call Time (ET) 8:30 AM Price (1/15/2014) $27.34 Dial in Number webcast at GE.com/investor Target Price $32 Passcode NA Dividend Yield 3.2% Expected Total Return 20.3% Stock Set-up Net Debt/Cap (3Q13) NM Options Implied One-Day Stock Price Move +/- 3.2% Average Move Last Ten Earnings Days +/- 2.3% Key Issues for the Quarter Three Week Performance: GE has already issued a confident 2014 framework for a sector-best 4%-7% organic revenue growth Absolute -1.0% led by Aviation and Oil & Gas, and another year of Industrial margin expansion. Value gap should Vs Multi-Industry Peers -290 bps also remain strong following the +80 bps margin contribution in 3Q, helping GE hit the target for 70 bps Industrial margin expansion for 2013 (~120 bps are needed in 4Q). Expect questions on the Short Interest (Days to Cover): Current 2.0 possibility that GE could add leverage to the parent to add to the $90 bil of capital allocation 3-Mo. Average 1.9 capacity. There should be insight into the $1 bil Thermo Fisher life science asset purchase. The Analyst Sentiment: bears continue to carp about weak implied 2014 earnings, explained in part by the plans for 10c of Buy 13 uncovered restructuring. Hold 10 Sell 0 Potential Stock Reaction GE shares have underperformed by 290bps over the past three weeks and valuation is towards the middle of its historical relative range. We do not expect any new positive catalysts to be announced on earnings and expect an inline stock reaction. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $0.35 $ % 2Q13 $0.36 $ % Projected Guidance 1Q13 $0.35 $0.39 (4.1%) Initial guidance for 4%-7% Industrial organic growth is solid vs Multi-Industry peers and should be 4Q12 $0.43 $ % reiterated at 4Q. We do not expect adjustments to the other elements of the segment framework. Linear progression to the targeted 17% Industrial op margin in 2016 would imply a 40 bps increase in Valuation Summary Price/Earnings 2014E 16.1x Our Investment Thesis 2015E 13.7x We like GE as one of the Control Your Own Destiny stories and relative valuation looks appealing. Its record $229 bil backlog in late-cycle markets positions GE well for this point in the cycle (representing more than seven quarters of revenues), and the ongoing earnings mix shift to 70/30 Industrial/GECC should drive multiple expansion. Capital allocation remains investor-friendly with a focus on lowering the sharecount and maintaining the 3%+ dividend. M&A should stay in the lowerrisk $1-$4 bil bite-sized range. Relative P/E to Peers (17.2%) Historical Range Vs Peers (25%) to (5%) Price/FCF EV/EBITDA Deane M. Dray, CFA NM NM Sum-of-the-Parts $27 Discounted Cash Flow $25 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $27.34 $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue 39, , , % 34, , ,534.7 Organic Growth 4.0% 1.0% 4.3% 6.0% (0.0%) 5.6% Operating Income 4, , , % 3, , ,846.8 Operating Margin 17.3% 15.4% 18.5% 122 bps 13.8% 15.7% 16.3% Incremental Margin 49% 63% 41% 26% 134% 25% Segment Profit Power & Water 1, , , % , ,420.2 Oil & Gas % , ,536.6 Energy Management % Aviation 1, , , % 1, , ,719.2 Healthcare 1, , % , ,325.1 Transportation % , ,141.6 Home & Business Solutions % Interest Expense (393.0) (338.0) (338.0) (14%) (283.0) (1,326.0) (1,132.0) Pretax Income 5, , , % 3, , ,674.3 Tax Rate 22.9% 23.9% 20.0% -288 bps 20.0% 21.4% 20.0% Net Income 4, , , % 3, , ,021.3 Diluted Shares 10, , ,223.0 (3%) 10, , ,008.0 Diluted EPS $0.44 $0.36 $ % $0.35 $1.65 $1.70 Guidance 0 NA 0 0 Consensus EPS mean $0.53 $0.34 $1.64 $1.70 Street Low Estimate $0.52 $0.32 $1.60 $1.65 Street High Estimate $0.54 $0.37 $1.80 $1.98 Source: Citi Research, Company Reports, Bloomberg, FactSet 17

18 Figure 19. Grainger Earnings Preview Sheet Grainger Citi Research Grainger 4Q13E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker GWW Earnings Date 1/24/2014 Rating Neutral Conference Call Time (ET) 8:00 AM Price (1/15/2014) $ Dial in Number Podcast Target Price $282 Passcode NA Dividend Yield 1.4% Expected Total Return 8.3% Stock Set-up Net Debt/Cap (3Q13) 0% Options Implied One-Day Stock Price Move +/- 1.4% Average Move Last Ten Earnings Days +/- 3.6% Key Issues for the Quarter Investors are asking, with industrial fundamentals like the ISM so positive, why isn t GWW acting Three Week Performance: Absolute 3.7% better? GWW daily sales have been modestly weaker-than-expected with the most worrisome Vs Multi-Industry Peers +180 bps datapoint being negative pricing. We expect this pricing angst to partly dissipate following the company s annual Feb price increases, but there will still be ongoing pricing pressure from larger Short Interest (Days to Cover): Current 3.2 customers as they consolidate suppliers and command more volume discounts. In the past, 3-Mo. Average 3.8 Grainger has adjusted full-year forward guidance at 4Q earnings, but we expect it to maintain its Analyst Sentiment: $12.25-$13.00 range set on Nov-13. Daily sales are trending just above 5% implying 4.2% total Buy 10 revenue growth vs. current consensus of 6.8%, but with some easier comps expected in Hold 12 Sell 0 Potential Stock Reaction Grainger has underperformed peers by 5pts over the past two months as concern grows over pricing and investors gravitate to some risk-on names. GWW commands a much more modest premium to peers on P/E, currently at an 11% premium. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $3.06 $ % 2Q13 $2.97 $ % Projected Guidance 1Q13 $2.74 $ % We expect Grainger to maintain its $12.25-$13.00 guidance given some mix challenges and it being 4Q12 $2.61 $ % so early in the year. Grainger does not provide quarterly EPS guidance. Valuation Summary Price/Earnings 2014E 20.3x Our Investment Thesis 2015E 18.3x Grainger shares have been able to sustain a P/E premium, fueled by its resilient industrial MRO distribution model, online sales growth, and relative insulation from Europe risk (just 4% of sales). Grainger continues to execute well against its long-term growth objectives and margin expansion priorities due to its continued investments in customer service, IT infrastructure, ecommerce, salespeople, and new SKUs including its robust private label brands. The AmazonSupply risk has faded a bit based on our survey work. Deane M. Dray, CFA Relative P/E to Peers 11.0% Historical Range Vs Peers 5% to 30% Price/FCF 26.4x EV/EBITDA 10.7x Sum-of-the-Parts NA Discounted Cash Flow $277 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $ $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue 2, , , % 2, , ,070.3 Organic Growth 6.6% 5.7% 4.8% 4.3% 5.0% 6.1% Operating Income % , ,486.7 Operating Margin 12.7% 14.5% 13.0% 33 bps 15.4% 14.3% 14.8% Incremental Margin 68% 14% 20% 22% 26% 21% Segment Profit United States % , ,435.0 Canada (6%) Other Businesses % Interest Expense (4.0) (2.9) (2.9) (28%) (2.3) (10.5) (9.1) Pretax Income % , ,478.4 Tax Rate 36.6% 38.0% 38.0% 146 bps 37.8% 37.4% 37.8% Net Income % Diluted Shares (1%) Diluted EPS $2.43 $2.95 $2.58 6% $3.23 $11.50 $13.00 Guidance 0 NA $11.45-$11.65 $12.25-$13.00 Consensus EPS mean $2.64 $3.17 $11.55 $12.98 Street Low Estimate $2.58 $3.09 $10.61 $12.60 Street High Estimate $2.89 $3.39 $12.25 $13.90 Source: Citi Research, Company Reports, Bloomberg, FactSet 18

19 Figure 20. Honeywell Earnings Preview Sheet Honeywell Citi Research Honeywell 4Q13E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker HON Earnings Date 1/24/2014 Rating Neutral Conference Call Time (ET) 9:00 AM Price (1/15/2014) $89.91 Dial in Number Target Price $99 Passcode NA Dividend Yield 2.0% Expected Total Return 12.1% Stock Set-up Net Debt/Cap (3Q13) 14% Options Implied One-Day Stock Price Move +/- 0.4% Average Move Last Ten Earnings Days +/- 2.8% Key Issues for the Quarter The Dec-17 outlook call has already set expectations for 3%-4% organic growth in 2014, driven by Three Week Performance: Absolute -0.6% commercial aero and a recovery in short-cycle businesses. As of Dec-17, 4Q organic revenue Vs Multi-Industry Peers -250 bps growth was tracking to the low-end of the 3%-5% range, mainly due to softness in Aerospace; demand in Transportation, PMT, and ACS were holding up well. Sale of Friction will result in a 4c Short Interest (Days to Cover): Current 2.2 charge, likely offset with a gain. Build-up of cash is a high-quality problem, but Honeywell does not 3-Mo. Average 2.4 appear enthusiastic about the M&A pipeline or opportunity for buybacks. Resolution of Defense & Analyst Sentiment: Space operating issues should help this business recover from the 11% revenue decline in 3Q. Buy 19 Purchase accounting from Intermec should drag ACS incremental margins. Hold 8 Sell 0 Potential Stock Reaction HON has already issued 2014 guidance and discussed expectations for 4Q revenue to come in at the low-end of guidance, eliminating some of the surprise for the quarter. Soft 1Q14 guidance could pressure the shares on earnings. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $1.24 $1.24 (2.5%) 2Q13 $1.21 $ % Projected Guidance 1Q13 $1.14 $ % There should be no drama in reiteration of the recently-issued initial 2014 EPS guidance for $5.35-4Q12 $1.09 $ % $5.55 with 3%-4% organic revenue growth. We expect initial 1Q14 guidance could be soft at $1.20- $1.25 vs $1.29 consensus. Valuation Summary Price/Earnings 2014E 16.2x Our Investment Thesis 2015E 14.7x We like Honeywell's attractive late-cycle exposures, 21% of sales from recurring revenue, earnings momentum, and Dave Cote s don t bet against me bravado. Honeywell remains nicely leveraged to the megatrend catalysts in energy efficiency across nearly all of its businesses. While we expect further margin upside, we believe this is now mostly priced in ahead of the March 2014 analyst meeting and the next set of five-year targets. Deane M. Dray, CFA Relative P/E to Peers (10.7%) Historical Range Vs Peers (15%) to 5% Price/FCF 17.9x EV/EBITDA 9.0x Sum-of-the-Parts $96 Discounted Cash Flow $88 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $89.91 $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue 9, , , % 9, , ,658.4 Organic Growth 1.0% 0.9% 4.2% 3.4% 1.8% 3.7% Operating Income 1, , , % 1, , ,310.2 Operating Margin 15.6% 16.7% 16.0% 41 bps 16.1% 16.3% 16.8% Incremental Margin NM-Pos 54% 25% 24% 37% 28% Segment Profit Aerospace % , ,469.3 Automation and Control Solutions % , ,670.3 Performance Materials + Technologies % , ,331.5 Transportation Systems % Interest Expense (8%) Pretax Income 1, , , % 1, , ,014.2 Tax Rate 30.6% 27.2% 32.0% 137 bps 26.5% 26.5% 26.5% Net Income % , ,420.5 Diluted Shares (0%) Diluted EPS $1.10 $1.24 $ % $1.25 $4.95 $5.55 Guidance $1.17-$1.22 NA $4.90-$4.95 $5.35-$5.55 Consensus EPS mean $1.21 $1.29 $4.94 $5.54 Street Low Estimate $1.18 $1.24 $4.90 $5.50 Street High Estimate $1.33 $1.35 $5.15 $6.00 Source: Citi Research, Company Reports, Bloomberg, FactSet 19

20 Figure 21. IDEX Earnings Preview Sheet IDEX Citi Research IDEX 4Q13E Earnings Preview Deane M. Dray, CFA Jessica Mullin David Lu Conference Call Logistics Ticker IEX Earnings Date 1/30/2014 Rating Neutral Conference Call Time (ET) 10:30 AM Price (1/15/2014) $74.35 Dial in Number NA Target Price $74 Passcode NA Dividend Yield 1.3% Expected Total Return 0.8% Stock Set-up Net Debt/Cap (3Q13) 17% Options Implied One-Day Stock Price Move +/- 5.8% Average Move Last Ten Earnings Days +/- 1.7% Key Issues for the Quarter Focus will be the initial 2014 EPS guidance to be issued with 4Q results. For the quarter, the 13% Three Week Performance: Absolute 1.7% organic order growth in 3Q supports expectations for organic revenue growth to accelerate from 1% Vs Multi-Industry Peers +150 bps YTD to 5% in 4Q. Large Dispensing projects should begin ramping in 4Q and have a more substantial impact on revenue and margins for 1Q14. Energy markets should remain robust, driving Short Interest (Days to Cover): Current 5.6 high single-digit growth for Fluid & Metering. There is ample capital allocation capacity given 17% 3-Mo. Average 3.9 net debt-to-cap and exceptional free cash flow; the M&A market remains tough but IDEX is happy to be patient rather than chase pricey assets, and share buybacks should remain opportunistic only. Analyst Sentiment: Buy 4 Hold 13 Sell 0 Potential Stock Reaction IEX has performed inline with peers over the past two months but should still come into earnings towards the high-end of its range. We expect a nice acceleration in organic growth and strong guidance including the ramp in Dispensing shipments to meet still-elevated expectations. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $0.74 $0.78 (0.1%) 2Q13 $0.74 $ % Projected Guidance 1Q13 $0.72 $ % We expect an initial 2014 EPS guidance for $3.30-$3.40, bracketing our $3.35 estimate and 4Q12 $0.68 $0.69 (2.1%) including mid single-digit organic revenue growth and a high 30%s incremental operating margin. The outlook should reflect $15-$20 million of growth investments. Guidance for 1Q14 could be $0.79- $0.81 vs the $0.81 consensus. Valuation Summary Price/Earnings 2014E 22.2x Our Investment Thesis 2015E 20.6x IDEX is among the highest-quality Multi-Industry SMID-caps with customized products in niche markets enabling near sector-best profitability, above-average total and organic revenue growth, and with less cyclicality. We like its late-cycle and less-cyclical markets, such as energy, petrochemical, water, and analytical instruments. We believe IEX warrants a premium valuation vs its small-cap Multi-Industry peers, but valuation does not provide sufficient upside for a Buy at this time. Matt McConnell, CFA Relative P/E to Peers 25.0% Historical Range Vs Peers 0% to 30% Price/FCF 19.1x EV/EBITDA 13.3x Sum-of-the-Parts $71 Discounted Cash Flow $65 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $74.35 $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue % , ,123.6 Organic Growth 0.0% 1.0% 4.8% 5.3% 1.9% 4.5% Operating Income % Operating Margin 18.5% 19.8% 19.9% 142 bps 19.9% 19.5% 20.3% Incremental Margin 53% 90% 41% 31% 50% 37% Segment Profit Fluid & Metering Technologies % Health & Science Technologies % Fire & Safety/Diversified Products (0%) Interest Expense (10.5) (10.6) (10.6) 1% (10.6) (42.3) (42.3) Pretax Income % Tax Rate 29.0% 26.3% 30.0% 103 bps 29.0% 28.5% 29.0% Net Income % Diluted Shares (0%) Diluted EPS $0.69 $0.78 $ % $0.81 $3.07 $3.35 Guidance $0.78-$0.80 NA $3.05-$ Consensus EPS mean $0.80 $0.81 $3.05 $3.36 Street Low Estimate $0.74 $0.74 $2.93 $3.22 Street High Estimate $0.80 $0.83 $3.20 $3.48 Source: Citi Research, Company Reports, Bloomberg, FactSet 20

21 Figure 22. Illinois Tool Works Earnings Preview Sheet Illinois Tool Works Citi Research Illinois Tool Works 4Q13E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker ITW Earnings Date 1/28/2014 Rating Neutral Conference Call Time (ET) 10:00 AM Price (1/15/2014) $82.51 Dial in Number Target Price $91 Passcode ITW Dividend Yield 2.1% Expected Total Return 12.4% Stock Set-up Net Debt/Cap (3Q13) 7% Options Implied One-Day Stock Price Move +/- 1.1% Average Move Last Ten Earnings Days +/- 2.8% Key Issues for the Quarter ITW already provided initial 2014 guidance of $4.30-$4.50 at its Dec-6 analyst meeting. We view the Three Week Performance: Absolute -1.0% 2%-3% organic growth target as conservative, and expect to see the segment level guidance when it Vs Multi-Industry Peers -290 bps reports 4Q13 earnings. Europe (31% of revs) is expected to achieve 1%-2% positive growth. Overall, 4Q core growth should uptick from 3Q and we expect to see a ramp up in buybacks. The Short Interest (Days to Cover): Current 3.4 biggest risk will be the persistent headwinds in Electronics, which clipped 2.5pp of core topline in 3Q 3-Mo. Average 3.3 and will likely remain the laggard in 4Q. Welding should benefit from easing comps and Construction Analyst Sentiment: continues to gain momentum. Expect comments on the Industrial Pkg sale slated for mid-2014 and Buy 8 mgmt s plans to lever the B/S to low-2.0x EBITDA vs the current 1.8x. Hold 11 Sell 3 Potential Stock Reaction ITW has underperformed peers by 290 bps over the past three weeks, but shares are near the midpoint of its historical relative P/E range to peers. The stock could see a lift on an upward guidance revision. Options imply a +/-1.1% move. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $1.11 $ % 2Q13 $1.10 $0.92 (2.8%) Projected Guidance 1Q13 $0.96 $ % We have a bias towards the higher-end of the $4.30-$4.50 guidance, but expect it is still too early for 4Q12 $0.89 $0.73 (2.0%) a meaningful revision to the range. An upward revision would likely hinge on accelerated buybacks and stronger end markets. We expect initial 1Q guidance of $0.92-$1.00. Organic growth guidance of 2%-3% looks achievable, though conservative. Valuation Summary Price/Earnings 2014E 18.3x Our Investment Thesis 2015E 16.2x ITW is tracking well on its transformational enterprise strategy, including the headline $600-$800 mil cumulative savings goal. We remain impressed with how smoothly ITW is orchestrating the sweeping portfolio restructuring, going from the now-boggling 850 business units to the targeted 90. The sale of Industrial Packaging should complete its portfolio management initiative, and we expect to see multiple expansion following the sale of this commoditizing, noncore business. That said, the outsized early/short-cycle mix at 34% of sales is less favorable at this point in the cycle. Deane M. Dray, CFA Relative P/E to Peers (2.0%) Historical Range Vs Peers (10%) to 5% Price/FCF 22.4x EV/EBITDA 11.3x Sum-of-the-Parts $80 Discounted Cash Flow $79 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $82.51 $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue 3, , , % 3, , ,647.2 Organic Growth 0.6% 0.4% 1.1% 2.8% (0.0%) 3.7% Operating Income % , ,826.2 Operating Margin 16.6% 18.9% 17.6% 99 bps 17.9% 17.7% 19.2% Incremental Margin 9% 58% 88% 42% 96% 48% Segment Profit Automotive OEM % Welding % Specialty Products % Test & Measurement & Electronics (5%) Construction Products % Food Equipment % Polymers & Fluids % Interest Expense (61.0) (60.0) (60.0) (2%) (59.0) (239.0) (239.0) Pretax Income % , ,648.2 Tax Rate 42.9% 35.4% 28.9% bps 29.4% 30.5% 29.6% Net Income % , ,864.2 Diluted Shares (5%) Diluted EPS $0.53 $0.90 $ % $0.98 $3.61 $4.50 Guidance $0.85-$0.93 NA $3.56-$3.64 $4.30-$4.50 Consensus EPS mean $0.91 $0.98 $3.62 $4.46 Street Low Estimate $0.89 $0.93 $3.60 $4.38 Street High Estimate $1.09 $1.00 $4.70 $5.25 Source: Citi Research, Company Reports, Bloomberg, FactSet 21

22 Figure 23. Ingersoll-Rand Earnings Preview Sheet Ingersoll-Rand Citi Research Ingersoll-Rand 4Q13E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker IR Earnings Date 2/11/2014 Rating Neutral Conference Call Time (ET) 10:00 AM Price (1/15/2014) $62.84 Dial in Number NA Target Price $62 Passcode NA Dividend Yield 1.5% Expected Total Return 0.2% Stock Set-up Net Debt/Cap (3Q13) 23% Options Implied One-Day Stock Price Move +/- 2.2% Average Move Last Ten Earnings Days +/- 4.0% Key Issues for the Quarter Ingersoll-Rand is among the last companies to report 4Q13 earnings following the Dec-1 Allegion Three Week Performance: Absolute 3.3% spin. We expect there could be some mostly inconsequential noise from the resegmentation of Vs Multi-Industry Peers +140 bps Climate (75% of revs) and Industrial (25%). Ingersoll-Rand had been targeting the $2.0 billion buyback to be completed by the end of 1Q14. Confidence on buybacks should be a positive. 4Q and Short Interest (Days to Cover): Current 2.3 1Q are seasonally slow months for HVAC, but positive trends in resi and non-resi should continue to 3-Mo. Average 1.2 grind ahead. We expect the company to initiate full-year 2014 guidance of $3.15-$3.35 vs our $3.35 estimate and $3.32 consensus, excluding one-time noise from the Allegion spin. Analyst Sentiment: Buy 8 Hold 16 Sell 1 Potential Stock Reaction IR shares have outperformed the sector by 140 bps over the past three weeks and remain at the Recent Earnings Trends higher-end of their relative range. Options imply a +/-2.2% move on earnings vs its 4.0% average. Consensus Reported EPS Stock Move 3Q13 $1.10 $ % 2Q13 $1.08 $ % Projected Guidance 1Q13 $0.40 $0.42 (1.0%) There is a wide range of consensus estimates given the split from Allegion. Although the spin was 4Q12 $0.70 $ % $1.00 dilutive to 2013 estimates, we expect the company to offset nearly half of that with its outsized share buyback from the proceeds of the spin. Valuation Summary Price/Earnings 2014E 18.8x Our Investment Thesis 2015E 16.3x Following the spin of Allegion, Ingersoll-Rand is acutely focused on improving margins in its market leading HVAC business. That said, we believe the company is still under-earning peers and will require more rigorous actions to build margins from here. Improving construction markets represent a major tailwind, but may already be priced into shares. Given the ongoing presence of activists, we believe there could be further portfolio action, potentially including separation of the HVAC business. Deane M. Dray, CFA Relative P/E to Peers (1.0%) Historical Range Vs Peers (30%) to (5%) Price/FCF 16.4x EV/EBITDA 11.6x Sum-of-the-Parts $58 Discounted Cash Flow $56 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $62.84 $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue 2, , , % 2, , ,715.2 Organic Growth (5.0%) 10.0% 4.5% 4.0% 6.0% 5.0% Operating Income % , ,458.2 Operating Margin 9.2% 13.4% 9.2% -2 bps 7.2% 10.4% 11.5% Incremental Margin NM-NEG 226% 30% 26% 103% 31% Segment Profit Climate Solutions % , ,146.7 Industrial Technologies % Interest Expense (61.4) (56.6) (54.0) (12%) (53.0) (233.1) (212.0) Pretax Income % , ,254.6 Tax Rate 32.8% 24.0% 23.0% -976 bps 25.0% 23.8% 25.0% Net Income % Diluted Shares (5%) Diluted EPS $0.45 $0.93 $ % $0.37 $2.60 $3.35 Guidance 0 NA 0 0 Consensus EPS mean $0.64 $0.37 $2.89 $3.32 Street Low Estimate $0.56 $0.29 $2.56 $3.06 Street High Estimate $0.98 $0.65 $5.00 $4.40 Source: Citi Research, Company Reports, Bloomberg, FactSet 22

23 Figure 24. Pentair Earnings Preview Sheet Pentair Citi Research Pentair 4Q13E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker PNR Earnings Date 1/28/2014 Rating Buy Conference Call Time (ET) 9:00 AM Price (1/15/2014) $77.19 Dial in Number Target Price $91 Passcode Dividend Yield 1.3% Expected Total Return 18.8% Stock Set-up Net Debt/Cap (3Q13) 27% Options Implied One-Day Stock Price Move NA Average Move Last Ten Earnings Days +/- 2.9% Key Issues for the Quarter Pentair continues to focus investors on the 2015 goal of $5.00 EPS. Since the merger with Tyco Three Week Performance: Absolute 0.8% Flow, it has put together a string of confidence boosting earnings reports, and we expect 4Q13 Vs Multi-Industry Peers -100 bps should be more of the same. Mgmt continues to ratchet up synergy targets even as topline growth has come in lighter than expected. 4Q should be seasonally strong for legacy Tyco Flow especially Short Interest (Days to Cover): Current 2.5 in Thermal and the cold weather in December and follow-through to January is likely to become a 3-Mo. Average 3.1 tailwind. Furthermore, improved trends in industrial end markets also bode well for Technical Analyst Sentiment: Solutions, underpinning 3.7% organic rev growth in the quarter. We also expect Pentair to outline Buy 14 near-term buyback plans as it will likely aim to complete its $325 mil remaining by 1Q14. Hold 6 Sell 1 Potential Stock Reaction The stock has modestly underperformed over the past three weeks, down 100 bps vs. peers. Short Recent Earnings Trends interest has modestly declined from 3.1 to 2.5 days to cover. Consensus Reported EPS Stock Move 3Q13 $0.86 $0.86 (1.6%) 2Q13 $0.90 $0.92 (0.8%) Projected Guidance 1Q13 $0.56 $ % We expect the company to maintain full-year guidance of $3.85-$4.00 on organic revs of 3%-5%. 4Q12 $0.44 $0.47 (2.8%) We expect 1Q14 guidance to be in the $0.73-$0.77 range. Even if macro conditions were to deteriorate, we expect there could be upside to cost savings and share repurchases. Valuation Summary Price/Earnings 2014E 19.6x Our Investment Thesis 2015E 15.9x We remain positive on Pentair s transformational merger with Tyco Flow and we expect to see ongoing upside in the cost synergies to offset tougher macro through The all-important $5.00 EPS goal in 2015 remains within reach. The integration continues to go smoothly, confounding a cadre of skeptics (who we consider to be potential incremental buyers down the road). We also like the high FCF conversion of 107% and its ability to buy back as much as 15% of the shares outstanding if all this capital were to be put into buybacks. Deane M. Dray, CFA Relative P/E to Peers (3.5%) Historical Range Vs Peers (5%) to 15% Price/FCF 18.4x EV/EBITDA 11.8x Sum-of-the-Parts $75 Discounted Cash Flow $73 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $77.19 $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue 1, , , % 1, , ,654.4 Organic Growth 1.0% (1.0%) 3.7% 4.0% 1.8% 4.5% Operating Income % ,093.7 Operating Margin 8.5% 13.6% 13.4% 489 bps 11.6% 12.7% 14.3% Incremental Margin NM NM-POS NM-POS 60% NM-POS 53% Segment Profit Valves & Controls % Water & Fluid Solutions % Technical Solutions % Interest Expense (18.2) (17.2) (16.0) (12%) (18.0) (67.0) (70.0) Pretax Income % ,026.1 Tax Rate 25.0% 24.5% 24.5% -47 bps 23.5% 24.7% 23.5% Net Income % Diluted Shares (4%) Diluted EPS $0.47 $0.86 $ % $0.73 $3.19 $3.95 Guidance $0.83-$0.85 NA $3.19-$3.21 $3.85-$4.00 Consensus EPS mean $0.84 $0.78 $3.20 $3.96 Street Low Estimate $0.74 $0.71 $2.85 $3.35 Street High Estimate $0.85 $0.87 $3.22 $4.05 Source: Citi Research, Company Reports, Bloomberg, FactSet 23

24 Figure 25. Roper Earnings Preview Sheet Roper Industries Citi Research Roper Industries 4Q13E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker ROP Earnings Date 1/27/2014 Rating Buy Conference Call Time (ET) 8:30 AM Price (1/15/2014) $ Dial in Number Target Price $167 Passcode Dividend Yield 0.6% Expected Total Return 19.4% Stock Set-up Net Debt/Cap (3Q13) 32% Options Implied One-Day Stock Price Move +/- 1.7% Average Move Last Ten Earnings Days +/- 2.6% Key Issues for the Quarter Following a heavy 19c guidance cut in 3Q, Buy-rated Roper looks to have properly calibrated Three Week Performance: Absolute 2.6% earnings expectations. The primary headwind should be the falloff in the Zetec nuclear business, Vs Multi-Industry Peers +70 bps which was impacted by four reactor closures in 2Q, creating a $20 mil headwind in 2H13. Though only 3% of total revs, the earnings impact is expected to be ~2c in 4Q. Weakness in oil & gas drilling Short Interest (Days to Cover): Current 4.3 is also projected to be a $10 mil drag, and mgmt still does not see any positive catalyst for the 3-Mo. Average 4.3 troubled scientific imaging. Offsetting the negatives is strength in Medical and +DD org growth from Analyst Sentiment: RF Tech. Similar to DHR, ROP has not seen attractive asking prices in M&A and has stayed Buy 5 disciplined. We remain confident in its ability to deliver another high-quality deal, potentially in SaaS. Hold 7 Sell 0 Potential Stock Reaction After three quarters of disappointing stock reactions, we expect investors are anticipating a return to form for Roper, having outperformed peers by 70 bps over the past three weeks. The stock is still near the low-end of its historical relative P/E range. Options imply a +/- 1.7% move. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $1.45 $1.42 (6.6%) 2Q13 $1.30 $1.31 (3.3%) Projected Guidance 1Q13 $1.22 $1.27 (3.8%) We expect Roper to set initial 2014 guidance of $6.15-$6.35, bracketing our est of $6.30 and current 4Q12 $1.46 $1.48 (0.3%) consensus of $6.28. Upside from here will likely come from accretion from any deals the company can potentially announce. We also expect mid-single-digit organic growth against easy comps. 1Q guidance should be roughly $1.34-$1.40. Valuation Summary Price/Earnings 2014E 22.3x Our Investment Thesis 2015E 20.4x Roper ranks among the highest quality Industrials, and its portfolio migration towards SaaS has tipped its mix to among the sector leaders at 40% recurring revenues with its asset-light and strong FCF conversion businesses. The company stands out in the sector in generating +50% gross margins, 140% FCF conversion, and self-funded acquisitions. We continue to have high confidence in its ability to maintain its highly differentiated M&A model. Roper's sustainably robust cash flow over the past five years makes P/FCF the most relevant metric in our view. Deane M. Dray, CFA Relative P/E to Peers 23.4% Historical Range Vs Peers 20% to 45% Price/FCF 16.7x EV/EBITDA 12.9x Sum-of-the-Parts $178 Discounted Cash Flow $136 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $ $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue % , ,548.4 Organic Growth 3.0% 3.0% 3.9% 6.1% 1.3% 5.5% Operating Income % Operating Margin 28.3% 27.3% 29.5% 119 bps 26.3% 27.2% 27.8% Incremental Margin 57% 41% 44% 34% 44% 35% Segment Profit Industrial Technology % Energy Systems & Controls % Medical & Scientific Imaging % RF Technology % Interest Expense (20.5) (24.7) (24.2) 18% (18.9) (92.1) (84.1) Pretax Income % Tax Rate 30.1% 30.3% 31.0% 93 bps 30.0% 29.2% 30.0% Net Income % Diluted Shares % Diluted EPS $1.48 $1.42 $ % $1.38 $5.62 $6.30 Guidance $1.57-$1.63 NA $5.57-$ Consensus EPS mean $1.60 $1.38 $5.60 $6.28 Street Low Estimate $1.43 $1.35 $5.10 $6.15 Street High Estimate $1.63 $1.43 $5.75 $6.65 Source: Citi Research, Company Reports, Bloomberg, FactSet 24

25 Figure 26. SPX Corp Earnings Preview Sheet SPX Corp. Citi Research SPX Corp. 4Q13E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker SPW Earnings Date 2/12/2014 Rating Sell Conference Call Time (ET) 8:30 AM Price (1/15/2014) $ Dial in Number Target Price $93 Passcode Dividend Yield 1.0% Expected Total Return -9.4% Stock Set-up Net Debt/Cap (3Q13) 31% Options Implied One-Day Stock Price Move +/- 4.0% Average Move Last Ten Earnings Days +/- 5.1% Key Issues for the Quarter SPX continues to execute on its break-up strategy, focusing on selling some of its smaller pieces, Three Week Performance: Absolute 5.7% including the EGS JV back to its partner EMR. Before it can pare-down to a Flow pure play, the Vs Multi-Industry Peers +380 bps remaining big assets Thermal, transformers, and the $200 mil of Industrial businesses that were moved to disc ops in 3Q will likely require a much lengthier restructuring and sale process. The Short Interest (Days to Cover): Current 2.8 upsized $500 mil buyback, while aggressive, will be insufficient to offset the JV sale dilution. While 3-Mo. Average 4.3 debatable if it matters, fundamentals also remain mixed, with comp headwinds and project ramp Analyst Sentiment: downs in Thermal driving further organic declines. Flow should see modest growth, with margin Buy 10 expansion in ClydeUnion as it manages the remaining $10 mil of troubled backlog. Hold 5 Sell 3 Potential Stock Reaction SPX shares have outperformed peers by 380 bps over the past three weeks, but we see more downside risk from a potentially lackluster guidance and estimate revisions as consensus begins to factor in the JV sale dilution. Options implied move is +/-4.0%. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $1.25 $ % 2Q13 $0.65 $ % Projected Guidance 1Q13 $0.26 $0.20 (8.4%) We are anticipating an initial EPS range of $4.60-$5.00, though this will depend heavily on the timing 4Q12 $1.56 $ % of the $500 mil buyback program. We note that current consensus does not fully include the JV sale dilution. Seasonally, SPX s 1Q is the weakest of the year. Valuation Summary Price/Earnings 2014E 21.9x Our Investment Thesis 2015E 16.6x SPX continues to be a break-up story as it pares down to a pure-play Flow business. Fundamentals remain mixed but the impact of buybacks continues to drive solid stock appreciation. We remain Sellrated given the low quality of earnings and full valuation on our SOP model. One key risk is the potential fallout when/if the activist begins to sell down its position. Stock moves could be episodic and deal-related, and would need to be buoyed by risk-on sentiment. Deane M. Dray, CFA Relative P/E to Peers 0.6% Historical Range Vs Peers (20%) to 10% Price/FCF 19.7x EV/EBITDA 11.5x Sum-of-the-Parts $94 Discounted Cash Flow $83 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $ $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue 1, , ,344.2 (6.4%) 1, , ,930.0 Organic Growth 1.9% (2.1%) (1.4%) 2.2% (1.3%) 4.0% Operating Income % Operating Margin 8.6% 7.5% 9.3% 77 bps 3.9% 6.2% 7.7% Incremental Margin 27% NM-Pos NM-Pos 101% 1% 47% Segment Profit Thermal (35%) Flow Technology % Industrial % Interest Expense (27.5) (24.5) (25.0) (9%) (26.0) (102.2) (97.8) Pretax Income % Tax Rate 24.7% 17.7% 26.0% 134 bps 25.0% 20.4% 25.0% Net Income % Diluted Shares (7%) Diluted EPS $1.57 $1.28 $ % $0.26 $3.90 $4.75 Guidance $1.73-$1.88 NA $3.80-$ Consensus EPS mean $1.81 $0.29 $4.06 $5.11 Street Low Estimate $1.61 $0.10 $3.84 $4.75 Street High Estimate $2.26 $0.47 $7.15 $6.65 Source: Citi Research, Company Reports, Bloomberg, FactSet 25

26 Figure 27. Tyco Earnings Preview Sheet Tyco International Citi Research Tyco International 1Q14E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker TYC Earnings Date 1/31/2014 Rating Buy Conference Call Time (ET) 8:00 AM Price (1/15/2014) $41.27 Dial in Number Target Price $49 Passcode Tyco Dividend Yield 1.7% Expected Total Return 20.4% Stock Set-up Net Debt/Cap (4Q13) 14% Options Implied One-Day Stock Price Move +/- 2.2% Average Move Last Ten Earnings Days +/- 2.0% Key Issues for the Quarter We expect to see a number of Tyco s earnings levers in action in its F1Q14, including cost takeout, Three Week Performance: Absolute 2.5% sourcing initiatives, and reductions in corp expense and perhaps tax rate. Organic growth in NA Vs Multi-Industry Peers +70 bps Install & Services is expected to be negative due to tough comps, but mgmt is forecasting a sequential ramp through Having lapped the start of project selectivity, install order growth is Short Interest (Days to Cover): Current 1.6 expected to turn positive. Profitability should also benefit from the mix shift towards services, an 3-Mo. Average 1.0 install backlog running 150bps higher margins Y/Y, and a favorable comp for Global Products. Analyst Sentiment: Higher interest could be a headwind as mgmt planned to raise $500 mil of debt in 1Q to settle legacy Buy 12 obligations. We expect Tyco to remain in the hunt for bolt-on deals. Hold 6 Sell 1 Potential Stock Reaction TYC has outperformed peers by 70 bps over the past three weeks, but still remains below the midpoint of its relative P/E range and should benefit from investor sentiment having a risk-on tilt towards more cyclical names in the beginning of the year. Options implied move is +/- 2.2%. Recent Earnings Trends Consensus Reported EPS Stock Move 4Q13 $0.52 $ % 3Q13 $0.48 $0.50 (1.6%) Projected Guidance 2Q13 $0.39 $ % We continue to view the initial 2014 guidance of $2.05-$2.15 as conservative/beatable, and expect it 1Q13 $0.39 $0.40 (0.6%) to be narrowed to the high-end. The nonresi recovery should drive organic growth towards the highend of the 2%-4% range, though it hinges on the severity of the 1Q organic decline in NA install & services. Valuation Summary Price/Earnings 2014E 18.3x Our Investment Thesis 2015E 15.7x Tyco remains the global market leader in the attractive Fire & Security industry, and has multiple levers to maintain earnings growth, including cost takeout, project selectivity, bolt-on M&A, and lower tax and corp expense. Mgmt has clearly delineated its long-term strategic goals, highlighting bps of margin expansion, and we have been impressed with the team s ability to source attractive M&A that expand its product tech scope and geographic reach. With its building services portfolio, Tyco is a play on the nonresi market, which accounts for ~40% of rev. Deane M. Dray, CFA Relative P/E to Peers (5.0%) Historical Range Vs Peers (10%) to 10% Price/FCF 22.1x EV/EBITDA 10.9x Sum-of-the-Parts $43 Discounted Cash Flow $37 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $41.27 $ Millions, except for per share data 1Q13 4Q13 1Q14E Y/Y Change 2Q14E 2014E 2015E Revenue 2, , , % 2, , ,684.8 Organic Growth 1.2% 1.3% 0.8% 3.2% 4.1% 4.4% Operating Income % , ,582.6 Operating Margin 10.1% 11.9% 11.2% 106 bps 11.9% 12.4% 13.5% Incremental Margin 33% 212% 207% 53% 43% 36% Segment Profit NA System Installation & Services % ROW System Installation & Services % Global Products % Corporate Expense (58.0) (63.0) (56.0) (3%) (53.0) (226.0) (226.0) Interest Expense (20.0) (22.0) (23.0) 15% (24.0) (98.0) (99.0) Pretax Income % , ,483.6 Tax Rate 18.4% 18.8% 18.3% -13 bps 18.0% 18.1% 17.9% Net Income % , ,218.2 Diluted Shares (1%) Diluted EPS $0.40 $0.52 $ % $0.51 $2.20 $2.55 Guidance $0.43-$0.45 NA $2.05-$ Consensus EPS mean $0.45 $0.48 $2.15 $2.55 Street Low Estimate $0.44 $0.46 $2.08 $2.45 Street High Estimate $0.46 $0.52 $4.47 $2.75 Source: Citi Research, Company Reports, Bloomberg, FactSet 26

27 Figure 28. United Technologies Earnings Preview Sheet United Technologies Citi Research United Technologies 4Q13E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker UTX Earnings Date 1/22/2014 Rating Neutral Conference Call Time (ET) 9:00 AM Price (1/15/2014) $ Dial in Number Target Price $125 Passcode NA Dividend Yield 2.1% Expected Total Return 11.6% Stock Set-up Net Debt/Cap (3Q13) 34% Options Implied One-Day Stock Price Move NA Average Move Last Ten Earnings Days +/- 1.0% Key Issues for the Quarter There should be no change to the initial 2014 outlook discussed on Dec-12. Commercial spares Three Week Performance: Absolute 2.3% sales should see a continuation of the 2Q and 3Q order recovery and be a bright spot. There is no Vs Multi-Industry Peers +50 bps expectation that revenue lost during the government shut-down would be recouped in 4Q. Reaching 100% FCF conversion for 2013 could be tough given inventory builds at Pratt and Sikorsky and the Short Interest (Days to Cover): Current 2.7 early increase in capex. Capital allocation placeholders for $2 billion of dividends, $1 billion of 3-Mo. Average 2.6 buybacks, and $1 billion of M&A are underwhelming and unlikely to be changed. No Canadian Analyst Sentiment: Maritime Helicopters were delivered in 4Q, creating a (low-quality) earnings lift of roughly 9c for 4Q Buy 20 and pushing deliveries out to 2014/2015. Hold 6 Sell 0 Potential Stock Reaction UTX shares have outperformed peers by 50 bps over the past three weeks though we expect a Recent Earnings Trends roughly inline quarter given the late-december update. Consensus Reported EPS Stock Move 3Q13 $1.53 $1.55 (1.4%) 2Q13 $1.58 $ % Projected Guidance 1Q13 $1.30 $1.39 (0.8%) Expect no change to the guidance for $6.55-$6.85 issued on Dec-12 that includes 3%-4% organic 4Q12 $1.03 $ % revenue growth, though there could be adjustments based on CMH deliveries. There is nominal contingency at the midpoint, but several variables with upside potential including tax, FX, and global GDP. UTC does not provide quarterly guidance. Valuation Summary Price/Earnings 2014E 16.5x Our Investment Thesis 2015E 14.7x We consider UTC to be among the highest quality companies in the sector, and its hefty 62% exposure to late-cycle and 40% recurring revenue dampens earnings volatility and cyclicality. A rebound in residential and non-residential construction activity, success of the Goodrich integration, and further margin upside from the CCS and Otis internal merger are all positives, but we believe they are adequately reflected in UTX shares at this time, supporting our Neutral rating. Deane M. Dray, CFA Relative P/E to Peers (11.8%) Historical Range Vs Peers (15%) to 5% Price/FCF 17.0x EV/EBITDA 10.5x Sum-of-the-Parts $125 Discounted Cash Flow $111 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $ $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue 16, , , % 14, , ,684.2 Organic Growth 0.0% 1.0% 4.1% 4.0% 0.8% 4.9% Operating Income 1, , , % 2, , ,319.4 Operating Margin 10.6% 15.3% 13.8% 319 bps 14.7% 14.7% 15.7% Incremental Margin (4%) 77% 107% 44% 30% 39% Segment Profit Otis % , ,838.6 Climate, Controls & Security % , ,915.0 Pratt & Whitney % , ,987.9 UTC Aerospace Systems % , ,318.1 Sikorsky % Interest Expense (260.0) (226.0) (231.3) (11%) (222.5) (910.3) (890.0) Pretax Income 1, , , % 1, , ,429.4 Tax Rate 30.4% 28.7% 30.2% -25 bps 29.0% 27.9% 29.0% Net Income , , % 1, , ,312.2 Diluted Shares % Diluted EPS $1.04 $1.55 $ % $1.43 $6.15 $6.90 Guidance ~$1.51 NA ~$6.15 $6.55-$6.85 Consensus EPS mean $1.53 $1.46 $6.16 $6.82 Street Low Estimate $1.51 $1.40 $5.70 $6.65 Street High Estimate $1.59 $1.52 $6.23 $6.96 Source: Citi Research, Company Reports, Bloomberg, FactSet 27

28 Figure 29. WESCO Earnings Preview Sheet WESCO Citi Research WESCO 4Q13E Earnings Preview Deane M. Dray, CFA Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker WCC Earnings Date 1/30/2014 Rating Buy Conference Call Time (ET) 11:00 AM Price (1/15/2014) $93.52 Dial in Number Target Price $107 Passcode WESCO Dividend Yield 0.0% Expected Total Return 14.4% Stock Set-up Net Debt/Cap (3Q13) 45% Options Implied One-Day Stock Price Move +/- 1.5% Average Move Last Ten Earnings Days +/- 4.0% Key Issues for the Quarter WESCO's guidance implies a 4Q earnings range of $1.26-$1.30, below initial $1.42 consensus. Three Week Performance: Absolute 3.7% Upside to 4Q could come from better-than expected revenue growth and deviations from the 6.0% Vs Multi-Industry Peers +350 bps operating margin target; Management noted that broad-based sales growth in October was trending towards the high-end of its topline guidance. Acuity and MSC Industrial both reported positive results Short Interest (Days to Cover): Current 12.9 which bodes well for a continuation of October s trend. We believe there could be some confusion 3-Mo. Average 10.1 with the initial release on the appropriate revenue growth given the 4Q12 EECOL acquisition Analyst Sentiment: revenue was excluded from the 4Q12 adjusted $1.06 EPS. WESCO is also likely to address 2014 Buy 13 guidance originally provided in August of $5.70-$6.10. Hold 6 Sell 0 Potential Stock Reaction WCC has outperformed peers by 350 bps over the past 3 weeks and short interest has upticked Recent Earnings Trends from 10.1 to 12.9 days to cover (including hedging related to its convert). Consensus Reported EPS Stock Move 3Q13 $1.41 $ % 2Q13 $1.36 $ % Projected Guidance 1Q13 $1.16 $ % WCC does not give quarterly EPS guidance, but we expect guidance metrics for 1Q to reflect the 4Q12 $1.09 $ % easy 1Q13 comp and positive commentary from Acuity. We expect the $5.70-$6.10 guidance originally provided at its August analyst day to still be within reach. Valuation Summary Price/Earnings 2014E 15.5x Our Investment Thesis 2015E 13.6x Based on improving construction metrics underpinned by the recovery in resi construction and the Relative P/E to Peers (17.3%) Fed s easy money policies, 2014 could represent the beginning of the cyclical upturn for WESCO Historical Range Vs Peers (30%) to 0% similar to the period. We like WCC s 31% leverage to nonres and expect to see more Price/FCF 12.4x bolt-on activity now that the balance sheet leverage has been restored back to the 3.5x range. We EV/EBITDA 9.8x also expect there could be a seasonal play as investors look to cyclical, higher beta names. Sum-of-the-Parts NA Discounted Cash Flow $84 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $93.52 $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue 1, , , % 1, , ,929.9 Organic Growth (1.3%) 3.2% 4.0% 5.0% 0.7% 4.7% Operating Income % Operating Margin 5.5% 6.4% 6.1% 59 bps 5.9% 6.0% 6.3% Pull-Through Margin (125%) 36% 44% 46% 30% 42% Segment Profit WESCO does not report data by segment Interest Expense (12.0) (21.3) (20.1) 68% (19.1) (85.1) (68.9) Pretax Income % Tax Rate 29.0% 27.1% 26.5% -250 bps 26.0% 26.3% 26.0% Net Income % Diluted Shares % Diluted EPS $1.06 $1.42 $ % $1.31 $5.14 $6.05 Guidance 0 NA $5.15-$5.35 $5.70-$6.10 Consensus EPS mean $1.32 $1.27 $5.12 $5.99 Street Low Estimate $1.27 $1.15 $4.94 $5.65 Street High Estimate $1.51 $1.45 $5.76 $6.50 Source: Citi Research, Company Reports, Bloomberg, FactSet 28

29 Figure 30. Xylem Earnings Preview Sheet Xylem Citi Research Xylem 4Q13E Earnings Preview Matt McConnell, CFA Jessica Mullin David Lu Conference Call Logistics Ticker XYL Earnings Date 2/4/2014 Rating Neutral Conference Call Time (ET) 9:00 AM Price (1/15/2014) $36.37 Dial in Number Target Price $36 Passcode Dividend Yield 1.3% Expected Total Return 0.3% Stock Set-up Net Debt/Cap (3Q13) 25% Options Implied One-Day Stock Price Move +/- 3.7% Average Move Last Ten Earnings Days +/- 4.7% Key Issues for the Quarter We expect new/old CEO Steve Loranger has appropriately recalibrated expectations to avoid a Three Week Performance: Absolute 5.9% repeat of 2Q s miss. The stock has rebounded sharply without a material change in underlying Vs Multi-Industry Peers +410 bps demand, indicating high confidence he can deliver on cost-cutting. Orders increased 6% in 3Q following declines in 1H13 and there are some improving trends in commercial and non-resi Short Interest (Days to Cover): Current 2.6 markets, but large project activity remains weak and we do not see many near-term catalysts aside 3-Mo. Average 3.2 from benefits from restructuring activities. The company plans to issue 2014 guidance which could Analyst Sentiment: include 30%-40% incremental margins due to restructuring savings on modest topline growth. Bookto-bill has remained stable. Buy 6 Hold 10 Sell 2 Potential Stock Reaction XYL shares have outperformed peers by 410 bps over the past three weeks, and short interest has modestly declined from 3.2 to 2.6 days to cover. On current elevated valuation, we would expect shares to underperform on earnings. Recent Earnings Trends Consensus Reported EPS Stock Move 3Q13 $0.35 $ % 2Q13 $0.44 $0.35 (10.3%) Projected Guidance 1Q13 $0.30 $0.27 (1.8%) We expect guidance to be in the $1.85-$1.95 range reflecting low-to-mid-single digit revenue growth 4Q12 $0.46 $0.47 (3.4%) on 30+% incremental margins on the back of restructuring activity. Valuation Summary Price/Earnings 2014E 19.6x Our Investment Thesis 2015E 17.3x The Xylem story has transformed from a water equipment pure-play to a cost-takeout story led by the former CEO of the parent company ITT. We have a hunch Steve Loranger could shed the interim label and becomes the defacto CEO, which we would consider to be a positive for the stock. Xylem still operates in tough low-growth municipal (35%) and Europe (35%). We also downplay prospects for a takeout, as there are arguably few natural buyers at this time for an 81% pump company. The stock looks to be at fair value, supporting our Neutral rating. Deane M. Dray, CFA Relative P/E to Peers 4.7% Historical Range Vs Peers (10%) to 5% Price/FCF 15.8x EV/EBITDA 11.6x Sum-of-the-Parts $36 Discounted Cash Flow $32 Summary Financial Performance and Our Estimates Note: Valuation based on 1/15/2014 closing price of $36.37 $ Millions, except for per share data 4Q12 3Q13 4Q13E Y/Y Change 1Q14E 2013E 2014E Revenue % , ,893.4 Organic Growth (3.4%) 1.4% 0.0% 2.7% (2.3%) 3.0% Operating Income % Operating Margin 13.4% 13.5% 13.7% 25 bps 10.0% 11.6% 12.2% Incremental Margin (31%) 29% 51% 52% 437% 32% Segment Profit Water Infrastructure % Applied Water (3%) Interest Expense % Pretax Income % Tax Rate 23.5% 20.0% 21.0% -248 bps 21.0% 20.9% 21.0% Net Income % Diluted Shares (1%) Diluted EPS $0.47 $0.49 $0.51 7% $0.34 $1.62 $1.85 Guidance 0 NA $1.60-$ Consensus EPS mean $0.52 $0.36 $1.63 $1.91 Street Low Estimate $0.42 $0.30 $1.42 $1.60 Street High Estimate $0.54 $0.42 $1.65 $2.10 Source: Citi Research, Company Reports, Bloomberg, FactSet 29

30 Diversified Industrials North America United States Company Focus 3M Company (MMM) Introducing 2014 Quarterly EPS Estimates We are publishing our quarterly estimates for fiscal year Estimate Change Deane M. Dray, CFA Neutral 2 Price (15 Jan 14) US$ Target price US$ Expected share price return 4.7% Expected dividend yield 2.5% Expected total return 7.2% Market Cap US$93,207M Price Performance (RIC: MMM.N, BB: MMM US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 1.59A 1.66A 1.65A 1.41A 6.32A 6.32A 2013E 1.61A 1.71A 1.78A 1.60E 6.70E 6.72E Previous 1.61A 1.71A 1.78A 1.60E 6.70E na 2014E 1.81E 1.89E 1.96E 1.79E 7.45E 7.47E Previous na na na na 7.45E na 2015E na na na na 8.10E 8.25E Previous na na na na 8.10E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 30

31 Diversified Industrials North America United States Company Focus AMETEK, Inc. (AME) Introducing 2014 Quarterly EPS Estimates We are publishing our quarterly estimates for fiscal year Estimate Change Matthew W. McConnell, CFA Buy 1 Price (15 Jan 14) US$52.76 Target price US$61.00 Expected share price return 15.6% Expected dividend yield 0.5% Expected total return 16.1% Market Cap US$12,913M Price Performance (RIC: AME.N, BB: AME US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A na na na na 1.88A 1.88A 2013E 0.51A 0.52A 0.52A 0.55E 2.10E 2.09E Previous 0.51A 0.52A 0.52A 0.55E 2.10E na 2014E 0.57E 0.61E 0.61E 0.61E 2.40E 2.35E Previous na na na na 2.40E na 2015E na na na na 2.65E 2.60E Previous na na na na 2.65E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 31

32 Diversified Industrials North America United States Company Focus Carlisle Companies Inc. (CSL) Introducing Quarterly 2014 and Full-Year 2015 EPS Estimates We are publishing our quarterly estimates for fiscal year 2014 and full-year estimate for Estimate Change Matthew W. McConnell, CFA Neutral 2 Price (15 Jan 14) US$78.20 Target price US$82.00 Expected share price return 4.9% Expected dividend yield 0.9% Expected total return 5.8% Market Cap US$4,974M Price Performance (RIC: CSL.N, BB: CSL US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 0.94A 1.39A 1.08A 0.74A 4.12A 4.27A 2013E 0.65A 1.13A 1.18A 0.80E 3.73E 4.00E Previous 0.65A 1.13A 1.18A 0.80E 3.73E na 2014E 0.54E 1.07E 1.19E 1.01E 3.85E 4.11E Previous na na na na 3.85E na 2015E na na na na 4.55E 4.79E Previous na na na na na na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 32

33 Diversified Industrials North America United States Company Focus Crane Co. (CR) Introducing 2014 Quarterly EPS Estimates Estimate Change We are publishing our quarterly estimates for fiscal year Matthew W. McConnell, CFA Neutral 2 Price (15 Jan 14) US$68.87 Target price US$74.00 Expected share price return 7.4% Expected dividend yield 1.6% Expected total return 9.1% Market Cap US$4,005M Price Performance (RIC: CR.N, BB: CR US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 0.88A 0.96A 0.99A 0.92A 3.76A 3.70A 2013E 1.04A 1.06A 1.04A 1.01E 4.16E 4.16E Previous 1.04A 1.06A 1.04A 1.01E 4.16E na 2014E 1.08E 1.20E 1.16E 1.16E 4.60E 4.58E Previous na na na na 4.60E na 2015E na na na na 5.25E 5.20E Previous na na na na 5.25E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 33

34 Diversified Industrials North America United States Company Focus Danaher Corporation (DHR) Adjusting Quarterly EPS Estimates We are lowering our 1Q14 EPS estimate and increasing 4Q14 to reflect normal seasonality. Estimate Change Deane M. Dray, CFA Buy 1 Price (15 Jan 14) US$78.21 Target price US$88.00 Expected share price return 12.5% Expected dividend yield 0.1% Expected total return 12.6% Market Cap US$54,528M Price Performance (RIC: DHR.N, BB: DHR US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 0.73A 0.84A 0.77A 0.89A 3.22A 3.18A 2013E 0.75A 0.87A 0.84A 0.96E 3.41E 3.41E Previous 0.75A 0.87A 0.84A 0.96E 3.41E na 2014E 0.81E 0.96E 0.92E 1.05E 3.75E 3.77E Previous 0.83E 0.96E 0.92E 1.04E 3.75E na 2015E na na na na 4.15E 4.18E Previous na na na na 4.15E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 34

35 Diversified Industrials North America United States Company Focus Dover Corp (DOV) Introducing 2014 Quarterly Estimates; Raising FY2014/15 EPS We are publishing our quarterly estimates for fiscal year Estimate Change Target Price Change We are increasing 2014/15 estimates by 15c each on improving end markets and Communication Technologies performance. As a result, we are increasing our target price by $3 to $103. Deane M. Dray, CFA deane.dray@citi.com Neutral 2 Price (15 Jan 14) US$96.36 Target price US$ from US$ Expected share price return 6.9% Expected dividend yield 1.6% Expected total return 8.5% Market Cap US$16,416M Price Performance (RIC: DOV.N, BB: DOV US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 1.01A 1.11A 1.24A 1.09A 4.44A 4.44A 2013E 1.12A 1.70A 1.53A 1.27E 5.62E 5.28E Previous 1.12A 1.70A 1.53A 1.27E 5.62E na 2014E 1.29E 1.52E 1.68E 1.46E 5.95E 5.96E Previous na na na na 5.80E na 2015E na na na na 6.35E 6.50E Previous na na na na 6.20E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 35

36 Diversified Industrials North America United States Company Focus Emerson Electric Co. (EMR) Lowering F1Q14 EPS We are reducing our F1Q14 EPS estimate from $0.72 to $0.67 and increasing F4Q14 to reflect normal seasonality and incremental investment spending. Estimate Change Deane M. Dray, CFA Buy 1 Price (15 Jan 14) US$69.78 Target price US$79.00 Expected share price return 13.2% Expected dividend yield 2.4% Expected total return 15.6% Market Cap US$49,203M Price Performance (RIC: EMR.N, BB: EMR US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2013A 0.62A 0.77A 0.97A 1.11A 3.47A 3.54A 2014E 0.67E 0.86E 1.03E 1.23E 3.80E 3.82E Previous 0.72E 0.86E 1.03E 1.20E 3.80E na 2015E na na na na 4.25E 4.23E Previous na na na na 4.25E na 2016E na na na na 4.75E 4.49E Previous na na na na 4.75E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 36

37 Diversified Industrials North America United States Company Focus Federal Signal Corporation (FSS) Introducing 2014 Quarterly EPS Estimates Estimate Change We are publishing our quarterly estimates for fiscal year Matthew W. McConnell, CFA Neutral/High Risk 2H Price (15 Jan 14) US$14.12 Target price US$16.00 Expected share price return 13.3% Expected dividend yield 0.0% Expected total return 13.3% Market Cap US$885M Price Performance (RIC: FSS.N, BB: FSS US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A na na na na 0.35A 0.36A 2013E 0.12A 0.23A 0.26A 0.26E 0.88E 0.87E Previous 0.12A 0.23A 0.26A 0.26E 0.88E na 2014E 0.17E 0.21E 0.20E 0.21E 0.80E 0.79E Previous na na na na 0.80E na 2015E na na na na 0.95E 0.89E Previous na na na na 0.95E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 37

38 Diversified Industrials North America United States Company Focus General Electric Company (GE) Introducing 2014 Quarterly EPS Estimates We are publishing our quarterly estimates for fiscal year Estimate Change Deane M. Dray, CFA Buy 1 Price (15 Jan 14) US$27.34 Target price US$32.00 Expected share price return 17.0% Expected dividend yield 3.2% Expected total return 20.3% Market Cap US$276,609M Price Performance (RIC: GE.N, BB: GE US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 0.34A 0.38A 0.36A 0.44A 1.52A 1.52A 2013E 0.39A 0.36A 0.36A 0.54E 1.65E 1.64E Previous 0.39A 0.36A 0.36A 0.54E 1.65E na 2014E 0.35E 0.41E 0.43E 0.51E 1.70E 1.71E Previous na na na na 1.70E na 2015E na na na na 2.00E 1.84E Previous na na na na 2.00E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 38

39 Diversified Industrials North America United States Company Focus Honeywell International Inc. (HON) Introducing 2014 Quarterly EPS Estimates We are publishing our quarterly estimates for fiscal year Estimate Change Deane M. Dray, CFA Neutral 2 Price (15 Jan 14) US$89.91 Target price US$99.00 Expected share price return 10.1% Expected dividend yield 1.8% Expected total return 12.0% Market Cap US$70,550M Price Performance (RIC: HON.N, BB: HON US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 1.05A 1.14A 1.20A 1.10A 4.48A 4.48A 2013E 1.21A 1.28A 1.24A 1.21E 4.95E 4.95E Previous 1.21A 1.28A 1.24A 1.21E 4.95E na 2014E 1.25E 1.40E 1.44E 1.46E 5.55E 5.54E Previous na na na na 5.55E na 2015E na na na na 6.10E 6.11E Previous na na na na 6.10E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 39

40 Diversified Industrials North America United States Company Focus IDEX Corp (IEX) Introducing 2014 Quarterly EPS Estimates Estimate Change We are publishing our quarterly estimates for fiscal year Matthew W. McConnell, CFA Neutral 2 Price (15 Jan 14) US$74.35 Target price US$74.00 Expected share price return -0.5% Expected dividend yield 1.2% Expected total return 0.7% Market Cap US$6,031M Price Performance (RIC: IEX.N, BB: IEX US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A na na na na 2.68A 2.68A 2013E 0.74A 0.76A 0.78A 0.80E 3.07E 3.06E Previous 0.74A 0.76A 0.78A 0.80E 3.07E na 2014E 0.81E 0.88E 0.80E 0.86E 3.35E 3.36E Previous na na na na 3.35E na 2015E na na na na 3.60E 3.70E Previous na na na na 3.60E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 40

41 Diversified Industrials North America United States Company Focus Illinois Tool Works Inc. (ITW) Introducing 2014 Quarterly EPS Estimates We are publishing our quarterly estimates for fiscal year Estimate Change Deane M. Dray, CFA Neutral 2 Price (15 Jan 14) US$82.51 Target price US$91.00 Expected share price return 10.3% Expected dividend yield 2.1% Expected total return 12.4% Market Cap US$36,621M Price Performance (RIC: ITW.N, BB: ITW US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 0.71A 0.80A 0.81A 0.53A 2.85A 4.06A 2013E 0.88A 0.92A 0.90A 0.91E 3.61E 3.62E Previous 0.88A 0.92A 0.90A 0.91E 3.61E na 2014E 0.98E 1.17E 1.22E 1.13E 4.50E 4.46E Previous na na na na 4.50E na 2015E na na na na 5.10E 5.16E Previous na na na na 5.10E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 41

42 Diversified Industrials North America United States Company Focus Ingersoll-Rand plc (IR) Introducing 2014 Quarterly EPS Estimates Estimate Change Target Price Change We are publishing our quarterly estimates for fiscal year 2014 and reducing our 2014 EPS estimate from $3.45 to $3.35 to reflect more moderate margin expansion. As a result, we are reducing our target price from $64 to $62. Deane M. Dray, CFA deane.dray@citi.com Neutral 2 Price (15 Jan 14) US$62.84 Target price US$62.00 from US$64.00 Expected share price return -1.3% Expected dividend yield 1.3% Expected total return 0.0% Market Cap US$18,103M Price Performance (RIC: IR.N, BB: IR US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 0.11A 0.89A 0.76A 0.45A 2.21A 3.29A 2013E 0.16A 0.85A 0.93A 0.58E 2.60E 2.68E Previous 0.16A 0.85A 0.93A 0.58E 2.60E na 2014E 0.37E 1.10E 1.15E 0.72E 3.35E 3.22E Previous na na na na 3.45E na 2015E na na na na 3.85E 3.81E Previous na na na na 3.95E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 42

43 Diversified Industrials North America United States Company Focus Pentair Ltd. (PNR) Introducing 2014 Quarterly EPS Estimates We are publishing our quarterly estimates for fiscal year Estimate Change Deane M. Dray, CFA Buy 1 Price (15 Jan 14) US$77.19 Target price US$91.00 Expected share price return 17.9% Expected dividend yield 1.3% Expected total return 19.2% Market Cap US$15,387M Price Performance (RIC: PNR.N, BB: PNR US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 0.54A 0.77A 0.69A 0.47A 2.48A 2.39A 2013E 0.58A 0.92A 0.86A 0.84E 3.19E 3.20E Previous 0.58A 0.92A 0.86A 0.84E 3.19E na 2014E 0.73E 1.11E 1.06E 1.04E 3.95E 3.96E Previous na na na na 3.95E na 2015E na na na na 4.85E 4.92E Previous na na na na 4.85E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 43

44 Diversified Industrials North America United States Company Focus Roper Industries, Inc. (ROP) Introducing 2014 Quarterly EPS Estimates We are publishing our quarterly estimates for fiscal year Estimate Change Deane M. Dray, CFA Buy 1 Price (15 Jan 14) US$ Target price US$ Expected share price return 18.8% Expected dividend yield 0.6% Expected total return 19.4% Market Cap US$13,960M Price Performance (RIC: ROP.N, BB: ROP US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 1.09A 1.15A 1.24A 1.48A 4.96A 4.96A 2013E 1.27A 1.31A 1.42A 1.63E 5.62E 5.60E Previous 1.27A 1.31A 1.42A 1.63E 5.62E na 2014E 1.38E 1.51E 1.63E 1.78E 6.30E 6.28E Previous na na na na 6.30E na 2015E na na na na 6.90E 6.77E Previous na na na na 6.90E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 44

45 Diversified Industrials North America United States Company Focus SPX Corporation (SPW) Introducing 2014 Quarterly EPS Estimates We are publishing our quarterly estimates for fiscal year Estimate Change Deane M. Dray, CFA Sell 3 Price (15 Jan 14) US$ Target price US$93.00 Expected share price return -10.4% Expected dividend yield 1.0% Expected total return -9.4% Market Cap US$4,706M Price Performance (RIC: SPW.N, BB: SPW US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 0.17A 0.73A 1.05A 1.57A 3.49A 3.49A 2013E 0.18A 0.65A 1.28A 1.82E 3.90E 3.96E Previous 0.18A 0.65A 1.28A 1.82E 3.90E na 2014E 0.26E 1.00E 1.37E 2.22E 4.75E 5.18E Previous na na na na 4.75E na 2015E na na na na 6.25E 6.64E Previous na na na na 6.25E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 45

46 Diversified Industrials North America United States Company Focus United Technologies Corporation (UTX) Introducing 2014 Quarterly EPS Estimates We are publishing our quarterly estimates for fiscal year Estimate Change Deane M. Dray, CFA Neutral 2 Price (15 Jan 14) US$ Target price US$ Expected share price return 9.6% Expected dividend yield 2.1% Expected total return 11.6% Market Cap US$104,669M Price Performance (RIC: UTX.N, BB: UTX US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 1.31A 1.62A 1.37A 1.04A 5.34A 5.35A 2013E 1.39A 1.70A 1.55A 1.51E 6.15E 6.16E Previous 1.39A 1.70A 1.55A 1.51E 6.15E na 2014E 1.43E 1.85E 1.83E 1.79E 6.90E 6.82E Previous na na na na 6.90E na 2015E na na na na 7.75E 7.58E Previous na na na na 7.75E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 46

47 Diversified Industrials North America United States Company Focus W.W. Grainger, Inc. (GWW) Introducing 2014 Quarterly EPS Estimates We are publishing our quarterly estimates for fiscal year Estimate Change Deane M. Dray, CFA Neutral 2 Price (15 Jan 14) US$ Target price US$ Expected share price return 6.9% Expected dividend yield 1.4% Expected total return 8.3% Market Cap US$18,309M Price Performance (RIC: GWW.N, BB: GWW US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 2.57A 2.63A 2.81A 2.43A 10.43A 10.43A 2013E 2.94A 3.03A 2.95A 2.58E 11.50E 11.55E Previous 2.94A 3.03A 2.95A 2.58E 11.50E na 2014E 3.23E 3.35E 3.41E 3.01E 13.00E 13.01E Previous na na na na 13.00E na 2015E na na na na 14.40E 14.57E Previous na na na na 14.40E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 47

48 Diversified Industrials North America United States Company Focus WESCO International, Inc. (WCC) Introducing 2014 Quarterly EPS Estimates We are publishing our quarterly estimates for fiscal year Estimate Change We are also reducing our 4Q13 EPS estimate from $1.35 to $1.34 to reflect the average share price during the quarter impacting the incremental shares from equity awards and 2029 convertible debt. Deane M. Dray, CFA Buy 1 Price (15 Jan 14) US$93.52 Target price US$ Expected share price return 14.4% Expected dividend yield 0.0% Expected total return 14.4% Market Cap US$4,133M Price Performance (RIC: WCC.N, BB: WCC US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 0.92A 1.15A 1.25A 1.06A 4.49A 4.49A 2013E 1.12A 1.25A 1.42A 1.34E 5.14E 5.12E Previous 1.12A 1.25A 1.42A 1.35E 5.14E na 2014E 1.31E 1.47E 1.70E 1.57E 6.05E 5.99E Previous na na na na 6.05E na 2015E na na na na 6.85E 6.76E Previous na na na na 6.85E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 48

49 Machinery North America United States Company Focus Xylem (XYL) Introducing 2014 Quarterly EPS Estimates We are publishing our quarterly estimates for fiscal year Estimate Change Deane M. Dray, CFA Neutral 2 Price (15 Jan 14) US$36.37 Target price US$36.00 Expected share price return -1.0% Expected dividend yield 1.3% Expected total return 0.3% Market Cap US$6,710M Price Performance (RIC: XYL.N, BB: XYL US) EPS Q1 Q2 Q3 Q4 FY FC Cons 2012A 0.36A 0.49A 0.44A 0.47A 1.77A 1.77A 2013E 0.27A 0.35A 0.49A 0.51E 1.62E 1.63E Previous 0.27A 0.35A 0.49A 0.51E 1.62E na 2014E 0.34E 0.42E 0.53E 0.56E 1.85E 1.91E Previous na na na na 1.85E na 2015E na na na na 2.10E 2.12E Previous na na na na 2.10E na Source: Company Reports and datacentral, Citi Research. FC Cons: First Call Consensus. 49

50 Summary We name TYC a Most Preferred stock and HON a Least Preferred stock relative to our fundamental analyst coverage for the next 3 Months, replacing DHR as a Most Preferred stock and XYL as a Least Preferred stock, both of which we last selected on 20 Oct Rationale We recommend owning TYC over HON into 4Q13 earnings. Honeywell International Inc. (HON.N; US$89.91; 2) Catalyst and Thesis We see risk to Neutral-rated HON s initial 1Q14 guidance, which could fall short of consensus expectations for $1.29. Management also does not appear enthusiastic about the M&A pipeline or opportunity for buybacks. Given the seasonal January-Effect and traction in the US economy, we believe cyclical/ growthier names with direct nonresi leverage like TYC are better positioned to outperform in a risk-on environment. Tyco International Ltd. (TYC.N; US$41.27; 1) Catalyst and Thesis We like Buy-rated TYC s multiple levers for earnings upside in 2014, and view initial guidance of $2.05-$2.15 as conservative/ beatable; we would not be surprised to see it raised to the high-end. We also expect management to maintain the M&A pace set in 2013 with roughly one accretive bolton each quarter. 3M Company Company description 3M Company was incorporated in 1929 and first began operations in 1902 as a manufacturer of sandpaper. The 3M moniker referred to its full name of Minnesota Mining & Manufacturing. Today, 3M is a diversified industrial technology company with a global presence in five segments: Industrial; Health Care; Consumer; Safety & Graphics; and Electronics & Energy. 3M is among the leading manufacturers of products in most of the markets it serves. Most 3M products involve expertise in product development, manufacturing, and marketing, and are subject to competition from products manufactured and sold by other technologically-oriented companies. The company employs roughly 75,000 people (full-time equivalents), with 31,500 in the U.S. and 43,500 internationally. It is headquartered in St. Paul, Minnesota. Investment strategy While best known as the manufacturer of iconic consumer products such as Post-It Notes and Scotch Tape, 3M is one of the highest-quality names in the sector, and the leader in profitability with +20% operating margins and 63% international revenues. The 3M "Magic Dust" refers to 3M's uncanny ability to grow market share, launch new products, and build-out international revenues while maintaining lofty margins. Our Neutral rating on MMM, despite attractive relative valuation, is our call that this is not the right point in the cycle to buy defensive early-cycle names. 50

51 Key fundamentals. 3M has ample balance sheet capacity and is well positioned to fund growth investments, buybacks and additional bolt-on acquisitions. Margin performance in the downturn was among the sector's best, and its early-cycle/shortcycle mix positioned it well in the early recovery stage. Our expectation is that this period of stock outperformance has had its run and that investors are increasingly willing to move down the quality curve and to companies with more early/mid latecycle exposure. Long-term targets. We expect 3M could realistically achieve its long-term target for 4%-6% organic revenue growth through 2017, and sustain its sector-best +20% operating margins, with its vaunted R&D machine as the X-factor to fuel the 3M growth engine. On the horizon. There is ample room for 3M to deepen its penetration of emerging markets organically and through M&A, in our view. Valuation MMM has historically traded within a (15%) to 10% relative P/E range versus its large-cap MI-EE peers. Unlike many of the other large-cap Multi-Industry companies, 3M's mix is predominantly short-cycle (i.e. very little backlog) and earlycycle (i.e. end markets that improve early in an economic recovery) revenue mix drove relative underperformance entering the downturn and outperformance in the early stages of recovery. This is in contrast to some peers, where large backlogs and recurring revenue streams provide significant visibility even in challenging environments. Our $145 target price assumes MMM trades at a 5% premium to our target group multiple of 17.0x 2015E EPS. Risks We see the following risks to our price target: Economic conditions. The pace and sustainability of the global recovery, shortcycle fluctuations in consumer and office spending patterns, credit availability, inflation, commodity prices, currency, product costs, and price realization, could cause 3M s results to be lower than anticipated, and could prevent MMM shares from reaching our price target. Risks to financial performance. A double-dip recession could cause our sales and earnings estimates to be too aggressive, which, in turn, would affect our price target on the stock. Profitability. 3M has already improved margins to above pre-recession levels, but there is an increased risk of margin pressure as it adds to capacity as the recovery gains steam. Inventory adjustments can create demand surprises. We believe 3M typically has exceptional insight into its distribution channels, but still see the risk that its customers inventory adjustments could have unexpected positive or negative impacts on 3M s sales. Currency fluctuations. 3M generates 63% of its sales outside the U.S., and is exposed to currency fluctuations. Factors that could cause MMM shares to exceed our price target include: A steady stream of new products out of 3M s record pipeline of new opportunities could drive organic revenue growth and profitability above our expectations, accretive acquisitions could excite investors about 3M s growth opportunities, and 3M also has the financial capacity to complete share buybacks. 51

52 AMETEK, Inc. Company description Ametek is a mid-cap diversified industrial with leading positions in niche industrial markets and broad end market exposure in oil & gas, petrochemical, commercial aero, defense, medical and research, consumer, and general industrial markets. Ametek reports in two segments with roughly equal size. Electronic Instruments Group (EIG) manufactures instruments for monitoring, testing, and calibration for process & analytical, aerospace, and power & industrial markets; the Electromechanical Group (EMG) manufactures technical motors and controls for specialized industrial applications, and engineered materials such as metal powder and strip. EMG also includes the legacy floorcare & specialty motor business. Ametek is headquartered in Berwyn, PA. Investment strategy We rate Ametek Buy. Ametek is a best-in-class Multi-Industry company with a proven M&A growth strategy and ample bolt-on acquisition candidates to drive 15% total revenue growth through the cycle at premium profitability. Its growth strategy and position in mid and late-cycle markets leaves it well positioned at this point in the cycle. The setup for M&A as a potential catalyst is favorable as Ametek has roughly $1 billion of M&A capacity, based on our estimates. We believe AME should be a core long-term Industrials holding. Valuation AME shares have historically commanded a premium of 5% to 35% due to its M&A acumen, free cash flow, profitability, and management. The shares have typically commanded the widest premiums when it has the most M&A capacity, with the premium shrinking after periods of elevated M&A. Our $61 price target assumes the shares trade at a 35% premium to our 17.0x target group multiple on 2015E EPS, at the high-end of its 5% to 35% historical relative range vs peers. We like AME's positioning at this point in the cycle with solid visibility in its more-profitable latecycle businesses in oil & gas and aerospace. Risks We see the following risks that could impact the stock from reaching our target price: Market risks: Given Ametek's exposure to cyclical markets such as oil & gas, industrial, consumer, and aero, a global recession or choppy recovery could impact our sales and earnings estimates. Acquisition/integration: Ametek is active in M&A and there are risks associated with acquisition price and integration. Europe slowdown: Ametek generates 26% of its sales from Europe, above the 19% sector average and could see revenue headwinds if macro conditions continue to weaken. Aero production rates: Aerospace markets have provided a solid tailwind for Ametek, but our estimates could prove too high if aero production rates or aftermarket spending slow. 52

53 Carlisle Companies Inc. Company description Founded in 1917 and incorporated in 1986 as a holding company in Delaware, Carlisle Companies is a diversified manufacturer of construction, industrial, and electrical goods. The company operates through five segments: Construction Materials, Transportation, Brake & Friction, Food Service, and Interconnect Technologies. Commercial roofing and insulation products are Carlisle s mainstay at just under half of annual sales. Transportation is mainly specialty tire and wheel products, and power transmission, while Brake & Friction sells industrial brake and clutch products mainly in the off-highway markets. Food Service items are moldedplastic dinnerware, and cookware products for use in hospitals and casual dining establishments. Interconnect Technologies sells wiring, cables and assemblies to primarily commercial and military aerospace markets. Carlisle is predominately U.S.-centric at 81% of annual sales. Headquarters are in Charlotte, North Carolina. Investment strategy We rate Carlisle Companies Neutral. Carlisle is a well-run small-cap diversified industrial that has made significant strides in operational improvements, and we expect it to continue to benefit from positive re-roofing trends and aero production rate increases. While we are warming up to CSL's late-cycle exposure in nonresidential construction (+45% of sales), its valuation is not appealing enough to merit a more favorable rating at this time, thus we rate the shares Neutral. Valuation CSL shares have historically traded at a (15%) to 0% discount relative P/E range versus its small-cap Multi-Industry peers, but should see a re-valuation higher following the Transportation Products divestiture. Our $82 target price assumes the shares trade at a 5% premium to our target group multiple of 16.5x on 2015E EPS. Risks We see the following risks that could cause the stock to fail to reach or exceed our target price: Commodity inflation risks. Raw materials are 65% of Carlisle s COGS. Swings in energy, synthetic rubber, carbon black, steel, and nylon could significantly influence gross margin on a quarterly basis. Economic factors, including the global recession/recovery, inflation/deflation, credit availability, and currency could all cause Carlisle s results to differ from our expectations, which, in turn, could prevent the stock from reaching our target price. Pricing could prove difficult in the quarters ahead. Competitors could become aggressive on price, which could pressure Carlisle s profit margins in future quarters. Cost saving initiatives could accelerate faster than expected. Carlisle has implied incremental cost savings through 2012, which could benefit earnings above our perceived forecasts. A substantial rebound in late-cycle nonresidential construction would likely be a positive for Carlisle. A more meaningful recovery in nonresidential construction spending (+45% of sales) would likely be a positive for Carlisle and our target price could be exceeded. 53

54 Crane Co. Company description Founded in 1855, Crane Co. is a well-diversified industrial manufacturer for mostly niche markets. Crane reports sales through four operating segments: Aerospace & Electronics, Fluid Handling, Merchandising Systems, and Engineered Materials. Aerospace & Electronic products are used in civilian and military aircraft, and commercial and defense electronics. Fluid Handling sells to a wide array of heavy process markets including chemical and petrochemical, oil & gas, and power generation. Merchandising is made up of two primary businesses: Vending, which sells automated vending machines, and Payment Solutions, which sells to coin and bill accept/dispense, registers, and currency recycling markets. Engineered Solutions products are mainly panels used in building, RV, and truck body markets. The company is headquartered in Stamford, Connecticut. Investment strategy We rate CR shares Neutral. Over the next couple of quarters Crane is likely to be more challenged by the following: (1) recent order declines, book-to-bill slightly below 1.0x; and (2) delay of the close of the $800 mil MEI deal that pushes any accretion upside to later in Valuation CR historically has traded within a relative P/E range of a (25%) to (5%) discount to its small-cap peers. Our target price of $74 assumes the shares trade towards the midpoint of this range, or a 15% relative P/E discount to our small-cap group target multiple of 16.5x on 2015E EPS. Risks We see the following risks that could impact the stock from reaching our target price: Market risks. Given Crane s business mix, with a weighting to more mid- and late-cycle business, a recession or choppy recovery in Crane s markets could impact our sales and earnings estimates. Acquisition/integration. Crane is active in M&A and there are risks associated with acquisition price and integration. Even a successful integration can require substantial management attention. Asbestos. While we believe this liability is adequately addressed and reserved, Crane continues to face litigation related to its legacy asbestos-related matters. Although the company has reserved its estimated potential liability for ten years, there is potential for these estimates to be revised higher. Cost savings could accelerate the earnings recovery. A recovery in volume could precede a ramp up in variable costs whereby Crane s EPS results could outperform our estimates and cause the stock price to exceed our 12-month target. Potential for design snags within key aerospace platforms. Similar to Crane s experience with the delayed 787, the company could face increased R&D expenses, or customer production delays that shift deliveries out. 54

55 Most likely upside risks include accretion upside from MEI, or sustained improvement in Fluid Handling margins. If the impact on the company from any of these factors proves to be greater than we anticipate, the stock will likely have difficulty achieving our target price. Danaher Corporation Company description Danaher designs, manufactures, and markets professional, medical, industrial, commercial, and consumer products. The company operates in five business segments: Test & Measurement, Environmental, Life Sciences & Diagnostics, Dental, and Industrial Technologies. Danaher was originally organized in 1969 as a real estate investment trust. In 1984, it was reincorporated in Delaware. The company is headquartered in Washington, D.C. Investment strategy We rate Danaher a Buy. Danaher continues to be one of the elite high-quality performers in the sector. We like its recent acquisitions in test & measurement, impressively bolstering its growth profile. Our positive view on the stock at this time is being driven by DHR's attractive relative valuation and it being a high-quality name amid uncertain macro. Key fundamentals: Danaher s most important recent strategic moves have been its acquisitions of medium-tech test & measurement businesses, including Tektronix and AB Sciex and the more recent acquisition of Beckman for $7 billion. Danaher now boasts one of the premier defensive growth portfolios in the sector, including its line-up of water, medical, dental, and product-id. An impressive 40% of revenues come from consumables/aftermarket. Standing out in its high-quality operating performance metrics is its sector-high 21-consecutive years in which FCF exceeds net income. Danaher also has proven acquisition/integration know-how, reflected in the DBS-driven high-teens EBIT margins. Valuation DHR historically has traded within a 10% to 25% P/E relative premium range to peers. Our $88 target price assumes a 25% premium to our target group multiple of 17.0x on 2015E EPS. Risks We see the following risks to our target price being achieved: Economic conditions. Macro trends such as inflation, credit availability, currency, supply chain, and material costs could cause Danaher s results to be lower than anticipated. Financial risks. Any further disruptions to global credit markets could cause our sales and earnings estimates to be too optimistic. Acquisition. Danaher is one of the more acquisitive companies in the Multi- Industry sector, and there is always a risk of overpaying and/or experiencing integration difficulties. 55

56 Management. Because of its successful operational history and legendary DBS, Danaher from time to time has seen its management talent periodically poached by other industrial companies. Over time an exodus of talent could affect operations. Regulatory. Changes in government (United States and international) regulations could have a negative impact on Danaher. We say this because Danaher has been the beneficiary of increased regulations, especially in water and product marking. Organic growth. Because of its acquisition culture, investors often hone in organic growth metrics. Perceived misses often have a disproportionate effect on the stock. Margins. Since Danaher generates some of the highest gross and operating margins in the sector, there is some degree of execution risk, where it would see a shortfall in margins. Dover Corp Company description Dover Corporation is a diversified international manufacturer of value-added products and components for a broad range of operating platforms, including energy, material handling, mobile equipment, product identification, engineered products, fluid solutions, and electronic components and equipment. These businesses comprise a portfolio of 35 reporting units and four distinct reporting segments: Communication Technologies, Energy, Engineered Materials, and Printing & ID. Dover has approximately 34,000 employees and is headquartered in Downers Grove, Illinois. Investment strategy Dover is steadily progressing in its transition from a cyclical machinery stock to a diversified industrial with above-average margins and growth opportunities. However, our bias is to companies with bigger backlogs and more late-cycle exposure, underpinning our Neutral rating. The outsized Energy exposure could spook some industrials investors but the business is solidly profitable at 25% EBIT and well diversified across drilling, production, and downstream. Dover's handset exposure is unfamiliar to most industrial investors though this business is being spun out as a separate standalone publicly traded company. Valuation Dover has historically traded within a (20%) to 10% relative P/E range vs its largecap Multi-Industry peers, a relatively wide range based on the deep discount in the recession and the premium the shares warranted during its strong performance early in the upturn. Our $103 target price assumes the shares trade for a 5% discount to peers. Risks We see the following risks that could impact the stock from reaching our target price: 56

57 Economic conditions. The pace of the global recovery, early- and mid-cycle exposures in consumer and general industrial markets, inflation/deflation, commodity prices, credit availability, currency, product costs, and price realization, could cause Dover s results to be lower than anticipated and could prevent DOV shares from reaching our target price. Financial risks. A global recession could cause our sales and earnings estimates to be too aggressive, which would affect our target price on the stock. Competition. Dover competes in a number of global industrial sectors against many well-financed, capable companies. Competitors could resort to price cuts as they attempt to maintain volumes in an economic slowdown. Technology changes could pose threats to handset businesses. The pace of change in new products, and annual price-down pressure are threats to Dover's strong competitive position in consumer electronics components. If the impact on the company from any of these factors proves to be greater than we anticipate, the stock will likely have difficulty achieving our target price. Likewise, if any of these factors proves to have less of an effect than we anticipate, the stock could outperform our target price. Improvement in economic conditions, higher oil prices, and an increase in rig counts are upside risks. Emerson Electric Co. Company description Emerson was incorporated in Missouri in 1890 and has grown from a regional manufacturer of electric motors and fans into a diversified global company. Today, Emerson competes in a wide range of industrial, commercial, and consumer markets globally, having expanded its product lines through internal growth and acquisitions. The company is divided into five operating segments, including Process Management, Industrial Automation, Network Power, Climate Technologies, and Tools and Storage. Emerson boasts a sector-high 35% of revenue from emerging markets. The company is headquartered in St. Louis, Missouri. Investment strategy We rate Emerson Electric Buy. Emerson consistently ranks as one of the best managed companies in the sector, in our view, and is targeting emerging markets to be an outsized 40%-45% of sales by We do not consider this a stretch target given that Emerson is already above 35% versus many of its peers for which emerging markets today average closer to 15-20% of revenues. In addition, CEO David Farr has recently taken a couple of full swings in M&A, landing two strategic trophy acquisitions, with the $1.5 billion Chloride deal and the $1.2 billion Avocent deal. High-quality names like Emerson tend to outperform in periods of macro uncertainty. On fundamentals, Emerson ranks among the best in the sector in 10-year ROIC at 15%. It is a consistent cash generator, averaging a 115% FCF conversion over the past five years. The balance sheet is a healthy 20% net debt-to-total cap. We believe Emerson should be able to achieve its targeted 5-7% organic revenue growth over the cycle. And we remind investors that this is still fundamentally the same high-quality organization with a culture of accountability that set the all-time record of 43 consecutive years of earnings growth from 1957 to

58 Valuation Our $79 target price assumes the shares trade at a 7.5% premium to our target group P/E multiple of 17.0x on 2015E EPS. This is at the midpoint of the stock's historical relative trading range of 0% to 15%. Risks We see the following risks to our target price: Macro challenges. Currency risks and further disruptions in the credit markets could have a materially adverse effect on Emerson s outlook. Pricing pressure could be building in its markets. Emerging markets. With 13% of its revenue tied to China, the company could face some country-risk related to a slowdown or isolationist economic policies. Risk to the upside from a perfect storm of demand. While still held back by latecycle exposure, emerging markets have created a perfect storm of demand for Emerson. Emerson s 35% emerging market exposure leads the MI-EE group. Much of this fixed investment demand is related to process management, climate technologies, and network power, areas that have a late-cycle slant in developed economies. Data center infrastructure. Although the company remains bullish on the longterm growth prospects in precision cooling and embedded power applications for data centers, this $15 billion market is susceptible to commoditization. Deal integration. There is pressure on Emerson to make marquee acquisitions work. Any winner s curse or hiccup would give naysayers an opportunity to say I told you so. Financial risks. Any further disruptions to global markets could cause our sales and earnings estimates to be too optimistic. Management. We consider Emerson to have one of the deepest management teams in the industrials sector, and there is always a risk that the competition will try to recruit talent away. Federal Signal Corporation Company description Federal Signal Corporation, headquartered in Oak Brook, Illinois, was founded in The company is a diversified manufacturer of products and solutions for municipal, governmental, and commercial customers, and is organized into three operating and reportable segments: Environmental Solutions Group (ESG), Safety & Security Group (SSG), and Fire & Rescue. ESG manufactures and markets branded equipment including street cleaners, vacuum loaders, and highperformance water blasters for municipal and commercial customers. SSG develops equipment for law enforcement, fire rescue, and emergency medical services including sirens and light bars, alerting systems, and public warning sirens. Fire & Rescue is the leader in vehicle-mounted aerial platforms and ladders for firefighting, and also for utility and wind turbine maintenance. 58

59 Investment strategy The Federal Signal turnaround story continues to grind against end market headwinds as CEO Dennis Martin implements an 80/20 business simplification in the face of weak municipal end markets. We like the newfound financial flexibility since the FSTech divestiture and expect a new-look Federal Signal now that it has refinanced its 12% debt. However, the risks from the ongoing transformation in the face of municipal and European slowing leave us with a Neutral/High Risk (2H) rating. Valuation Federal Signal has historically traded within a (15%) to 20% historical relative range vs Multi-Industry peers. We expect the shares to trade inline with peers, or near the midpoint of this range, as estimates now incorporate the traction on long-term restructuring and margin improvement initiatives. Our $16 target price reflects our expectations that FSS should trade inline with our 16.5x target group multiple on 2015E EPS. Risks We rate the shares High Risk for the following reasons: Financial risks. A further economic downturn could cause our sales and earnings estimates to be too aggressive, which, in turn, could make it difficult for the stock to achieve our target price. U.S. and European municipal spending. A slower-than-expected improvement or further deterioration of US and European municipal spending could negatively impact Federal Signal s results. Currency. Federal Signal generates 44% of sales outside the US. A strengthening $US would negatively impact Federal Signal s revenue and earnings. Hearing loss litigations. Ongoing litigation in its hearing loss could pose a cash flow risk if more lawsuits are filed and/or the company were to have significant judgments against it. Margins and valuation. Federal Signal is executing plans to significantly improve margins, but there is a risk of significant margin disappointment if the progress from these initiatives is slower than expected, or offset by external headwinds. Factors that could cause FSS shares to exceed our target price include: Savings from cost reduction actions and a faster-than-expected improvement towards normalized profitability levels. General Electric Company Company description General Electric (GE) is one of the prototypical multi-industry companies with global business units in sectors ranging from power generation to financial services to transportation. GE's core products include aircraft engines, locomotives and other transportation equipment, oil and gas power turbines, alternative energy systems, 59

60 medical imaging equipment, and water treatment systems. GE Capital Corp (GECC), the largest non-bank financial company, has core businesses in commercial finance, consumer finance and equipment management, with specific financing support for its energy and aviation "verticals" industrial businesses. The financial services segment is now targeted to eventually contribute 30% of consolidated parent earnings, down from about half in the past several years. GE currently has a minority ownership of the NBCU media through a JV with Comcast. GE currently employs about 300,000 employees and serves customers in over 100 countries. The company is headquartered in Fairfield, Connecticut. Investment strategy We rate the shares of GE Buy. Investors should be encouraged by the earnings power in GE Industrial, and the positive valuation implications from higher visibility and faster Industrial growth into GE has solid line-of-sight based on its robust late-cycle $229 bil Industrial backlog, and high-margin service and aftermarket revenues. The resumption of regular GE Capital dividend and expected future special dividends to the parent is funding accelerated investor friendly buybacks and dividend growth. M&A should stay in the bite-sized $1-$4 bil range. Valuation Our $32 target price assumes the shares trade at a 5% discount to our 17.0x target group multiple on 2015E EPS. GE's historical relative P/E range versus peers is a 25% discount to a 5% discount. Risks We see the following risks to the stock achieving our price target and earnings forecasts: Macroeconomic conditions. Economic factors, including the pace of the global recovery, late-cycle exposures in power generation and commercial aerospace industries, inflation, commodity prices, credit availability, currency, product costs, and price realization, could cause GE s results to be lower than anticipated, and cause GE to not reach our price target. Financial risks. A recession could cause our sales and earnings estimates to be too aggressive, which, in turn, would affect our price target on the stock. Acquisition risks. Acquisitions are focused on relatively low-risk bolt-ons, but an acquisition strategy still entails risks. Success depends on identifying and acquiring attractive businesses at prices that can be accretive to earnings. Regulatory risk. Capital requirements for GECC are subject to a change financial reform, which could impact GECC's long-term returns. Other factors that could cause GE shares to exceed our price target include: A stronger-than-expected decline in provisions for losses in GECC, a sharper recovery in aerospace aftermarket sales as global flight hours increase, or a synergistic acquisition that could drive estimates higher. 60

61 Honeywell International Inc. Company description Honeywell International Inc. (Honeywell) is a global industrial and diversified technology and manufacturing company. Honeywell offers aerospace products and services; control sensing and security technologies for buildings, homes, and industrial customers; turbo chargers; automotive products; specialty chemicals; electronic and advanced materials; process technology for refining and petrochemicals; and energy-efficient products and solutions for homes, businesses, and transportation. Honeywell was incorporated in Delaware in 1985 and today manages its global business operations through four business segments: Aerospace, Automation and Control Solutions, Performance Materials and Technologies, and Transportation Systems. Investment strategy We rate the shares of Honeywell Neutral. Honeywell is benefitting from improving demand in its aerospace and nonresidential construction markets, offsetting the growing risks of an early-cycle slowdown. Over the past three years, Honeywell has made impressive progress across the board in improving its quality of earnings, transparency, operational excellence, and M&A prowess. However, our sense is that much of the positive news at the upcoming March 2014 Outlook Meeting may already be priced in, along with its arguably lackluster capital allocation plans. Valuation Over the past three years, HON has traded within a (15%) to 5% relative P/E range vs its large-cap MI-EE peers. Our $99 target price assumes the shares trade at a 5% discount to our 17.0x target group multiple on 2015E EPS, or the midpoint of the historical relative range. Risks We see the following risks to achieving our target price: Economic conditions. The pace of the global recovery, credit availability, inflation/deflation, commodity prices, currency, product costs, and price realization, could each cause Honeywell s results to differ from our expectations, and cause Honeywell s stock price to not reach our price target. End market pressures. Honeywell could eventually see a slowdown in aerospace markets. Auto production delays are also worrisome. Conversely, a faster-thanexpected recovery in these markets could cause Honeywell s stock price to exceed our price target. Risks to financial performance. A recession could cause our sales and earnings estimates to be too aggressive, which, in turn, would affect HON shares ability to reach our price target. Profitability. Like most of its Multi-Industry competitors, Honeywell has improved margins in the late stages of the economic expansion, but there is an increased risk of margin pressure as it re-expands capacity in the early stages of the recovery, and certain employee-related costs come back. Management. We believe Honeywell has benefitted from the effective leadership of Chairman and CEO Dave Cote and CFO Dave Anderson. 61

62 Other factors that could cause HON shares to exceed our price target include: A sustained, and stronger-than-expected recovery in Turbo markets, accretive acquisitions that could drive investor expectations higher, or growth from new product introductions. IDEX Corp Company description IDEX Corp is a mid-cap diversified industrial with leading positions in niche industrial markets and broad exposure in medical and life sciences, energy, chemical process, water, and general industrial markets. IDEX reports in three segments: Fluid & Metering Technologies (42% of sales) manufactures pumps, valves, and metering and measuring devices for fuel transfer, chemical process, agricultural, and water and wastewater applications; Health & Science Technologies (37%) manufactures precision components for analytical instruments, specialty lasers and for optics and photonics equipment, and specialty motors; and Fire & Safety / Diversified Products (21%) are equipment for fire suppression, dispensing, rescue tools, and banding systems. IDEX is headquartered in Lake Forest, IL. Investment strategy We rate IDEX Neutral. IDEX is among the highest-quality Multi-Industry small-caps with near sector-best profitability, faster-than-average total and organic revenue growth, and below-average cyclicality, and has historically warranted premium valuation vs its small-cap Multi-Industry peers. IDEX's customized products in niche markets have enabled sustainable profitability with operating margins 300 bps above peers over the past five years. We like its late-cycle and less-cyclical markets such as energy, petrochemical, water, and analytical instruments. We consider IEX to be a core Industrial holding, but valuation is not sufficient for a Buy rating at this time. Valuation IEX shares have historically warranted a premium to peers in the range of 0% to 30% based on its above-average profitability and long-term growth outlook. We believe the sector is still in the Steady Growth phase of the economic cycle which has historically favored the Primes and Hybrids in our investment framework such as IDEX. Our $74 price target price assumes the shares trade at a 25% premium to our 16.5x target group multiple based on 2015E EPS, above the midpoint of its 0% to 30% historical relative range vs peers. Risks We see the following risks that could impact the stock from reaching our target price: Market risks: Given IDEX's exposure to cyclical markets such as oil & gas, industrial, and petrochemical markets, a global recession or choppy recovery could impact our sales and earnings estimates. Acquisition/integration: IDEX is active in M&A and there are risks associated with acquisition price and integration. Health spending: Spending by IDEX's Health & Science Technology (HST) customers has been soft lately due to uncertainty around budgets for the National Institutes of Health (NIH). Labs could continue to cut back on spending until they have visibility on government spending. Analytical Instruments represent about 38% of HST sales and 13% of IDEX's total. 62

63 Europe slowdown: IDEX generates 25% of its sales from Europe, above the 19% sector average. IDEX has the most exposure in Fire & Safety / Diversified (37% Europe) which generates IDEX's best operating margins and magnifies the earnings risk. Commodity prices: IDEX generates roughly 10% of its sales from fuel transfer equipment, and we believe part of the share price underperformance can be attributable to worries that lower fuel prices (oil has declined 15% from 2012 highs) could impact customer capital spending. Municipal recovery: IDEX's water businesses represent 9% of sales and have been a drag on growth since municipal markets froze in the 2008/2009 recession. Illinois Tool Works Inc. Company description Illinois Tool Works is a highly decentralized multinational manufacturer of a diversified range of industrial products and equipment with approximately 800 businesses in 57 countries, which are then further aggregated into eight external reportable segments as of 2013: Welding, Automotive OEM, Test Measurement and Electronics, Food Equipment, Construction Products, Polymers & Fluids, Specialty Products, and Industrial Packaging. The businesses serve a wide variety of end markets such as automotive, commercial construction, residential construction, restaurants, food retail and service, and industrial. Some of ITW s iconic inventions include the plastic six-pack holder ring and the zip-lock bag. ITW has roughly 59,000 employees. Illinois Tool Works was founded in 1912 and is headquartered in Glenview, Illinois. Investment strategy We rate ITW Neutral. ITW is among the best managed Multi-Industry companies, but faces near-term headwinds in its early-cycle/short-cycle mix and a management transition that happened sooner than anyone thought. The company continues to successfully execute its unique business model that engineers decentralized industrial growth through a steady diet of small bolt-on acquisitions. The total savings target through 2017 from ITW's long-term enterprise strategy should mitigate EPS risk later in the cycle. Expect to see more divestitures as the company's aggressive portfolio management initiative pares down the 25% of revenues at risk of commoditization. Among key fundamentals, ITW is renowned for high-quality earnings, having never excluded a one-time restructuring charge from operating results. Its 5-year FCF conversion of 119% and 10-year ROIC of 14.2% are solidly above the sector averages. The balance sheet is conservatively levered at 15% net debt-to-cap, providing ample optionality to fund acquisitions, growth investments, and share buybacks. The perennial debate on ITW seems to surround the sustainability of its acquisition growth model and management's ability to manage its decentralized operating structure. 63

64 Valuation ITW has averaged a multiple inline with its large-cap Multi-Industry peers, but is among the most-cyclical names in the sector; its decision to include restructuring expenses in its reported EPS has only a minor impact on its relative valuation multiple. We are targeting a relative P/E range to peers of (10%)-5%, with a bias to trend higher as the company completes the divestitures of its remaining noncore segments and improves its portfolio composition. We derive our $91 target price by assuming the shares trade at a 5% premium to our 17.0x target group multiple on 2015E EPS. Risks We see the following risks to our price target: Economic conditions. The pace of the global recovery, late-cycle exposures in commercial construction, inflation/deflation, commodity prices, credit availability, currency, product costs, and price realization could cause ITW s results to be lower than anticipated and could prevent ITW shares from reaching our target price. Financial risks. A double-dip recession could cause our sales and earnings estimates to be too aggressive, which would affect our target price on the stock. Acquisition. ITW is active in M&A and routinely faces the associated risks associated with sourcing deals, and potentially overpaying or experiencing integration challenges. European exposure. A potentially prolonged European slowdown could spill into the company s results. Illinois Tool Works generates 31% of its sales from Europe. Currency fluctuations. ITW generates 57% of its sales outside the US, and is exposed to currency fluctuations. ITW has natural hedges in place since revenue is typically generated in the same currency as related costs, but a strengthening USD can still adversely impact both revenue and operating income. Residential end market. If housing were to recover faster than anticipated, ITW shares could rally above our target price. Conversely, if there were a further material decline in this market, this development could impact ITW s shares negatively. Enterprise strategy. A large portion of ITW s EPS growth potential through 2017 is predicated on the timing and size of the expected cost savings from the company s long-term enterprise strategy. If returns from its business simplification and strategic sourcing initiatives are not achieved within the expected timeframe, this could materially impact our earnings forecasts over the next five years. The stock could exceed our target price if end markets decelerate at a slowerthan-expected rate, or if accretive M&A activity adds to 2013 estimates. 64

65 Ingersoll-Rand plc Company description Ingersoll-Rand provides a diversified set of products, services, and solutions focused around cooling technologies including residential and commercial HVAC, and transport refrigeration. Climate includes commercial and residential HVAC systems sold under the Trane brand, and Thermo King transport refrigeration units. Industrial is among IR s legacy businesses, providing air compressors and related tools and components. Industrial Technologies also includes the Club Car line of golf and utility vehicles. Ingersoll-Rand was formed in The company has its primary executive offices in Piscataway, NJ and Davidson, NC, and is incorporated in Dublin, Ireland. Investment strategy We rate IR shares Neutral. Since the transformational $9.6 billion acquisition of Trane, which basically doubled revenues in 2008, the company has continued to work through the challenges of integration. More recently, the involvement of activist investor Nelson Peltz has triggered targeted capital allocation plans such as dividend increases, and share repurchases. Among key fundamentals, depressed sales to resi and non-resi construction markets have likely prevented the company from seeing the benefits of cost actions taken since the recession, when the company substantially underperformed with EBIT margin down 340 basis points and EPS down 50%, both significantly worse than its MI-EE peers. Valuation We derive our $62 target price by assuming IR shares trade to a -5% discount to our 17.0x target group multiple on our 2015 EPS estimates. For reference, Ingersoll-Rand shares have historically traded for a -30% to a -5% discount to Multi- Industry peers. Risks We see the following risks to our target price: Economic conditions. Economic factors, such as the sustainability of the global recovery, inflation/deflation, credit availability, currency, and material costs could cause Ingersoll-Rand s results to be lower than anticipated, and could prevent IR shares from reaching our target price. Financial risks. A recession could cause our sales and earnings estimates to be too aggressive, which, in turn, could result in the stock not meeting our target price. Regulatory risks. Sales may be driven by government standards for HVAC efficiency, building energy use and security, and diesel engine emission standards. Tax reform. In light of Ingersoll-Rand s reincorporation in Bermuda and then in Ireland for tax purposes, there is ongoing risk that Congress could at some point enact tax law changes that would be detrimental to Ingersoll-Rand s tax treatment. 65

66 Other factors that could potentially drive the shares above our target price: Traction in management s productivity and pricing initiatives, or capital deployment towards acquisitions or share buybacks now that leverage has returned to what we consider to be moderate levels. If the impact on the company from any of these factors proves to be greater/less than we anticipate, we believe the stock will likely have difficulty achieving our target price or could outperform it. Pentair Ltd. Company description In its history, Pentair has undergone multiple portfolio transformations. At first, Pentair was a paper company and then a tools company. Pentair then divested its Tools businesses in 2004 and increased its water exposure by acquiring WICOR. In September 2012, Pentair executed a Reverse Morris Trust Merger (RMT) with Tyco Flow control to form a nearly $10 billion company. The company reports in three main segments: Valves & Controls, related to the legacy Tyco Flow business, Water & Fluid Solutions, and Technical Solutions. Pentair is headquartered in Minneapolis, Minnesota. Investment strategy We rate Pentair Buy. Moving aggressively beyond leadership in pumps and pools, Pentair has been ambitiously targeting more high-end, global water treatment markets, like water reuse and point-of-use, and agriculture. We like the game plan, the announced acquisition of CPT's filtration business, and management know-how. More recently, the announced acquisition of Tyco's Flow business for $4.9 billion is expected to offer immediate operating and tax synergies in addition to reducing leverage and increasing the scale of the company. Key fundamentals. Its targeted global water markets should provide a base for consistent growth including the CPT acquisition although it falls short on a host of 10-year operating metrics, including 10-year revenue CAGR of 0.6%, ROIC of 8.5%, and high peak-to-trough revenue decline of 20%. This keeps Pentair grouped in the cyclical subsector, according to our investment framework. The company has averaged 109% cash conversion over the past five years, below the MI-EE average 115%. The debate on Pentair. As for the most frequent debate on Pentair, and at the risk of being accused of beating the dead horse, we decline to group Pentair's 15% revenue exposure to Pool as being part of the global water sector. We prefer to classify Pentair's leading pool equipment as high-end building products. We would exclude the Pool and non-water pump business, which would distill its total water revenues to a still attractive 56%, including the CPT acquisition. Valuation PNR has historically traded within a relative P/E range of a (5%) discount to 15% premium. Our $91 target price assumes the shares trade to a 10% premium to peers on our 2015 EPS estimate. Risks We see the following risks to the stock achieving our target price: 66

67 Economic conditions. Macro trends such as inflation/deflation, credit availability, currency, commodity costs and availability, and supply chain, could all cause Pentair's results to differ materially vs. our expectations. Competition. Pentair competes in some commodity products with keen competition. In the current recession, it could see more irrational pricing behavior by some competitors looking to generate cash. Acquisitions. Pentair has a risk of overpaying and/or experiencing integration difficulties. Municipal spending pressures. As income tax revenues stress municipalities and lag the economic recovery, municipalities may continue to freeze and cut spending. Regulatory. There is a risk that changes in government (U.S. and international) water regulations could pose a compliance challenge. This includes both the water and enclosure markets. Margins. We believe there is some degree of execution risk, where it would see a shortfall in margins. Roper Industries, Inc. Company description Roper Industries Inc. is a diversified industrial growth company that designs, manufactures, and distributes energy systems and controls, scientific and industrial imaging products and software, industrial technology products, and radio frequency (RF) products and services. Roper markets products and services to selected segments of a broad range of markets, including RF applications, water, energy, research and medical, education, security, and other niche markets. Software as a Service (SaaS) has been a focal-point of its M&A growth strategy, driving sustainably higher margins and free cash flow. The company is headquartered in Sarasota, Florida. Investment strategy We rate Roper a Buy. Roper has been making a deliberate shift towards more Software as a Service (SaaS) and network-driven businesses with high recurring revenue, strong free cash flow, and attractive retention rates. SaaS businesses are now approaching 40% of Roper s operating profit. This transformation, together with Roper's consistent FCF averaging 136% of net income over the past five years (and rising), makes relative P/E a less relevant metric for ROP shares. Roper's M&A has been a substantial value creator over the past ten years. Digging into Roper s differentiated M&A strategy, we see elements that are sustainable, adaptable, and should enable Roper to continue sourcing asset-light acquisitions that fuel its superior growth rates. The company recently hired domain specialists in SaaS and in Medical providing more firepower for Roper to do quicker and more thorough due diligence in these spaces, and should enable the company to continue sourcing SaaS deals. Among the key fundamentals, Roper boasts the sector highest 10-year revenue CAGR of 17.1% and has lassoed the #2 sector leader position in both its 5-year EBIT margin of 20.3% and FCF conversion of 135%. About half of sales are from 67

68 defensive markets including its smart water meters and medical platforms. Despite all its successes, there is ample debate on this name. Skeptics worry that there are too many acquisitions, funded by +100% of FCF, and that the growth rate could be unsustainable. But we find it is hard to argue with its success. Valuation Roper's sustainably strong cash flow over the past five years makes P/FCF the most relevant metric for the shares, in our view. Roper has historically traded within a range of (20%) to 20% vs Multi-Industry peers on 2015 price to forward FCF. We expect the shares to trade towards the high-end of this range, or a 10% premium to peers on Price to FCF based on its elevated M&A capacity and attractive positioning with recurring revenue ahead of a macro slowdown. This drives our $167 target price. Risks We see the following risks to our target price: Economic conditions. Economic factors, including the pace of the global recovery, late-cycle exposures in energy and process industries, inflation/deflation, commodity prices and availability, credit conditions, currency, product costs, and price realization, could cause Roper s results to be lower than anticipated. Financial risks. A double-dip recession could cause our sales and earnings estimates to be too aggressive, which, in turn, would negatively affect our target price on the stock. Acquisition risks. Roper is highly acquisitive, and its success depends on identifying and acquiring attractive businesses at prices that can be accretive to earnings. Even successful integrations can require substantial management time and attention. Strong competitors in global sectors. Roper competes globally in a number of industrial sectors with strong and well-financed competitors. Return on restructuring benefits could be larger than expected. Roper did not implement large company-wide restructurings, but the business unit-led cost cuttings have been generating a payback in less than one year. We could see a margin surprise as demand recovers and Roper realizes the savings from the initiatives that were completed in 2009 and early If any of these risk factors has a greater downside impact than we anticipate, its share price will likely have difficulty attaining our target price. SPX Corporation Company description SPX Corporation was incorporated in Muskegon, Michigan in 1912 as the Piston Ring Company and adopted its current name in Since 1968, the company has been incorporated under the laws of Delaware and has been listed on the New York 68

69 Stock Exchange since SPX s current portfolio is the result of the merger with General Signal Corporation (October 1998) and acquisition of United Dominion (May 2001), along with a string of divestitures including its EST security business to GE, BOMAG compaction business to Fayat, its Kendro lab and life sciences business to Thermo Electron Corporation (now Thermo Fisher), and Service Solutions to Robert Bosch GmbH. The company is a global Multi-Industry manufacturing company with operations in more than 40 countries and sales in more than 150 countries around the world. The company has three operating segments: Flow Technology, Thermal Equipment and Services, and Industrial Products & Services. The company is headquartered in Charlotte, North Carolina. Investment strategy We rate SPX Corporation Sell. In our view, SPX still appears to be in a slow-motion break-up to its lowest common denominator as a pure-play composition in Flow. Although we are more positive on late-cycle exposure, SPX's high operating leverage capabilities remain under pressure near-term. Like most investors, we believe SPX s value is in its break-up story and ability to pare down its portfolio to a pure-play Flow composition; however this strategy has largely been put on hold near-term. The drivers of our Sell rating include: 1) Risk of EPS disappointment given steep 2H13 earnings ramp 2) Reduced prospects for near-term catalysts 3) Valuation looks full on SOP and relative P/E to peers 4) Seasonality and point in cycle does not favor Cyclical stories Valuation Our $93 target price assumes SPW shares trade at a 10% discount to our 16.5x target group P/E multiple on 2015E GAAP estimates. Risks We see the following risks to achieving our target price and Sell rating on the shares: Economic conditions. Economic factors, including inflation/deflation, credit availability, long-cycle exposure in energy and process industries, inflation, commodity prices, currency prices, product costs, and price realization, could cause SPX s results differ materially from our expectations. Factors that could potentially drive the shares above our target price include: A sooner than expected economic recovery in key SPX end markets, especially energy and power, better than expected integration of recent food & beverage boltons, and emerging market growth. Activist investor Relation became involved with SPX in February 2013 and has since increased its stake to 13.65%. The activist s initial filing cited SPX s apparent growth-at-any-cost strategies and asserts that the stock s dislocation in December reflects the market s worries about capital allocation. Although it appears that Relational is taking a 'wait and see' approach with SPX and is not to take a board seat, if Relational were to take some action, it could be a positive for the stock. 69

70 Although the moratorium on M&A eliminates that potential catalyst, one-off industrial business divestitures could happen any time. News of a big divestiture such as Transformers would be a positive catalyst. The company still aims to complete another $173 million of buybacks over the remainder of 2013, with the potential for additional repurchases from the $1.2 billion of full-year projected liquidity. United Technologies Corporation Company description United Technologies Corporation, or UTC, was incorporated in Delaware in UTC provides high-technology products and services to building system and aerospace industries worldwide. Growth is attributable to acquisitions and the internal development of the company's existing businesses. It operates in five principal segments. The two commercial businesses Otis Elevators and Climate Controls & Security serve customers in the commercial and residential property industries worldwide. The aerospace businesses Pratt & Whitney, Hamilton Sundstrand, and Sikorsky primarily serve commercial and government customers in both the original equipment and aftermarket parts and services markets. The company is headquartered in Hartford, Connecticut. Investment strategy We rate United Technologies Neutral. We see United Technologies as well positioned at this point in the cycle with outsized exposure to the late-cycle markets, particularly in commercial aerospace (35% of sales) but also in non-residential construction (27%). Residential construction (10%) has also been considered to be a late-cycle market this cycle due to the delayed recovery from the prior cycle's overbuilding. However, we suspect that much of the upside in the successful GR acquisition has been priced-in and the conservative capital allocation plans for 2014 and prospects for fewer catalysts on the horizon have now shifted the risk-reward proposition less compelling. Valuation UTX shares have historically traded within a (15%) to 5% relative P/E range versus its large-cap MI-EE peers. Our $125 price target assumes the shares trade at a 5% discount to the peers on 2015E EPS, at the midpoint of its historical range. Risks We see the following risks to our target price being achieved or materially outperformed and to our rating on the shares: Economic conditions. Economic drivers such as the pace of the global recovery, late-cycle exposures in aerospace and nonresidential construction, credit availability, inflation, currency, commodity prices, product costs, and price realization, could cause UTC's results to differ from our expectations. Integration on the Goodrich deal. Any transformational $18 billion deal carries significant integration risk, even for a large and well-run company such as UTC. Successful integrations require significant management attention and could divert attention from UTC's other businesses. 70

71 High post-deal leverage. The timing of the Goodrich acquisition and the post-deal divestitures drove post-deal leverage to a lofty net debt-to-cap near 40%. We have high confidence in management's ability to quickly de-lever, but this elevated financial leverage creates risk in an uncertain macro environment. Financial risks. A recession could cause our sales and earnings estimates to be too aggressive, which could affect our target price on the stock. Factors that could potentially drive the shares materially above our target price include: A faster-than-expected recovery in aerospace markets and provisioning sales, upside from the Goodrich acquisition, or stronger-than-expected performance from UTC's emerging markets. W.W. Grainger, Inc. Company description Incorporated in 1928, W.W. Grainger, Inc. distributes industrial maintenance, repair, and operations (MRO) products used by manufacturers, commercial businesses, institutions, and government entities and institutions primarily in the United States, Canada, and Mexico. Grainger is the leading broadline supplier of facilities maintenance and other related products in North America. The sector is highly fragmented, with Grainger s leading market share pegged at ~6%. The sector typically grows with GDP, and the top 10% of the sector commands about 25% of the share in the $150+ billion industry ($114 billion United States, $13 billion Canada, $35 billion Latin America). Business model is driven by customer service. The company uses a multichannel business model to provide customers with a range of options for finding and purchasing one million products through a network of branches, sales representatives, direct marketing including catalogs, and a variety of electronic and online channels. Grainger serves approximately 2 million customers through a network of >700 branches, 27 distribution centers, and Grainger.com. About 30% of business is conducted online. Impressively, Grainger achieves about a 99% success rate in getting every item ordered shipped by the next day. Investment strategy We rate Grainger Neutral. Grainger continues to extend its lead in the highlyfragmented industrial maintenance, repair, and operations (MRO) distribution sector, growing faster than the market with market share gains, new product launches, and bolt-on acquisitions. Relative valuation no longer looks particularly stretched. We like to call Grainger the "Marines of MRO Distribution" given its relentless Six- Sigma obsession with on-time delivery, market share, and margins. Compared to its Multi-Industry peers, Grainger has been significantly less volatile, with lower peakto-trough revenue swings and EPS declines. The balance sheet is an under-levered 2% net-debt-to-cap, but FCF conversion has been misleadingly below 100% partly due to its distributor economics vs a manufacturing model. Valuation Grainger historically trades within a 5%-30% relative P/E premium to its Multi- Industry peers. Our $282 target price assumes the shares trade at a 15% premium to our target group multiple of 17.0x 2015E EPS. The investment risk for GWW centers primarily in it continuing to be perceived as a safe haven for investors seeking modest beat and raises. 71

72 Risks We see the following risks to our view on the shares: Economic indicators continue to increase. Long term, Grainger has expected core growth to be x industrial production growth and 3-4x non-farm payrolls growth. With Industrial Production and ISM showing increases in underlying demand and non-farm payrolls having yet to gain momentum, there could be upside risk to our rating or target price. Grainger is a solid operator with the opportunity to take market share. New products, branch expansion, and market share gains could provide upside beyond our current estimates. Grainger has reaped the benefits of early SAP implementation, Market Expansion program, and product line expansion. Economic factors such as deflation, commodity prices, credit availability, currency, product costs, and price realization, could cause Grainger s results to be lower/higher than anticipated. Non-recurring events affect sales. Seasonal and emergency-related products (think hurricanes and tornadoes) represent 10-20% of revenue, which can be non-recurring and affect year-over-year comparisons. If the impact from the above risks turns out to be less than we anticipate, the shares could exceed our target price. WESCO International, Inc. Company description WESCO dates back to a company formed in 1922 by Westinghouse Electric to serve as the main distribution arm for its branded electrical distribution and industrial control products. It was sold to the private equity company Clayton Dublier & Rice in From there, WESCO was subsequently recapitalized and then sold to another private equity firm, Cypress Group, in WESCO had its IPO in 1999, and it conducted a follow-on stock offering in The company is a leading North American provider of electrical construction products and electrical and industrial maintenance, repair, and operating supplies, commonly referred to as MRO. The highly fragmented market is estimated at $75 billion and is part of the relatively resilient MRO distribution sector, growing at a 5% CAGR over the last 20 years. The electrical distributor market is populated with approximately 10,000 distributors, with the top five holding a 26% market share collectively. Recently, the company completed its largest acquisition ever of Canada-based electrical equipment distributor EECOL for $1.2 billion. Investment strategy WESCO is the leader in the highly-fragmented North American electrical products distribution market with an estimated 5%-6% share. Although the company has faced nonresi market headwinds, we believe it is gaining ample share and is poised for a recovery. The electrical distribution market is estimated to be $75 billion and growing at a surprisingly solid 5% CAGR. WESCO passed Graybar Electric and lapped the combined Rexel/GE Supply business for the No.1 position. We are positive on WESCO's business model, "One WESCO" growth strategy, and most of all, its scrappy, no-frills lean focus to running its distribution business. Its end-market mix is dominated by approximately 31% exposure to construction and 43% to 72

73 industrial end markets. Given this mix, WESCO is one of the more cyclical companies in the Multi-Industry & Electrical Equipment sector and the most leveraged. Valuation WCC has historically traded within a (30%) to 0% relative P/E discount range. Our target price of $107 assumes the shares trade at a 5% discount to our small-cap target group multiple of 16.5x 2015E EPS. Risks We see the following risks to our target price and rating on the shares: Economic conditions. Macro trends such as inflation/deflation, credit availability, currency, commodity costs and availability, and supply chain, could all cause results to differ materially. Improvements in construction-driven markets could cause results to miss/exceed our expectations. Financial risks. Any disruptions to credit markets could cause our sales and earnings estimates to be too optimistic. Competition and pricing. WESCO competes in a highly fragmented electrical distribution sector, which remains highly competitive. As smaller competitors continue to have limited access to credit, desperate price cutting by these competitors may clash with WESCO discipline. Acquisitions. WESCO has been reasonably active in M&A and bears the risk of overpaying and/or experiencing integration difficulties. We have high confidence in management's ability to integrate acquisitions, but large deals such as EECOL require substantial management attention and carry integration risk. If the impact of these factors is greater than we anticipate, the shares would have difficulty achieving our target price. Xylem Company description As a result of its spin from ITT, Xylem lays claim to being the largest US water equipment pure-play, with 90% of its $3.8 billion in 2012 revenue derived from water end markets. Comprised mostly of ITT's previous ITT Fluid Technology segment, Xylem manufactures water and wastewater treatment systems, pumps and related technologies, analytical instruments, and other fluid control products with applications across utility, residential, commercial, and industrial markets. Investment strategy We rate Xylem Neutral. We are enthusiastic about Xylem's leverage to the megatrend catalysts of water quality, scarcity, and safety. We see top-line organic growth potential of 4%-6%, in line with the broader water sector, driven by a blend of 1-2x GDP growth in developed markets and high-single-digits in emerging markets. EBIT margins are a respectable 12%-13% but we see a path to mid-tohigher teens margins if the mix transitions to a higher percentage of water test and treatment over the next few years. An impressive 38% of sales are aftermarket and 65% of revenues are outside the US. Since 2007, Xylem has averaged free cash flow conversion of 103% and 13% ROIC. However, valuation looks interesting but not compellingly bullish. 73

74 Valuation Our sum-of-the-parts model implies a $36 target price. This is based on our calculation of Xylem's 2015E P/E using a weighted average of its water comps across its three key businesses in pumps, test, and treatment. We apply a 10% scarcity premium based on Xylem's position as the largest US water equipment company. Risks While investors are reasonably familiar with Xylem as the water business of the former ITT, it is still a new public company with potential new company risks. These risks include: a new management team; greater business transparency; additional costs of setting up a new publically traded company; macro/end market risks including the company's ~40% exposure to municipal markets, which are facing austerity challenges; and the company's 37% exposure to Europe. Risks to the upside include a highly motivated management team that is more incentivized post spin to outperform the market and peers. If the negative impact on the company from any of these factors proves greater than we anticipate, the stock could have difficulty achieving our target price. On the other hand, we may have overestimated these risk factors and the stock could increase more than we expect. 74

75 Appendix A-1 Analyst Certification The research analyst(s) primarily responsible for the preparation and content of this research report are named in bold text in the author block at the front of the product except for those sections where an analyst's name appears in bold alongside content which is attributable to that analyst. Each of these analyst(s) certify, with respect to the section(s) of the report for which they are responsible, that the views expressed therein accurately reflect their personal views about each issuer and security referenced and were prepared in an independent manner, including with respect to Citigroup Global Markets Inc and its affiliates. No part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst in this report. IMPORTANT DISCLOSURES 75

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