March 2018 EQUITY HIGHLIGHTS from Investment Perspectives To obtain important disclosure information regarding Hilliard Lyons' rating system, valuation methods, risk factors and potential conflicts of interest with respect to the companies covered in this report, please call (800) 444-1854 ext. 8820, or send a request via email to RsLib@hilliard.com. Requests should include the name and date of this report and a list of companies for which the disclosure information is requested. Note Important Disclosures on Pages 13 14 Note Analystsʹ Certification on Page 13
Six Flags Entertainment Corp. (SIX) Consumer Sector (Discretionary) Good swap opportunity for former investors in Regal Entertainment Group LTB 3 Six Flags Entertainment Corp. SIX $64.48 $70 $51 $1.25 $3.09 $2.95 21.9 4.8% $77 2/21/18 We believe Six Flags Entertainment Corp. represents an attractive equity investment, particularly for former investors in Regal Entertainment Group. Regal, a long covered stock by the Hilliard Lyons Research Department, was recently acquired in an all cash transaction. Proceeds could be invested in SIX to maintain the attractive dividend income levels and the Entertainment & Leisure industry exposure Regal represented. Six Flags recently produced Q4 results that exceeded our expectation. Total revenues rose 7% from the year ago period, led by greater international licensing revenue and higher guest spending per capita. Overall attendance was down, likely impacted by adverse weather during Q4. Still, Q4 adjusted EBITDA of $87.3 million rose 15%, exceeding our expectation by several million dollars. We believe fundamentals are solid. We like recent growth in season pass sales, dining plans, and guest satisfaction scores. Overall cash flows are allowing for reinvestment into the parks, dividend payments, and share repurchases. The nascent business of collecting licensing revenue from international partners helped the recent quarter and represents future growth potential despite some unpredictability regarding the pace of planned projects. We consider SIX a well run operator in the amusement park industry. We like the companyʹs brand equity, portfolio of domestic properties, capital free international opportunities, and strong focus on shareholder returns. With a 4.8% current yield, SIX shares have a compelling income component. The quarterly dividend rate was raised twice in the past several months. Annual payments are well covered by cash flows, in our view, and we expect future annual increases at high single digit percentages. We recently raised our two year price target on Six Flags Entertainment by $5 to $77 per share. This increase was based on our estimate of forward results two years from now. Annualized total return potential, including dividends, based on the current share price is in the 13 14% range. Our suitability rating remains 3, which is mainly based on the companyʹs leveraged balance sheet. Please see our latest Six Flags Entertainment Corp. report dated February 21, 2018. 2
The Procter & Gamble Co. (PG) Road to improvement has started, in our view Consumer Sector (Staples) LTB 1 The Procter & Gamble Co. FY(6) PG $79.16 $95 $78 $3.67 $3.92 $4.20 18.8 3.5% $106 1/24/18 Procter & Gamble Co.ʹs fiscal Q2 results were encouraging to us. Net sales for the period ended 12/31/2017 rose 3% to $17.395 billion, matching the street consensus figure and slightly surpassing our estimate. Organic sales rose 2% due to higher volume, as overall pricing was slightly negative (mostly in the Grooming segment). Core EPS rose faster than sales. Core gross margin (excluding nonrecurring items) decreased 80 basis points due to higher commodity costs, mix, and pricing. Core operating margin dropped only 10 basis points, benefiting from cost reduction initiatives. Recently enacted tax legislation resulted in a $0.05 benefit to core EPS. Share repurchases also helped the EPS calculation. Core EPS of $1.19 exceeded the year ago figure of $1.08, a 10% gain. This represented sequential improvement from the fiscal Q1 EPS gain of 6%. Managementʹs outlook for FYʹ18 was little changed. Guidance included expected organic sales growth of 2 3% for the fiscal year (June period end) and all in sales growth of 3%. Margins are expected to improve in 2H. With continued share repurchases, this is expected to produce annual core EPS growth of 5 8%, slightly above the previous guided range of 5 7%. We recently fine tuned our annual EPS outlook, which included a $0.03 increase to $4.20. PGʹs Board composition is finally set. In December 2017, following a lengthy and costly proxy battle for Board seats, PG announced the addition of activist shareholder Nelson Peltz as its 12th Director. In a bit of a surprise move, PG also added seasoned business executive Joseph Jimenez as its 13th Director. We rate Procter & Gamble Long term Buy. We believe an earnings rebound is underway, slowed by macro and industry factors. We recently raised our two year price target by $1 to $106 per share to reflect slightly higher forward earnings given the progression of time. We also note PGʹs above average dividend yield, recently 3.5%. Our suitability rating is 1. Please see our latest Procter & Gamble Co. report dated January 24, 2018. 3
German American Bancorp (GABC) Best in class commercial banking organization Financial Sector Ntrl 3 German American Bancorp, Inc. (P) GABC $35.10 $39 $29 $1.82 $1.68 $2.02 17.4 1.7% $34 1/31/18 German American Bancorp, Inc. is a commercial banking organization headquartered in Jasper, IN. The company operates 53 retail and commercial banking offices throughout southern Indiana. GABC also owns a trust, brokerage, and financial planning subsidiary (German American Financial Advisors & Trust Company) and a full line property and casualty insurance agency (German American Insurance, Inc.). Loan Growth: German American generated end of period loan growth of 8.3%, 8.0%, and 7.1% in 2015, 2016, and 2017, respectively. GABCʹs ability to consistently generate robust loan growth should more than offset any net interest margin pressure the company may experience. Asset Quality: GABC has been able to generate strong loan growth without sacrificing asset quality. Nonperforming Assets/Assets have remained low, rising four bps LQ in Q4ʹ17 to 0.36% versus 0.62% for other small cap banks. Loss content has been negligible with net charge offs equal to 0.04% of average loans in 2017, and was below 0.05% in each of the last four years. Earnings & Profitability: GABC reported operating EPS of $1.68 in 2017, and has achieved a 6.8% compound annual growth rate (CAGR) in EPS over the past five years. As a measure of the returns management is generating for shareholders, GABC has maintained a return on equity in excess of 10% over the past 13 years, including during the financial crisis. Dividends: Nearly in line with the companyʹs earnings growth, GABCʹs dividend has grown at a 6.3% CAGR over the last five years. In conjunction with Q4ʹ17 earnings results, German American announced a 15% increase in the quarterly cash dividend to $0.15 per share. We currently rate GABC Neutral as we believe the companyʹs strong fundamentals are fully reflected in its valuation. Please see our latest German American Bancorp report dated January 31, 2018. 4
Eli Lilly & Co. (LLY) Market emotions create investment opportunity Health Care Sector LTB 1 Eli Lilly & Company LLY $77.44 $89 $74 $3.52 $4.28 $4.82 16.1 2.9% $104 2/1/18 The focus of the most recent quarterly earnings call for Eli Lilly & Co. was on Ozempic (semaglutide), the new GLP 1 drug (the same mechanism of action as Trulicity) from Novo Nordisk (NVO $50.63). As we have noted before, we believe Ozempic presents a problem to the incredible growth and market share gains of Trulicity. However, we do buy managementʹs argument that the class growth of the GLP 1 market (still less than 30% versus the basal insulin market) will enable Trulicity to continue growing. Furthermore, management noted there were minimal switches from Victoza (Novoʹs earlier generation GLP 1) to Trulicity. Some Q&A time and we believe the source of market overreaction was also spent on the potential of an oral version of semaglutide that could hit the market next year if trials churn out positive results. Whereas management generally acknowledged the competitive threat from Ozempic (the injectable), they seemed to reject the threat of an oral version that could present side effect and fasting requirements. Each situation is different in terms of the patientʹs involvement in therapeutic choice, but we believe the oral versus subcutaneous option will be substantially driven by the patient. We therefore expect oral semaglutide to carve out a dedicated but small niche among those wanting to avoid injections at all cost, and we believe Novoʹs attempt to position it earlier in the treatment line will be a longer term proposition one that could ultimately be null and void if Lillyʹs Jardiance churns out more data on cardiovascular benefits. We note we had already adjusted our model after Ozempic safety data came in better than expected and are a bit surprised by the delayed reaction of the market. In our opinion, based on Q&A and the price action following otherwise strong earnings, we believe the market is focusing far too much on these competitive threats while ignoring Lillyʹs pipeline, including what could be a great counter punch from a GIP/GLP 1 co agonist. We are especially skeptical of the market share an oral semaglutide could take. Please see our latest Eli Lilly & Co. report dated February 1, 2018. 5
Multi Color Corp. (LABL) Growing pains in Q3, but thesis intact Industrials Sector LTB 3 Multi Color Corp. FY(3) LABL $68.25 $90 $62 $3.22 $3.61 $3.64 18.8 0.3% $105 2/6/18 Cincinnati, OH based Multi Color Corp., established in 1916, is a global leader in labeling solutions. LABL supports prominent brands selling a range consumer products across six continents, and employs ~4600 associates. We reiterated our Long term Buy rating on LABL in early February. LABL fits our affinity for consumeroriented industrial exposure as we work into 2018, and longer term we see sentiment/valuation as compelling versus the growth we expect over the next couple of years. LABL reported fiscal Q3ʹ18 (quarter ending 12/31/2017) core EPS of $0.72. Earnings per share missed consensus, but nonetheless expanded 1.9% from $0.70 in the year ago period with despite substantially higher shares outstanding. Revenues in fiscal Q3ʹ18 were $353 million, up 67%, reflecting the Constantia acquisition that closed on October 31st. That said, integration and execution items impacted margins, although this is suggested to normalize over the course of 2018. Organic sales grew 7% in the period, the strongest rate across the four quarters of calendar 2017. We estimate Procter and Gamble (PG $79.16) accounted for ~13% of sales in the most recent quarter. We believe this relationship serves as a good proxy for LABL performance, although the Constantia acquisition has modestly diluted reliance on P&G. Multi Color suggested its low end of fiscal 2018 EPS guidance ($3.80) may be difficult to attain. Our current 2018E EPS sits at $3.64, a few cents above the prior year. Nonetheless, LABLʹs fiscal 2019 begins on April 1st of this year, and we see a substantial reacceleration of growth in the out year. Please see our latest Multi Color Corp. report dated February 6, 2018. 6
Intel Corp. (INTC) Recent price target increase Information Technology Sector LTB 2 Intel Corp. INTC $51.32 $51 $33 $2.72 $3.47 $3.55 14.5 2.3% $60 1/26/18 As we have previously noted, we believed the Intel Corp. chip security issue at the beginning of 2018 presented a buying opportunity ahead of Intelʹs Q4 earnings report on January 25th. INTC reported strong Q4 results, significantly raised their outlook, and boosted the dividend 10%. Following the earnings report, we increased our price target to $60 from $52.50 as we expect new growth markets to aid Intelʹs turnaround strategy. Following these actions, the stock market sold off in early February, correspondingly Intel shares declined to $42.50 from a post earnings report high of $50.11. A rally in INTC shares still leaves potential upside of 18% remaining to our $60 price target. Our longer term outlook is for $4 in EPS by 2020. We want to note our suitability rating of 2 which we view as appropriate given Intelʹs transition to a data oriented company away from PC specific chip designs. Investment Thesis: Intelʹs strategic vision is transitioning from a PC centric chipmaker to a company focused on empowering a data driven economy. The coming rollout of the 5G network in 2018/2019 will drastically increase the amount, speed, and complexity of data requirements. Intel has a monopolistic 98% share of the server market, the backbone of the digital economy. Intelʹs pole position in the data center will allow it to better connect to smart connected end devices including PCs, smartphones, autonomous cars, automated factories, and health information better known as the Internet of Things. New experiences such as artificial intelligence, augmented reality, and the 5G network are expected to increase semiconductor demand over the next decade. Global semiconductor revenue is at an all time. Intel is also entering new ancillary markets including memory, FPGAs, and autonomous driving systems. These growth markets are growing at double digit rates for Intel and now represent roughly 50% of revenue. Please see our latest Intel Corp. report dated January 26, 2018. 7
National Health Investors, Inc. (NHI) Recently upgraded to Long term Buy Real Estate Sector P/FFO Rating Price Year Year FY FFO Ratio Ind. Div. Target Latest LTB 2 National Health Investors, Inc. * (U) NHI $68.30 $82 $63 $4.87 $5.29 $5.52 12.4 5.9% $77 2/16/18 National Health Investors, Inc., headquartered in Murfreesboro, TN, is a real estate investment trust (REIT) with investments in more than 210 healthcare facilities located in 32 states. On February 16th we upgraded NHI to Long term Buy from Neutral with a 2 3 year price target of $77 per share. In our opinion, the companyʹs recent acquisition activity has increased the overall value of the firm. We believe the forward outlook for the company is now solidly better than that of the peer group, in spite of the shares trading at discount. NHI reported Q4ʹ17 results that beat our expectations. Q4 normalized FFO was $1.35 per share, above our and the consensus estimate, and above $1.27 per share reported in Q4ʹ16. Recent acquisitions and ordinary rental escalators led to an 11.5% increase in rental income. Total investment for the quarter was $49.9 million. The coverage ratios of National Health Investorsʹs portfolio remains very strong and generally better than its peers at 1.66 times. The coverage of its skilled nursing properties are especially strong at 2.52 times, driven by its major tenant National Healthcare (NHC $60.70), which has continued to hold a very strong coverage level. The coverage rate on its senior housing portfolio is closer to its peers at 1.21 times. As with other companies, management mentioned on the call that they are seeing pressure from increased labor costs and move outs, although also noting their portfolio has weathered these issues with stable coverage and occupancy metrics. Managementʹs 2018 FFO per share guidance range is $5.45 to $5.51. Guidance does not include the impact of any additional activity other than what was already announced and those which management has a strong belief will occur under existing agreements. Our estimates include an additional $100 million investments, leading to our above guidance number of 2018 FFO per share of $5.52. * Annual yield is calculated by dividing the distribution amount by the current market price of the security. For US income tax purposes, the Company may classify all or a portion of its distributions as dividends or other non dividend distributions. Note that for some investors, for US income tax purposes all or a portion of the Companyʹs 2017 dividend or distribution was treated as return of capital and not as ʺdividend incomeʺ as reflected on the IRS Form 1099 Div for the 2017 tax year. The Company generally makes a final determination regarding the proper tax treatment of distributions after calendar year end. We urge each shareholder to consult with his or her own tax advisor to determine the tax consequences of the distributions received, including any state, local or foreign tax considerations. Please see our latest National Health Investors, Inc. report dated February 16, 2018. 8
AT&T Inc. (T) Solid Q4 results Telecommunications Sector Buy 2 AT&T Inc. (H) (I) T $36.91 $43 $33 $2.84 $3.05 $3.50 10.5 5.4% $43 2/1/18 We are maintaining our Buy rating on AT&T Inc. The company reported 2017 earnings of $3.05 per share versus $2.84 per share in 2017. However, earnings benefited from a $0.13 per share gain from lower taxes. Without that benefit earnings would have been $2.92 per share compared to $2.84 per share, a more modest gain of nearly 3%. Fourth quarter revenue was $41.7 billion and above the consensus estimate of $41.2 billion. This was significant, in our view, as more often than not in recent yearsʹ Tʹs revenue have fallen below expectations. The better than anticipated revenue was helped by strength in its wireless additions. The company added 329,000 postpaid wireless customers in the fourth quarter, its best result in several years and well above expectations of a loss of 30,000 customers. Management introduced 2018 guidance with an earnings expectation of $3.50 per share. Earnings are expected to benefit by $0.45 per share from tax reform. Free cash flow is anticipated to be about $21 billion and capex is expected to total $25 billion. We continue to recommend AT&T because the stock trades at just ~10.5x estimated 2018 earnings of $3.50 per share and an offers an attractive 5.4% dividend yield. Nonetheless, the stock may remain in essentially a holding pattern until after the companyʹs legal battle with the government over Time Warner is settled in late April or early May. Please see our latest AT&T Inc. report dated February 1, 2018. 9
CMS Energy (CMS) Rating recently upgraded to Long term Buy Utilities Sector LTB 2 CMS Energy CMS $42.49 $51 $40 $2.02 $2.17 $2.33 18.2 2.7% 2/15/18 We recently upgraded rating on CMS Energy to Long term Buy. CMS is a large utility that provides electricity to 1.8 million customers and natural gas to 1.7 million customers in Michigan. This is a company weʹre quite familiar with and have recommended a number of times over the years. CMS generates the most consistent results of any electric utility in our coverage list. The company has delivered 15 consecutive years of 7% earnings growth. Not only is this an above industry average growth rate, but the company has been able to achieve this in all types of economic environments as well as differing political administrations at both the federal and state level. We upgraded our rating for several reasons. First, the stock has pulled back 16% from its 52 week high, well beyond the broader marketʹs pullback. While we believe this is a function of interest rate fears and group rotation, the companyʹs fundamentals have not changed and are just as positive as they have ever been, in our view. CMS continues to expect to grow both its earnings and dividends by a 5% to 7% annual rate. We have a high level of confidence in CMSʹs ability to achieve this growth. Our view is that the market will eventually recognize and reward CMS for its good results with a higher stock price. We regard CMS as a core utility holding. Please see our latest CMS Energy report dated February 15, 2018. 10
Atmos Energy Corp. (ATO) Strong fiscal Q1; recent news Utilities Sector Ntrl 1 Atmos Energy Corp. FY(9) ATO $79.46 $94 $76 $3.41 $3.61 $4.02 19.8 2.4% 2/7/18 Headquartered in Dallas, TX, Atmos Energy Corp. is the largest fully regulated natural gas distributor in the US, with customers in nine states. It also manages company owned natural gas storage and pipeline assets, including Atmos Pipeline Texas, one of the largest intrastate pipe networks in Texas. We reiterated our Neutral rating on shares of Atmos in early February. We view ATO as a preferred core holding in the gas space, with strong operational execution and ʹfullʹ regulatory calendar in the year ahead. That said, we continue to wait for a more compelling entry point. Atmos reported fiscal Q1ʹ18 (October December) adjusted EPS from continuing ops of $1.40 versus $1.08 in Q1ʹ17. Results beat our street high estimate of $1.16 by $0.24, although we estimate about half of the beat was driven by unadjusted for one time tax items. Nonetheless, consolidated gross margins grew at the best rate in three years on a mix of favorable weather comps and regulatory items. The company completed a $400 million secondary equity offering in late November. We estimate the offering price at about $87.75 per share; with an element of hindsight, the deal seems to have been quite fortuitous from a timing standpoint. The impact of dilution will be a headwind for EPS this year, but this is accounted for in both 2018 EPS guidance and stretch guidance targets. ATO recently suffered an explosion in the Dallas area. The incident tragically killed a 12 year old girl, and led the company to temporarily suspend service for 2,800 customers, as portion of the system will require full replacement. Near term financial impacts are hard to quantify; in the absence of explicit company wrongdoing, we do not expect these types of events to damage the company long term. Please see our latest Atmos Energy Corp. report dated February 7, 2018. 11
Aqua America, Inc. (WTR) Good Q4 from WTR, but soft guide for 2018 Utilities Sector Ntrl 2 Aqua America, Inc. WTR $33.43 $40 $30 $1.32 $1.36 $1.41 23.7 2.4% 2/28/18 Aqua America, Inc. is a water and wastewater utility holding company with operating subsidiaries serving ~3 million people. WTR provides regulated service to customers in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana, and Virginia. The companyʹs history spans over 125 years. We reiterated our Neutral rating on WTR in late February. Our rating is primarily driven by valuation, where, similar to most peers, we see Aqua as fully valued. We hold a positive view toward core operations on a long term basis, which includes a strong regulatory framework in Pennsylvania. The company hosted an analyst day at the NYSE in conjunction with releasing Q4ʹ17 results. Adjusted EPS for the quarter beat both our estimate and consensus, and grew $0.04 year/year to $0.32. That said, full year adjusted EPS grew just 3.6% compared to 2016, a 4th consecutive year of growth that was sub 5%. WTR plans to spend $1.4 billion in infrastructure improvements from 2018 to 2020. This range was increased slightly in recent weeks, and included planned Cap Ex this year of $500 million; Aqua invested nearly $480 million in 2017, which we believe to be a high watermark for the company. Aqua completed only four acquisitions in 2017. Completed M&A activity continues to be disappointing, in our view, although management still cites a constructive long term outlook. The company guided to 2018 customer growth in the range of 2% to 3%, with some of 2017ʹs expected growth via deal flow being pushed into the current year. 2018 EPS guidance was initiated as a range of $1.37 to $1.44. Prior consensus for the year fell above this range, but has sense skewed a bit lower to $1.40. Please see our latest Aqua America, Inc. report dated February 28, 2018. 12
Additional information, including a report on each common stock mentioned, is available upon request. Check with your Financial Consultant for the investment appropriate for you. Explanations & Disclaimers A Actual Ann. Annual/annualized Bps Basis points E Estimated EBITDA Earnings before income, taxes, depreciation, amortization EBITDDA Earnings before income, taxes, depreciation, depletion, amortization EPS Earnings per share EV Enterprise value FFO Funds from operations FFOA Funds from operations adjusted FFOM Funds from operations modified FY Fiscal year FY(1 11) EPS are for fiscal years (1=January, 2=February, etc.) GAAP Generally accepted accounting principles Ind. Div. Yield Indicated dividend yield NA Not available/acceptable NAV Net asset value NM Non meaningful Price/earnings ratio current price divided by EPS Q Quarter (1 4)Q 1=First quarter, 2=Second quarter, 3=Third quarter, 4=Fourth quarter REIT Real estate investment trust TR Total return TTM Trailing twelve months YTD Year to date All data is adjusted for stock splits or stock dividends. Unless otherwise noted, EPS are from continuing operations and exclude non recurring items. We recognize each clientʹs investment needs and goals are different. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Analystsʹ Certification The contributors to this report hereby certify that the views expressed in this report accurately reflect their personal views about the subject. They also certify that they have not been, are not, and will not be receiving direct or indirect compensation in exchange for expressing the specific points of view in this report. Important Disclosures The contributors to this report or members of their households typically have positions in the companies they follow, which may include, but are not limited to, common stock, options, rights, warrants, or futures contracts. They may not engage in buying or selling securities contrary to their recommendation. 13
Hilliard Lyonsʹ analysts receive bonus compensation based on Hilliard Lyonsʹ profitability. They do not receive direct payments from investment banking activity. H Hilliard Lyons has received investment banking compensation from AT&T Inc. within the past 12 months. I Hilliard Lyons has been a manager or co manager of an offering of securities of AT&T Inc. within the past 12 months. P German American Bancorp is/was a client of Hilliard Lyons within the past 12 months, received noninvestment banking securities related services, and Hilliard Lyons received compensation for those services. U Hilliard Lyonsʹ customers owned at least 5% of National Health Investors, Inc.ʹs common stock outstanding as of March 7, 2018. Investment Ratings Buy: We believe the stock has significant total return potential in the coming 12 months. Long term Buy: We believe the stock is an above average holding in its sector, and expect solid total returns to be realized over a longer time frame than our Buy rated issues, typically 2 3 years. Neutral: We believe the stock is an average holding in its sector, is currently fully valued, and may be used as a source of funds if better opportunities arise. Underperform: We believe the stock is vulnerable to a price set back in the next 12 months. Suitability Ratings 1 A large cap, core holding with a solid history. 2 A historically secure company which could be cyclical, has a shorter history than a ʺ1ʺ or is subject to event driven setbacks. 3 An above average risk/reward ratio could be due to small size, lack of product diversity, sporadic earnings or high leverage. 4 Speculative, due to small size, inconsistent profitability, erratic revenue, volatility, low trading volume or a narrow customer or product base. Hilliard Lyons Investment Banking Recommended Issues Provided in Past 12 Mo. # of % of Rating Stocks Covered Stocks Covered Banking No Banking Buy 37 33% 11% 89% Hold/Neutral 69 62% 9% 91% Sell 5 5% 0% 100% As of 8 March 2018 14
Other Disclosures Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. Employees of J.J.B. Hilliard, W.L. Lyons, LLC or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed here. J.J.B. Hilliard, W.L. Lyons, LLC is a multi disciplined financial services firm that regularly seeks investment banking assignments and compensation from issuers for services including, but not limited to, acting as an underwriter in an offering or financial advisor in a merger or acquisition, or serving as placement agent in private transactions. The information herein has been obtained from sources we believe to be reliable but is not guaranteed and does not purport to be a complete statement of all material factors. This is for informational purposes and is not a solicitation of orders to purchase or sell securities. Reproduction is forbidden unless authorized. All rights reserved. 15