raymond james insights into how this crisis alters

INSTITUTIONAL EQUITY STRATEGY | PUBLISHED BYRAYMOND JAMES & ASSOCIATES

Tavis C. McCourt, CFA | (615) 645-6811 | [email protected] Mills | (202) 872-5933 | [email protected] Meekins | (703) 351-5294 | [email protected] Vandegrift, CFA, Associate Strategist | (615) 645-6812 | [email protected] Anderson, Sr. Res. Assoc. | (202) 872-5936 | [email protected]

JUNE 26, 2020 | 3:00 AM EDT

Raymond James Insights Into How This Crisis Alters Business Trends Across Every Sector Of The EconomyIn this report, we highlight a number of changes in macro trends related to the COVID crisis and shutdowns that we believe will be long-lasting. We asked each Raymond James equity analyst tooutline how the crisis has altered the way business is conducted in their covered industries, and what long-term changes are likely as a result of this experience. As you will read, each industry isundergoing meaningful changes in the near term, and long-term changes are still uncertain, but responses from each analyst around likely long-term changes led us to conclude that there arebroadly two distinct types of macro themes from the COVID Crisis: 1) Reversal of certain long-term trends around the way people live/work, a new focus on business resiliency rather than ROICmaximization, and a recognition of the importance of government relationships in a world where government influence is likely increased; and 2) acceleration of certain long-term trends thathad already been in place for some time, largely around bringing business value chains online, or what we call the "e-Commerce-ization" of everything.

Reversal Of Certain Long-Term Trends

A number of trends that have been a decade+ in the making, we suspect, will reverse, somewhat permanently due to the realization of the potential of a global pandemic, and the shutdownsthis likely requires to control the spread. These trends include...

● The reversal of the urbanization trend as Work-From-Home (WFH)/anywhere becomes more mainstream;

● The reversal of open office densification to more shared office environments/WFH;

● The reversal of just-in-time (JIT) inventory strategy - supply chain maximization of ROIC replaced with maximization of resiliency;

● The end of the outsourcing/centralization of global manufacturing/supply - ROIC maximization replaced by global resiliency; and

● The beginning of viewing government relationships as a key determinant of success for every industry - if governments are going to massively intervene in markets every 10 years, companiesare incentivized to make sure governments and citizens understand their societal value.

Acceleration Of "E-Commerce-ization" - As The Online Disruption Of Value Chains Accelerates In Every Industry

The transition of value chains to more streamlined, online methods of distribution has been a macro trend for at least 20 years, driven by customer demand and lower costs. This was likely tolast another 20 years or more as industries gradually shifted consistent with the comfort of consumers utilizing online engagement. This crisis has meaningfully accelerated consumer adoptionof online products and services, and because of that, the transition across multiple industries will now likely be more exaggerated and take less time than previously expected, resulting in highergrowth rates and increased investment. Although consumer e-Commerce is the area understood by most to likely see accelerated adoption, we note that this trend is evident in all kinds ofindustries such as healthcare, insurance, education, banking, and even in the recognition by all companies of the productivity of Work-From-Home (WFH).

Please read domestic and foreign disclosure/risk information beginning on page 51 and Analyst Certification on page 51.

TABLE OF CONTENTS

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GLOBAL RESEARCH INSTITUTIONAL EQUITY STRATEGY

A LOT OF INVESTMENT NEEDS TO OCCUR IN A STOCK MARKET THAT HAS REWARDED "ASSET-LIGHT" MODELS FOR 10+ YEARSWhat Are The Investments/Enabling Assets Needed To Transition The Economy?

In order for the economy to successfully transition to serve the new and/or accelerated desires of consumers and businesses, a tremendous amount of investment needs to be done across multipledomains. Some of these include the following, but we suspect the list will ultimately be much larger and take several years to determine:

● Substantial building of residential and commercial real estate in suburban, rural markets, and broadly in Sunbelt states, in order to support likely consumer preference and WFH "newnormal";

● Meaningful technology hardware, software, and services to enable WFH, support increased network capacity demands, and support online capabilities;

● Meaningful industrial space/warehousing to support e-Commerce growth across every vertical market imaginable;

● More manufacturing capacity as firms diversify supply chains; and

● Substantial increases in local/home delivery capability.

The Investment Outcome? This substantial need for investment is meeting an economy and stock market that has rewarded "asset-light" models for at least a decade. If we were to put successfulmacro investment themes into a one-sentence summary...

2010-2020 was "invest less capital into your business, outsource more, build assets that don't require capital investment, use resulting FCF for dividends/buybacks", but 2020-? couldbe "invest heavily, consolidate to achieve scale, take share to achieve growth, and make sure governments understand your societal value".

This is a somewhat bizarre conclusion heading into an absolute capex decline in 2020 and likely 2021 resulting from the crisis, but ultimately, these long-term trends outlined above will requirehistoric levels of capital spending, and companies that get the assets right, as shown in the retail space today, will have equities that ultimately get rewarded. We expect substantial consolidationof market share to occur across all kinds of industries in this environment given the scale of investments needed.

A Thought On ESG: Although ESG has exploded as an investment theme over the last year especially, the COVID/shutdown crisis is highlighting specifically the importance of social risks toorganizations, as many have very proactively aided societies in making PPE, keeping employees on the payroll, providing sick leave, and other actions that may hurt very near-term earnings, butshould ultimately pay benefits to shareholders through being able to attract/retain labor more effectively, and building more synergistic relationships with governments. Ultimately, the evidencesuggests investor interest in ESG funds is increasing through this crisis, and the performance of ESG funds, in aggregate, tends to improve in market downturns. Ultimately, to outperform inrecoveries as well, we believe successful ESG funds will have to rotate into smaller cap stocks and more cyclical sectors that have generally been overlooked by this investment theme in itsearly days.

Report Structure: We spend the first few pages going over the two significant types of long-term trends that will likely result from the COVID crisis (trend reversals and trend accelerations). Wewill then address some of the implications for ESG investors and the increasing importance of government role in the global economy. We will then delve into 1-2 page write-ups from equityanalysts at Raymond James, which describe how the COVID crisis has impacted individual industries, and which changes are likely to be short-term changes, and what the long term changesto each industry will likely be.

Enjoy, and please feel free to reach out with any thoughts or questions.....

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COVID HAS POTENTIALLY REVERSED A NUMBER OF MULTI-DECADE-LONG TRENDS, WITH LONG-TERM RAMIFICATIONSAlthough the full ramifications of the COVID crisis are not fully known, and may not be for many years, we believe long-term changes likely will fall in one of two camps. First, we believe the crisiswill cause almost 180-degree pivots in a number of long-term trends prior to this crisis, which are illustrated below. Second, we believe the crisis will accelerate the "e-Commerce-ization" of justabout every product and service imaginable, which we outline on page 7.

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REVERSAL OF MULTI-DECADE-LONG TRENDS - WHAT ARE THEY AND WHAT ARE THE IMPLICATIONSIn our view, after listening to Raymond James equity analysts since the COVID pandemic began, there have been numerous macro trends that have reversed almost 180 degrees overnight, andfor a number of reasons, we don't believe they will revert to their prior directions. This is perhaps best exemplified by Raymond James' CEO, Paul Reilly, who recently indicated at a recent investorconference, "I think that we’ve learned that it’s 95% of people can work from home and productivity doesn’t fall…there’s no reason why people can’t work more often from home or that somenumber, I don’t know what that will be, 30%+ of the sales force will be working from home, and other people can work mobile-ly as they travel". This type of rethink of business processes ishappening in every industry, and will radically alter how work gets done.

De-Densification Of Office Space - In at least the last 10 years -- and, in many instances, longer -- there has been a growing desire to densify office space, residences, essentially any activitypossible in order to drive improved returns for businesses, and to respond to customer preferences. These preferences will now change, and with work-from-home (WFH) a potential for manyjobs, this densification is simply not needed or desired for the foreseeable future.

De-Urbanization Lifestyle - Again, for at least the last decade, and in many instances much longer, urbanization globally and in the U.S. has increased almost unabated, driven by obviouseconomies of scale, centralization of talent, and consumer lifestyle choices. We expect the fear of being stuck in lockdown in a high rise apartment/condo combined with the experiencedproductivity of WFH to drive de-urbanization in both the near and long term.

The Death Of JIT - Just-in-time inventory has been the dominant supply chain management theme since at least the early 1990s, and it has led to the trimming of inventories across the globe inan effort to maximize ROIC. However, this has increased disruption risks, and given the cost of holding inventory is so inexpensive, we suspect the risks of JIT will now be perceived to outweighthe rewards.

De-Centralization Of Manufacturing - Globalization for decades has driven the outsourcing and centralization of manufacturing to the lowest possible unit costs. However, this strategy hasalso caused single points of failure, and we would now expect the decentralization of supply chains globally in an effort to lower disruption risks. Additionally, governments are realizing thatoutsourcing much-needed healthcare products may not make sense strategically, and thus these products will likely begin to be produced domestically.

Societal Value Of Biotech/Pharma Development Highlighted - Perhaps no industry is poised for a change in public sentiment as much as biotech/pharma - and we suspect an increased focuson public/private partnerships, and likely less media attention on pricing concerns than over the past five years.

Public/Private Sector Relationships Will Prosper - In general, increasing private sector dominance has been seen in the last 40 years, and in fact, it wasn't that long ago that many Silicon Valleytech companies did no lobbying whatsoever. Those days are likely over as the public sector has now supported/bailed out the economy for the second time in the past decade, which will increasethe chances that governments will want a greater say about how economies run going forward. Government relations will be increasingly important in all industries.

What Are The Requirements For Success? Benefiting from these changes in trends will require meaningful investment, substantial scale, likely consolidation in many instances, and private/public sector partnerships in many instances.

What Are The Enabling Assets/Activities That Will Allow For This Trend Change? A substantial amount of office and residential construction in suburban and even rural markets; substantialtech hardware and software to enable WFH or work from anywhere environments; more resilient broadband networks, especially in rural areas; more diverse/larger warehousing facilities; andmore manufacturing capacity needs to be built as supply chains become more globally diversified.

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"E-COMMERCE-IZATION" OF EVERYTHING - SLOW VALUE CHAIN CHANGES HIT HYPER-SPEED WITH NUMEROUS IMPLICATIONS

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E-COMMERCE-IZATION OF EVERYTHING - COLLAPSING VALUE CHAINS - SOME EXAMPLES AND NEEDED INVESTMENTSFor the past 20 years, industries have slowly been collapsing value chains, transitioning physical points of distribution towards centralized online points of distribution, in order to lower costs. Thistrend has accelerated meaningfully, as consumers were forced into online distribution in many industries, companies are realizing older physical distribution is costly, and consumer adoptionof online platforms is simply driving demand for the entire value chain online across nearly every industry imaginable in a much faster transition.

E-Commerce - In the most obvious acceleration, consumers were forced to adopt e-commerce shopping more broadly in this crisis, and we believe this will simply accelerate a trend that hasalready been happening steadily over the past 20 years.

Online Distribution Of Healthcare - Online distribution of healthcare will accelerate in meaningful ways from the pandemic with telemedicine (remote doctor visits), remote monitoring, onlinepharmacy distribution, and even streamlining the sales of pharmaceuticals. This is likely to lead to higher margins and less need for physical assets and some human capital relative to historicdistribution.

Online Distribution Of Insurance - Although online car/home insurance has been growing for some time, we suspect the agent distribution model will more quickly transition to online distributionfor all kinds of insurance products due to this crisis.

Online Education - Online education is likely to get funding across K-12 and beyond because of COVID, which will likely drive increased purchase of both enabling hardware and software, andpotentially alter the whole conversation around school choice.

Food Retailing - Although restaurants will clearly come back in our view, we believe the pickup/delivery percentages will be permanently higher from where they were pre-crisis. Consumers wereforced to try "off-premise" restaurant pickup/delivery, and many will make it a more normalized part of their ongoing purchases.

WFH/WFA - In the broadest of categories, the ability for white-collar workers to WFH or work from anywhere has likely permanently increased, as companies appear to be finding out thatemployees can be very productive, and costs can be meaningfully lower in a WFH environment. Some percent of workers who only live where they do because of work will choose to live wherethey would like, likely driving population shifts outlined in the previous section.

What Are The Requirements For Success? First, as Amazon.com has shown, this transition will take substantial capital. Because of this, scale will be crucially important, and consolidation willbe needed in many industries in order to get that scale. Finally, success will require a willingness to reinvest even as cash cows decline. We suspect most industries will learn from traditionalretail's lack of reinvestment for ~20 years, which largely allowed Amazon.com to build the lead that has.

What Are The Enabling Assets And Activities? There are a number, but some of the largest are cloud-based software and technology hardware that empower workers to effectively WFH, robustwebsites for all kinds of businesses, a substantial increase in warehouses and data centers, an increase in local/home delivery of products and services, and e-commerce capabilities.

We will now highlight thoughts from a number of our industry analysts at Raymond James as to how their industries will likely change near term and long term due to the COVID virus andshutdowns.

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WHICH COMPANIES DISCUSSED IN THIS NOTE ARE LIKELY TO BENEFIT FROM THESE POST-COVID TREND CHANGES?

Communication Services Companies That Stand To Benefit From Post-COVID Trend Changes

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Source: FactSet and Raymond James research

Consumer Discretionary Companies That Stand To Benefit From Post-COVID Trend Changes

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Financials Companies That Stand To Benefit From Post-COVID Trend Changes

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Healthcare Companies That Stand To Benefit From Post-COVID Trend Changes

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Industrials And Materials Companies That Stand To Benefit From Post-COVID Trend Changes

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Technology Companies That Stand To Benefit From Post-COVID Trend Changes

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Real Estate Companies That Stand To Benefit From Post-COVID Trend Changes

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ESG TRENDS DURING THE PANDEMIC AND WHAT TO EXPECT POST-COVIDLeslie Vandegrift, (615) 645-6812, [email protected]

Tavis McCourt, (615) 645-6811, [email protected]

In this pandemic, we have seen ESG trends continue to grow and thrive. Even at the trough of U.S. markets at the end of March, ESG funds were seeing strong inflows (see the chart below).With data showing ESG funds performing in line with or outperforming the overall markets over the last decade (depending on exposure to energy) and investors increasingly demanding ESGconsiderations from these funds, ESG factors have not taken a pause in this crisis. If anything, this crisis has given an indication of companies' abilities to manage material "tail risk." The 1Q20data show net inflows into ESG funds driven by a large swath of newly launched sustainable funds. According to Morningstar data, 1Q20 saw a net inflow of $10.5 billion to ESG funds in the U.S.(a record quarter) and $40.5 billion globally, a 41% increase in 1Q20. BlackRock's ETF flows tell a similar story, with $7.5 billion of U.S. inflows into sustainable funds. At the beginning of the year,Lipper data suggested that there were almost 6,000 ESG mutual funds available to invest in, and we expect that number has grown materially.

Quarterly Sustainable Fund Flows (US$ Billions)

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Source: Morningstar Direct Manager Research; as of March 2020

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ESG/sustainable funds have also outperformed during the COVID-19 crisis. These funds tend to be overweight technology and underweight energy and are generally larger cap-weighted, whichcertainly explains some of the outperformance in this market. However, increased investor interest and portfolio rebalancing has also had a strong impact. According to Morningstar data, 51out of their 57 sustainable indices outperformed their broad market counterparts in 1Q20, whereas MSCI said that 15 out of 17 of their sustainable indices outperformed benchmarks. Thisoutperformance is not a one-off crisis trend, either. This same type of outperformance occurred in the 2015/2016 industrial recession and the 2018 trade war markets. A study at BlackRockshowed that 94% of sustainable indices outperformed their parent benchmarks in 1Q20, and that outperformance continued in the recovery (88% of sustainable funds outperformed their non-sustainable counterparts from Jan. 1 – Apr. 30, 2020) - this is compared to 78% of sustainable indices outperformed their non-sustainable peers in the energy downturn (July 2015-Feb. 2016)and 75% in the late 2018 downturn (Sept. 2018-Dec. 2018).

So if the investable funds are there and outperforming, what are investors focusing on in a post-COVID world to pick strong ESG investments? We have seen some short-term trends of companiescoming together during the pandemic to contribute to society in a way that is not typical for their business, like car companies manufacturing ventilators, clothing companies making PPE, andliquor companies churning out hand sanitizer, etc., which we discussed in more detail here. These short-term actions are likely to boost these companies' social ‘scores’ in the world of ESGinvesting, but the longer-term impacts of this pandemic are more interesting from an ESG perspective.

When the pandemic first began, the ESG consideration gaining the most focus was in supply chain impacts. With China under lockdown, companies began to look at other diversified locationsfor their supply chains, so as not to be so vulnerable to one country in the future. If those jobs move to a country that has better labor laws/wages (whether back to the U.S. or elsewhere abroad)or to a country with better environmental standards, ESG scores could improve. That is yet to be seen, but definitely worth keeping an eye on.

Worldwide ESG initiatives have also gained more traction in this pandemic. The #buildbackbetter initiative focuses on pushing governments and companies to focus their recovery plans aroundsustainable investments. Infrastructure investments could have low carbon or alternative energy initiatives as we saw in the Great Financial Crisis with the American Recovery and ReinvestmentAct of 2009. The United Nations released a report earlier this month updating the Principles for Responsible Investment (PRI) that argues for investors to focus not only on the financially materialESG issues, but also on the tackling of societal/environmental issues at a systemic level as part of their investment strategies.

The new normal for ESG investing is now. Questions of sustainability are becoming more a part of general financial analysis than a separate box you have to check for investors. This pandemichas highlighted how companies more focused on sustainability have the groundwork laid to outperform in times of crisis as well as in normal markets. According to a survey by Calastone, ~75%of respondents believe ESG will become an investment standard across all funds, and most believe that happens within the next 10 years.

From an environmental perspective, we have seen several impacts shorter and longer-term for ESG investing. During the lock downs, there was the very short-term environmental benefit ofless human traffic on our climate, whether from foot traffic, cars, or planes. There has certainly been a drop off in fuel demands in the short term (discussed later in this report) due to trafficdecreases, but we also saw less air pollution in China and clearer waters in Italy. While these impacts are not likely to last much longer, the impact of our daily commutes on the environment hasbeen clearly delineated by this crisis. In the near term, the environmental impacts of this crisis could actually be negative. More people are looking to drive their own cars to work, as health fearslead commuters away from public transport and ride-sharing. Those that no longer commute and work-from-home more often, likely have less energy-efficient power sourcing in their homes vs.office buildings. The positive environmental impact of this pandemic is likely to come from government stimulus plans, including infrastructure spending that focuses on climate-friendly projects.

On the social side of sustainability, this pandemic has seen companies change their outputs in the short term to help their communities as we mentioned above. The longer-term impact willlikely be an increased focus on the S in ESG for investors. The Black Lives Matter movement has caused many companies to come out and show their support for social justice/equality around theworld, likely driving even more conversations around socially responsible investment decisions. Companies that were perceived as socially responsible or ethically aligned with their consumersahead of this pandemic seemingly led to stronger brand loyalty, which was imperative in this downturn.

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On the governance side, we have seen better paid sick leave policies come out of this pandemic, as well as less punitive attitudes around employees actually using their sick time when needed.There has been a boom of work flexibility policies, as any company that had employees able to work-from-home rapidly shifted to that system. In fact, companies that were ahead of the curvein work-from-home policies and technological capabilities likely excelled vs. their peers in this pandemic, as they were able to transition smoothly to this new way of life.

ESG is simply a way to measure long-term risks to shareholder value that are not recognized on quarterly financial statements. When it comes to ESG as a variable that is considered by anincreasing amount of investors, we see nothing but growth coming from this pandemic.

Where Does An ESG Firm Pivot Now? In the near term, we see two main areas of risk for ESG investing performance: small caps and cyclicals. Given our expectations of small-cap/cyclicaloutperformance in this recovery, we could see some weighting issues for ESG funds. ESG-focused funds tend to be overweight "megacaps" and have largely favored "momentum" names overthe last several years. As the economic recovery continues, we would expect equally weighted indexes to start outperforming market-cap-weighted indexes, small caps to outperform large caps,and cyclical/out of favor sectors to outperform defensive/secular growth. We believe performance within ESG funds the next 1-3 years will largely be driven by the degree to which they can makepivots to smaller caps and cyclical sectors before the market makes this likely rotation.

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WASHINGTON POLICYEd Mills, (202) 872-5933, [email protected]

The policy impact of the COVID-19 crisis will have key implications for markets for years to come, and many long-running DC policy debates have been fast-tracked leading into the electionseason. This dynamic is likely to produce impactful long-run policy changes next year, the scale of which depends on the makeup of government post-2020. The impact of the crisis on householdincome and access to healthcare is top of mind for policymakers. These areas are likely to lead the agenda of reform efforts, along with post-crisis frameworks for markets. Further, the Fed’sexpanded toolkit will become the “new normal” in terms of a crisis policy response, the consequences of which will be the subject of debate.

DC generally acts via precedent. Many of the programs we are seeing implemented on both the fiscal and monetary side are extensions of programs we have seen in the past, with the financialcrisis being the most recent and comprehensive activation of the toolkit. The response to this crisis has expanded the previous tool kit. Once the tool kit is expanded, it is only a matter of timebefore the tools are used once again. Additionally, this “new normal” may spur debates on additional tools needed by the government to ward off different sets of challenges.

Modern Monetary Theory has gain considerable traction in DC policy circles in recent years, and we are currently in a real-life experiment. The new normal is less concerned about debt anddeficit while using monetary and fiscal support to prop up the economy via direct support for consumers and businesses, but questions will arise as to long-term sustainability.

Healthcare adjustments via the use of the tax code to provide paid sick leave for employees and provide wide scale testing/treatment of COVID-19 will have a significant influence on thehealthcare debate in DC. We are a long way away from Medicare for All, but support for a public option and general support of government subsidies for healthcare have increased as a result ofCOVID-19. We expect health reform to be one of the top legislative priorities for a potential Biden Presidency, especially should there be a Democratic sweep across government.

Never Let A Crisis Go To Waste – We frequently see significant legislative and regulatory changes after a crisis. We are skeptical of wide-scale changes should Trump win a second term, but aBiden Presidency, especially with a Democratic sweep, would significantly increase the likelihood of changes; specifically in these areas:

● Minimum wage – the $600 extra unemployment benefit was calculated as a $15/hour minimum wage. We would expect to see a legislative push to make this permanent/more wide-spread.

● Universal Basic Income – The economic impact payment (EIP) for individuals was the latest experiment of UBI. We are a long way off from adopting Andrew Yang’s proposed monthlypayments, but it was striking to see how quickly the U.S. (and many other countries around the world) moved towards providing a direct government payment to deal with economicdislocation.

● Financial regulation – Credit markets had to be rescued by the Fed for the second time in a little more than a decade – a push for regulation of credit markets (especially with non-bankshaving new capital requirements) would likely lead a Biden agenda. This will especially be the case if a Biden Presidency has expanded appointment powers over the CFPB and FHFA, as aBiden administration could significantly impact the makeup of the Financial Stability Oversight Council (FSOC) which analyzes systemic threats to the financial systems.

● Mortgage markets – We saw a near immediate move to allow mortgage forbearance, which seems to have stabilized mortgage markets for the near-term. This approach at least initiallyseemed to prevent a replay of some of the bureaucratic hurdles of helping homeowners in the financial crisis and could easily be a model for the future.

● Voting reform – Voting in the COVID-19 era has proven to be a significant challenge, and a push to expand voting access may alter electoral dynamics and ultimately impact the directionof policy. Expanded voter participation via voting reform could alter the traditional electoral map, and serve as a boost for Democratic candidates in future elections. Younger voters havehistorically seen the lowest rates of participation, and tend to lean Democratic (46% of eligible voters ages 18-29 voted in 2016, per official data).

Fed Put Stronger Than Ever – Investors have long believed that the Federal Reserve will step in and assist markets to prevent collapse. The Fed has crossed a number of “red lines” in responseto the COVID-19 crisis. Investors will expect that this put will always be available, which is likely to produce even greater risk-taking in the future, across even more asset classes. This couldstrengthen the case for more financial oversight by Democratic-leaning regulators.

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HEALTHCARE POLICYChris Meekins, (703) 351-5294, [email protected]

The coronavirus has revealed strengths and weaknesses in our healthcare system, and our country has shown remarkable flexibility in adapting to a major medical market shock. Although somechanges have been temporary responses to the national emergency, others may be made permanent. Below, we list some trends in the healthcare system that are likely to persist even afterthe pandemic subsides.

Telemedicine

Although telemedicine existed pre-coronavirus, the pandemic accelerated its adoption. Patients and providers were both reluctant to forgo face-to-face interactions for virtual checkups, butnow circumstances have forced many to give health technology a try. Although the policy-level flexibilities provided for telehealth expire at the end of the current public health emergency, sometelehealth-friendly regulations and insurance coverage provisions may remain even after the pandemic subsides if the Administration issues new regulations that make them permanent.

Domestic Manufacturing Of Drugs/Medical Countermeasures

The virus has uncovered some weaknesses in our medical supply chain. Dependence on foreign imports for large portions of our medications, medical countermeasures (MCMs), and supplies,as well as critical inputs such as active pharmaceutical ingredients (APIs), creates potential for shortages. The Administration is expected to issue an Executive Order that pushes manufacturersto produce on American soil, and we anticipate a policy trend toward making domestic manufacturing a priority.

Increased Emphasis On National Stockpiling for Health Disasters

Aside from domestic manufacturing, weak links in our medical supply chain have prompted more discussion about stockpiling essential medical supplies and medical countermeasures. Othermeasures to fortify healthcare preparedness, such as instituting contact tracing infrastructure, will likely receive additional funding moving forward.

Flexibility-Friendly Regulations

The pandemic has tested the flexibility of our healthcare system and forced a rapid expansion of that flexibility. Regulations that fostered our quick adaptation, such as allowing interstate carevia health technologies and accelerating clinical trials for new and important drugs, are likely to continue through the end of this Administration at least to some degree. Additionally, it is yet tobe seen which temporary removals of regulations will become permanent. Another area to watch includes flexibility between different health care personnel, for example by allowing physicianassistants and nurse practitioners to have more authority.

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HEALTHCAREJohn W. Ransom, (727) 567-2593, [email protected]

While some of the most immediate and drastic impacts of COVID-19, such as sharp drops in healthcare utilization and medical costs paid by insurers, will likely normalize in the intermediateterm, we anticipate a number of trends will persist in a post-COVID world. On the consumer side, the “new normal” likely will see increased utilization of mail-order pharmacy while aversion toinpatient visits should benefit outpatient facilities such as ambulatory surgical centers (ASCs) and telehealth, as well as home health and hospice providers. For providers, the COVID pandemichas shown the importance of data tracking and analytics to monitor supply levels and to match labor with utilization.

RadNet (RDNT, MO2): RadNet’s imaging centers should benefit from a shift away from acute/inpatient settings. Additionally, increased utilization of telehealth will likely drive further volumesfor screening and care.

Amedisys (AMED, MO2): A major provider of Home Health and Hospice services, Amedisys is set to benefit from a shift in consumer preference away from skilled nursing facilities and acutesettings to more controlled environments.

Cigna (CI, SB1)/CVS Health (CVS, SB1)/United Health Group (UNH, SB1): The managed care providers with internal pharmacy benefit managers (PBMs) will continue to see elevated demand formail-order prescriptions. This group should also benefit from the shift to lower-cost outpatient care, resulting in lower medical costs (medical loss ratio - MLR).

Phreesia (PHR, MO2): Serving both providers and consumers who look to cut down volumes and time spent in a waiting room, Phreesia accelerates the patient intake process and can evenprovide virtual waiting rooms for telehealth.

Health Catalyst (HCAT, SB1): Health Catalyst is a provider focused Healthcare IT company that has an impressive history of delivering quantifiable ROI in a short time span for healthcare providers,with a focus on applying their data and analytics platform to drive clinical, operational, and financial improvements.

HOSPITAL SUPPLIESLawrence Keusch, (617) 897-8992, [email protected]

One of the significant ripple effects of the COVID-19 pandemic for the hospital supply/medical device industry was the effective moratorium on non-emergent surgical procedures. Feltpredominantly during the second half of March through early May in the U.S., the stoppage in surgical procedures was financially damaging for hospitals given the profitability of operating roomsand cath labs. Although our recent conversations with surgeons and hospital administrators suggest that it is unlikely we will see another reduction in surgical procedures of the same magnitudeas hospitals will be better equipped to treat COVID-19 patients, there are likely to be semi-permanent changes that are directly associated with reaction to the pandemic. Specifically, we seeincreased demand for COVID-19 diagnostic testing for use in every patient shortly before surgery. Indeed, we believe that rapid point of care antigen testing for COVID-19 would be ideal for pre-surgical testing. It is estimated that there are over 28M surgical procedures at community hospitals in the U.S. annually. In addition, the fragility of the global supply chain, which was highlightedby severe shortages of PPE, will likely be reconfigured by the industry with more manufacturing in the U.S. Although we had been sensing a change at the margin given trade-associated tariffs,we now believe that companies will seek to bring manufacturing closer to home. At the same time, we see a semi-permanent shift towards the use of reusable items, including PPE, which wouldnot rely on a just-in-time supply chain, and be more resilient in a period of elevated use. Finally, we anticipate that the concerns of surgical patients entering acute care settings that are caringfor COVID-19 patients could further accelerate the current trend towards ambulatory surgical settings versus traditional hospital operating rooms.

Separately, our discussions with company CFOs indicate that some cost reduction efforts could have a semi-permanent impact on the industry. For example, efforts to advance virtual trainingand reduce travel expenses with reps limited in access to physicians and hospitals will likely be with the industry for some time. That said, we would expect, as the environment normalizes,assuming the availability of an effective vaccine, that corporate sales rep and surgeon interaction will pick up again, suggesting some increase in spending when looking out 18-24 months.

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PHARMACEUTICALSElliot Wilbur, (212) 856-4897, [email protected]

While we believe that most trends impacting the pharmaceutical and biopharmaceutical space due to COVID-19 are transient in nature, more far-reaching and potentially permanent changes tothe landscape may have been introduced via the complete blockade of direct personal engagement between pharmaceutical industry sales representatives and the physicians and practitionersthat “create” demand for the industry’s product - new and better pharmaceutical products.

COVID-19 resulted in unprecedented disruption to this traditional sales process, and sales representative interaction with healthcare practitioners was essentially eliminated. No more doctorlunches, seminars, and sample drops. Though many physician offices have begun to re-open, drug rep visits to doctor’s offices have not yet resumed, and, even once they do, it remains uncertainif face-to-face interactions will ever return to pre-COVID-19 levels. The relative persistence of RX demand, down only ~10% from pre-COVID levels, in the face of less rep engagement simply cannotbe discounted.

Remote detailing has enabled pharmaceutical companies to interact with physicians and maintain the majority of existing demand trends or facilitate new product launches. For example, thelaunches of Ubelvry and Nurtec in the competitive CGRP anti-migraine category have performed exceptionally well within a digital promotional model.

A full 90% of details are now digital. 50% of physicians expect to utilize telehealth for between 10% and 50% of their patient visits, while prior to the pandemic, 75% of doctors utilized no formof telehealth. More directly impacting the traditional pharmaceutical selling model, nearly 40% of physicians expect to discontinue pharma sales reps in-office visits, while over 30% anticipateinteraction with drug reps to be digital. Over half of physician offices expect to reduce staff levels which will also reduce the points of contact for sales reps or decrease the amount of timetraditional targets have available to engage with industry reps.

Commentary from pharma executives regarding the post-COVID-19 world – especially within the sales and marketing effort – appear consistent across the universe. They largely suggest that anaccelerated transition of sales and marketing effort towards technology is likely to be the new norm. Some larger pharma executives, including Johnson & Johnson (JNJ, MO2), AbbVie (ABBV, notcovered), and Eli Lilly (LLY, not covered), highlighted that while the involvement of a sales representative is still important, virtual visits and detailing are as good or more efficient than the currentface-to-face model. They also noted that because physicians are already using this new technology-focused model during COVID-19, they will certainly be more open to it in a post-COVID-19 world.

See the table below for the estimated positive EBIT impact from a potential in reduced SG&A for the pharma space by market capitalization, either as a result of fewer reps or greater rep efficiencygoing forward.

.

Source: Raymond James research

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BIOTECHNOLOGYDane Leone, (212) 856-4374, [email protected]

Steven Seedhouse, (212) 885-1837, [email protected]

COVID-19 has catalyzed unprecedented regulatory speed and flexibility (e.g., FDA emergency use authorizations of hydroxychloroquine and remdesivir), novel industry-government collaborations(e.g., Operation Warp Speed), and rare opportunities for industry goodwill (e.g., Gilead Sciences (GILD, MP3) donating an entire supply of remdesivir). Based on the successes and failures emergingfrom the pandemic (most of which are still to be determined) and the biopharma industry’s overall response to it, the following themes could be here to stay:

1. Industry-government collaborations like Operation Warp Speed (OWS) become more commonplace for other infectious diseases or perhaps even other non-infectious diseases. That wouldmean the federal government setting specific goals for eradicating certain diseases, allocating money to the problem, and sponsoring specific public companies through grants and othersupport (i.e., manufacturing, distribution).

2. New vaccine technologies like mRNA, DNA, or non-replicating viral vectors prove safe and effective and can be leveraged for other viruses like Ebola, HIV, etc.

3. Other infectious disease drugs (i.e., antibiotics, antifungals) become a more attractive space for investment with the public and governments heightened attention on the economic costof a pandemic.

4. Reduced negative rhetoric against biopharma including related to drug price reform, or at a minimum drug price reform is not an election issue. Supporting biopharma or even investing inbiopharma may become a popular stance. To some extent, this depends on therapeutics and vaccines development being successful.

5. More centralized clinical trials. Trials like National Institute of Allergy and Infectious Disease's (NIAID) ACTT study or Europe’s RECOVERY and DesCoVery trials are simultaneously testing~5 different unproven drug candidates to determine which, if any, are effective. This could more efficiently and more accurately determine the “best” drug for a particular disease and couldbecome a more common practice going forward.

6. More drug repurposing. Remdesivir, hydroxychloroquine, lopinavir/ritonavir, favipiravir, interferons, and other drugs have been tested against COVID-19 with varying degrees of success.While drug repurposing is not a new concept and has been successfully executed in the past, the pandemic experience could increase the public awareness of the advantages and benefitsof being able to test drugs “off the shelf” in times of urgency.

7. De-globalized supply chains. Disruptions in the supply chain for active pharmaceutical ingredients due to regional impacts of COVID-19 (China) has incentivized biopharma companies toeither resource their supply chains locally or develop redundant supply chains based upon geography.

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MEDICAL DEVICESJayson Bedford, (727) 567-2565, [email protected]

Unless folks continue to be 'afraid’ of entering a hospital, the demand profile for Medical Devices should continue to be very visible and should not be impacted by the ‘work from home’ dynamic.People will still need to enter hospitals to treat underlying conditions that worsen over time. However, the COVID-19 experience has spawned a renewed interest in telemedicine and increasedthe focus on at-home monitoring. Companies such as Biotelemetry (BEAT, MP3) and iRhythm (IRTC, not covered) that offer wearable devices for cardiac monitoring could see increased interest.Additionally, diabetes innovators Dexcom (DXCM, MO2) and Abbott (ABT, MO2) could also benefit from increased attention on wearable monitors to measure blood-glucose levels. This will beespecially true as a larger percentage of primary care or specialist physician visits turn virtual, creating a greater need for cloud data platforms. Ultimately, we believe most Med Device companieswill look to increase their remote monitoring and data sharing capabilities across end markets.

COVID has also brought about new concerns around safety for those who decide to return to non-remote work environments. Diagnostic testing (for ongoing COVID-19 infection or for theantibodies that fight it) is an important near-term factor impacting the pace of business for those with exposure to diagnostics. How long, or what form this testing takes, is debatable, but bothHologic (HOLX, MP3) and Abbott (ABT, MO2) should benefit near-term due to their leading positions in diagnostics.

ANIMAL HEALTHAndrew Cooper, (727) 567-2295, [email protected]

Companion animal markets saw substantial negative impacts as vet visits declined as much as 20-25% at the trough during stay-at-home orders even though deemed essential. Relaxed rules ontelemedicine helped offset this somewhat, and emergent cases were certainly still occurring. The biggest area of change that could persist has been, unsurprisingly, use of online retail formats.Covetrus (CVET, MO2), for example, saw its prescription management growth accelerate to 31% on a same-store basis in April from 25% in 1Q (which was boosted by COVID-19 in March as well).We suspect many customers who traditionally may have bought their pet prescriptions in person will continue to leverage the online platform in the “new normal” given competitive pricing andthe convenience of prescriptions delivered to the home, often on an autoship basis. Pet adoptions also appeared to accelerate (link), though we refrain from assuming this implies a substantialincrease in the U.S. pet population longer-term. It does, however, potentially help offset growth challenges during the pandemic (and potential recessionary follow through) in the pet insurancemarket. Given pre-existing conditions are excluded from almost all policies, new pets are the typical target market. That said, we do not believe this will offset the disruption of the virus for thepet insurance market.

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REITSWilliam A. Crow, (727) 567-2594, [email protected]

Collin Mings, (727) 567-2585, [email protected]

Like the mid/late-1980s, when a change in tax laws drove a swift and painful course change for commercial real estate, led to the savings & loan crises, and set the stage for the birth of the modernREIT era in 1991, today’s COVID-19 pandemic is having a dramatic and likely long-lasting impact on CRE.

We believe that at least two pre-existing trends have been accelerated by the pandemic: 1) the shift in population and jobs to the Sunbelt from the Northeast, Midwest, and California; and 2) e-commerce’s market share grab from traditional brick and mortar retail.

Two other trends are likely set to reverse course: 1) the 20-year trend of office densification (putting more workers into less square footage); and 2) the live-work-play urban migration that forthe last 10-15 years has wreaked havoc upon the multigenerational suburban lifestyle.

Turning from macro to micro, COVID-19 has raised or increased questions surrounding office space demand, work-from-home (or work-from-anywhere), the future of business and large grouptravel, increased concerns over malls, theaters, gyms, and restaurants, and reinforced our positive views towards the resiliency of data center demand, the growing importance of distributioncenters, and added to what were already strong fundamentals within the single-family for rent sector.

And on interest rates? We may have gone from "lower for longer" to "lower forever" as governments around the globe grapple with massive debt increases and the problems that would emergeif interest rates start to rise. Here are some thoughts from the real estate team:

● On Office: More questions than answers. We continue to see higher risk in large, mass transit-served central business districts, especially in Northeastern and Midwestern markets where thecost of living is high, cost of occupancy is high, tax rates are noticeably higher, and where social distancing and elevator requirements in skyscrapers create massive near-term challenges. Weexpect more corporate relocations into already popular Sunbelt markets—Dallas, Denver, Austin, Atlanta, Charlotte, etc. - and the establishment of satellite offices (a la Amazon’s HQ2) intomany of those same markets plus Phoenix, Nashville, Tampa, Raleigh, Salt Lake City, and Orlando. Look for investor capital to flow into Sunbelt suburban assets over the near term.

● On Industrial: The sector should benefit from the migration of market share from traditional brick and mortar stores to e-commerce, continue to benefit from home delivery now beingmeasured in hours and not days, and continue to benefit the industrial REITs the portfolios of which tend to be more skewed towards Sunbelt markets. Well documented shortages in theearly to middle stages of COVID-19 may increase demand for warehouse space by traditional (old economy) tenants while some pressure from new supply likely eases as construction projectsare temporarily shelved.

● On Lodging: Absent a near-term medical breakthrough, it will be a slow recovery for hotel (and airline) demand. We have already seen encouraging signs as leisure demand perked up duringthe past few weeks, largely pent-up demand (how long can one stay at home?) and largely targeting drive to markets (especially along the Gulf Coast, Arizona, some mountain retreats, andsome Mid-Atlantic beaches). The number of travelers passing through U.S. airport checkpoints has risen 3-4x off early April lows, but remains down more than 80% year over year. Businesstransient demand should begin to slowly recovery this fall, though the threat of another COVID-19 outbreak could push that into 2021. Group demand and international travel will be lastto return. A lingering and unanswerable question is whether we have permanently impacted some level of travel by showing that Zoom and other technology allows for relatively reliablemeetings.

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● On Retail: Tenants will likely have more leverage over landlords for the foreseeable future as the U.S. was over-retailed and e-commerce was gaining market share heading into the pandemic.Many headwinds facing shopping center and mall landlords have been exacerbated and retailer bankruptcies are likely to continue, store counts will be rationalized, and the economicsof some businesses may simply no longer support the same level of rent moving forward. That said, we also believe favorable retail real estate will remain relevant in a post-pandemicenvironment and a reversal of the urban migration trend, a structural increase in work-from-home patterns, and a continued focus on essential businesses could be offsetting positives forsome landlords. Localized supply/demand dynamics for space and the long-term impact the pandemic has on consumer behaviors will be critically important — but on the surface, the appealof suburban/non-CBD locations that don’t require mass transit could increase, and there will likely be a renewed-focused on properties having a grocery-component. While not immune fromthe current disruptions, the freestanding retail REITs remain our preferred way to gain exposure for a variety of reasons we outlined in a recent update on the sector.

HEALTHCARE REITSJonathan Hughes, (727) 567-2438, [email protected]

Absent a near-term medical breakthrough, it will be a slow recovery for seniors housing demand. We expect less density in seniors housing and skilled nursing facilities (SNFs) going forward tohelp mitigate and slow the spread of infection. While the nearly 100% private pay exposure of seniors housing was highly desirable earlier in the year given "stroke of the pen" regulatory riskpotentially facing SNFs, we believe government pay exposure is now a positive attribute. We believe SNFs, hospitals, and to a lesser extent, medical office buildings (MOBs) will be supported bygovernment pay sources, while the "backstop" for private pay seniors housing is less clear. Within hospitals, we expect more isolation beds and units to again help mitigate and slow the spreadof infection within the acute care setting. MOBs are among the least impacted but could see de-densification similar to traditional office space. While most private capital has been sidelined fornow, disruption and long-term uncertainty within other real estate asset classes could provide for further allocation to the stable cash flows and long-term visibility offered by MOBs in a post-COVID world, increasing already intense competition. Life science assets are perhaps the least-impacted of all CRE with the continued strength of tenants and perhaps even increased demandto develop vaccines and therapeutics.

Companies that could benefit: Healthcare Realty Trust (HR, MO2), Physicians Realty Trust (DOC, MO2), Healthcare Trust of America (HTA, MP3)

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RESIDENTIAL REITSBuck Horne, (727) 567-2561, [email protected]

In recent weeks, there have been several operational changes across both the multifamily and single-family rental (SFR) industries due to COVID-19 that we believe will become part of the “newnormal” once we eventually move past this pandemic. First and foremost is a new-found emphasis on technology. Under the current environment where social distancing is now a requirement,technology has become a clear focus among all residential operators as they have shifted to a nearly 100% online leasing process. Within that process, virtual tours have been a top priority andnow have become a baseline amenity. Moreover, we believe operators with established and well-integrated technology platforms had a significant competitive advantage entering this downturn,while others had to play catch up. Going forward though, we believe operators will rely more heavily on virtual tours and online leasing channels after becoming more comfortable with theprocess in recent weeks. Second, we expect regular deep cleaning of all common areas will be a new standard demanded by residents that will continue well beyond the end of COVID-19. Lastly,some public residential REITs are beginning to reconsider the layout of their properties to promote social distancing and to accommodate a sudden increase in working from home lifestyles. Asa result, we could see more spacious amenity layouts that avoid overcrowding while onsite work stations may become more prevalent.

As we look longer term, if this life-altering experience prolongs, we believe there is an increasing probability that it will meaningfully impact behaviors and living patterns among those affectedfor decades to come. Individuals will reconsider all kinds of life cycle decisions, job choices, and housing preferences in the years ahead. As result, we believe there are three long term economicand social shifts that could develop, which could meaningfully impact housing demand and would be particularly beneficial to SFR REITs: 1) de-densification – as a potential wave of young adults(particularly maturing millennials) avoid new contamination risks inherent in densely populated multifamily buildings and gain a new appreciation for the safety/security of single-family homes;2) de-urbanization – we believe a lack of appeal for highly populated urban core sub-markets may lead to an acceleration of existing migrations trends to lower-cost Sun Belt markets; and 3) de-risking – shrinking credit availability due to additional credit overlays from mortgage lenders will screen out a meaningful portion of potential homebuyers, leading to lower resident turnoverand strengthening demand for single-family rental homes.

Top Picks:

● American Homes 4 Rent (AMH, SB1) – While Invitation Homes (INVH, SB1) is also Strong Buy-rated, American Homes 4 Rent (AMH) is our current analyst favorite in the SFR industry. Similar toNexPoint Residential Trust (NXRT, SB1), we have been impressed with AMH’s early collection trends, which have proven to be far better than initially feared, while we increasingly think well-capitalized SFR operators will be among the biggest beneficiaries of likely post-COVID housing shifts favoring de-urbanization, de-densification, and de-risking of mortgage credit availability.However, we see AMH's investment-grade balance sheet, abundant liquidity, and unique built-for-rent development platform as key differentiators enabling AMH to opportunisticallycapitalize on further dislocations.

● NexPoint Residential Trust (NXRT, SB1) – We recently upgraded NexPoint Residential to Strong Buy as we were greatly encouraged by NXRT's remarkably resilient operating performancethrough mid-May, collecting 94% of April scheduled rent and early May collections trending 400 bp better than April. Additionally, we believe NXRT's Sunbelt markets should benefit both nearterm from faster re-openings and long term through accelerating employment and population shifts to the region. Moreover, with average rents well below market averages, rising residentretention, and a deep pipeline of high-ROI value-add rehab units available, we think the resiliency of NXRT's workforce housing portfolio will continue to attract investor attention.

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HOMEBUILDERSBuck Horne, (727) 567-2561, [email protected]

The homebuilding sector has also rapidly adapted its operations following COVID-19 by moving to by-appointment-only meetings at sales centers, limiting home tours to just 1 prospective buyerat a time, and leveraging its online channels. The home sales process can now be completed almost entirely online from virtual home tour to closing except for a few items that still require awet signature. Going forward, we suspect homebuilders will continue to lean on these online channels to generate new orders following COVID-19, and management teams will likely continueinvesting in these digital platforms to improve the overall user experience and generate additional operating efficiencies. Notably, builders with already established and well-integrated onlinechannels will likely have a slight near term advantage, however, we suspect it will prove short-lived as the remainder of the industry quickly adapts. As for the rest of the business, operationsappear to be business as usual outside of social distancing requirements at construction sites and a renewed focus on expense management.

Top Picks:

● KB Home (KBH, SB1) -Strong Buy-rated KB Homes is one of our top picks in the homebuilding sector given its 1) outsized exposure to the entry-level market; 2) ample liquidity to weather thecurrent storm; and 3) a reasonable valuation despite the rally since March. We continue to believe that builders exposed to the entry-level market are the best positioned to benefit from aresurgence in home buying demand post-COVID as the entry-level market is less sensitive to swings in the stock market and more sensitive to mortgage rates, which remain at record lows.Moreover, the current pandemic has led to a decline in new listings which has kept available inventory near all-time lows, particularly at affordable price points, which bodes well for KBH’sorder growth. Lastly, we believe KBH could also enjoy incremental demand from multifamily renters fleeing dense, high rise apartment lifestyles for the safety and security of an affordablesingle-family home.

● M.D.C. Holdings (MDC, SB1) - Strong Buy-rated MDC is another top pick within the homebuilding sector. Similar to KBH, MDC has an outsized exposure to the entry-level market, whichgenerated industry-leading net order growth prior to COVID-19 thanks to its wildly successful “Seasons” collection. While order growth has fallen off significantly in April, gross activity wasstronger than we expected, adding to industry evidence that buyer activity continues to improve each week. Additionally, MDC's 1Q gross margin upside and limited exposure to unsold specinventory offers a shock absorber, enabling the company to hold firm on pricing without excess incentives. All in, we remain comfortable that MDC will 1) remain significantly profitable; 2)generate outsized cash flow; and 3) emerge from this cycle poised for accelerated growth with one of the industry's most liquid balance sheets. To top it off, MDC offers one of the best entrypoints within our homebuilding coverage universe at 1.5x tangible book value.

SELF-STORAGE REITSJonathan Hughes, (727) 567-2438, [email protected]

The shift in population and jobs from the Northeast, Midwest, and California to the Sun Belt should benefit the self-storage REITs with greater exposure in those markets. The “4 D’s” of self-storage – death, divorce, dislocation, disaster – are likely all a regrettable positive for demand but could be offset by the move into larger living spaces (apartments to single-family homes),increased homeownership rates (typically homeowners live in larger residences and have less need for self-storage), and still lingering supply issues in the near/medium-term (the new supplypipeline is still ~9% of existing stock).

Companies that benefit: Public Storage (PSA, MP3), Extra Space Storage (EXR, MU4), CubeSmart (CUBE, MO2), Life Storage (LSI, MP3), Jernigan Capital (JCAP, MP3)

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MORTGAGE REITSStephen Laws, (901) 579-4868, [email protected]

Some of the most frequent discussions with mortgage REIT investors include geographic exposure of investment portfolios and potential impacts of de-densification. Considerations aroundfuture portfolio composition and financing is also a focus.

With smaller, non-gateway cities being less impacted by COVID-19, there is increased interest in identifying portfolio exposure to the largest 5-10 metropolitan statistical areas (MSAs). With smallercities re-opening first and government initiatives to help small businesses, we believe portfolios of loans in smaller cities may perform better than expected. Larger loans in gateway cities typicallyhave stronger, better-capitalized sponsors, but concerns on these loans could continue if re-openings of large MSAs extend or if a second wave of COVID-19 occurs. Arbor Realty Trust (ABR, MO2)and Ladder Capital (LADR, SB1) both have portfolios consisting of a larger number of smaller loans, which we believe reflects limited exposure to gateway cities.

Potential impacts of de-densification include offices as well as a possible demand shift from multifamily to single-family rental (SFR). Regarding offices, a number of factors, such as work-from-home, square foot per employee, and considerations around central business district (CBD) offices, will have an impact, but we do not expect senior loans in mortgage REIT portfolios to bematerially impacted. In fact, with these loans largely on transitional assets, some business plans may be able to be adjusted to address the impacts of COVID-19. On the residential side, people’sdesire for less dense living could shift demand away from urban multifamily to less dense multifamily and SFR. With COVID-19 resulting in financing issues and forcing asset sales for manycompanies with portfolios of business purpose loans (BPLs), this demand shift could result in better performance for BPL portfolios than current valuations reflect. Additionally, this could drivestrong post-COVID-19 demand for new BPLs, which include SFR loans, investor property loans, “rehab” loans, “fix-and-flip” loans, etc. Redwood Trust (RWT, MO2), Broadmark Realty Capital(BRMK, MO2), Arbor Realty Trust (ABR, MO2), NexPoint Real Estate Finance (NREF, SB1), and Velocity Financial (VEL, MO2) have investments and/or business lines that could benefit if this occurs.

With a number of mortgage REITs raising capital over the past two months, discussions are shifting away from liquidity risk to portfolio management and new investments. Currently, it is difficultto underwrite new loans given unknowns about future asset performance and financing terms. As visibility improves and long duration, non-mark-to-market financing is available, we expectcompanies to resume/increase loan origination activities. We also believe some companies may consider investing in mezzanine loans, which do not require as much, or any, balance sheetleverage to generate comparable ROEs to levered senior loans. While the sector has largely moved away from mezzanine loans over the past few years, we believe some companies may be moreopen to this going forward.

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TELECOMMUNICATIONS SERVICESFrank G. Louthan IV, (404) 442-5867, [email protected]

Regional Bell Operating Company (RBOC) Group

For the RBOCs, work-from-home is truly a mixed bag. On one end, they benefit from selling residential broadband as well as wireless. Both products (residential broadband and wireless) willneed some incremental investment and expansion, but it should be able to drive steadier business for both. We do believe some amount of home voice is stabilized, and we could even see twobroadband subscriptions to some residences for business purposes. Vacation homes and other residential areas could also see an uptick. Similarly, as administrative and support personnel findWFH options available to them, this could further drive higher speed and more robust wireline and wireless broadband to areas that may not have seen that demand in the past. We believe self-installation options will be key for this success, a feature Verizon (VZ, MO2) FiOS currently is subscale on.

The RBOCs also benefit from the increased network traffic they will get for corporate VPNs and wholesale customers. WFH will drive greater wholesale needs and Internet backbone traffic thatthese carriers excel at. This could be offset by the loss of some traditional voice and other services directly to corporate offices, but that would be replaced with VoIP lines for employees to havea virtual presence.

Competitive Local Exchange Carriers (CLEC) Group

Starting with Cogent (CCOI, MU4), this company has continued to defy gravity on the basis that its network is the key infrastructure keeping the world afloat now, as Cogent accounts for 20% to30% of global Internet traffic at any given time. As such, the upswing in bandwidth needed by cable companies and other non-tier 1 backbone providers should benefit Cogent with more WFH.Other CLECs are likely to see a negative impact on their business, especially in denser urban areas, and the inability to have sales call on customers is adding to this challenge. Ultimately, WFHdecreases demand for telecom to satellite and headquarter office facilities.

Cable Group

Overall, the cable business should be very stable in the current work-from-home environment. Aside from media/entertainment exposure risk to Comcast (CMCSA, MP3), which we outline here,the rest of the business at Comcast should remain stable with Sky feeling European economic pressure. Furthermore, as we demonstrate in our recurring revenue and critical service analysishere, cable services are not overly burdensome at most income levels and are highly likely to repeat the patterns we saw during the Great Recession. Furthermore, as consumers’ out-of-the-homeentertainment options will be limited indefinitely, we believe consumers may even be less likely to churn off as they were during past downturns.

Mobile options from the cable operators are also likely to benefit. As low-cost ways to access mobile telephony and data with a high-quality carrier network (primarily Verizon), this is a goodchoice for WFH and cost-conscious customers.

Data Center Group

As it pertains to the data centers, we believe a work-from-home environment enhances the need for cross-connects (XCs) and data traffic in general. We believe that many businesses and cloudsare seeing increased traffic currently. As such, we believe the data centers could see an increased flow of XCs to support this traffic and to bolster demand as corporate customers shift to work-from-home and other remote solutions. As cloud-based apps and platforms grow, this has a direct positive benefit on third party data centers to meet that need.

WFH applications and VPN networking required to make these virtual platforms and desktops work are going to drive further data center demand. We believe that data centers will need tosupport broader workforces and population shifts out of dense urban areas. We believe compute needs to be near population centers and that will drive more data centers in smaller markets.

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Telco Companies That Benefit From These Trends

● Verizon Communications (VZ, MO2) - WFH should drive steadier broadband business for VZ as corporate VPNs and greater wholesale needs increase internet backbone traffic and alternativeresidences like vacation homes take on additional broadband subscriptions, with some even taking on multiple subscriptions. Additionally, mobile voice usage will be of increased importancein the home, offsetting some loss of enterprise business as corporations shift employees home.

● CenturyLink (CTL, MU4) - WFH benefits CTL similar to others with residential broadband as home offices will need the voice and data connections. CTL lacks a mobile product but does havewholesale and Internet backbone products that will see continued demand increases. The larger part of the business could see some negative impact as corporate seats migrate to WFHplatforms and corporate campuses need fewer facilities. Lastly, small businesses could see location closures, and if customers migrate home, that would be negative.

● Cogent Communications (CCOI, MU4) - WFH should increase the bandwidth required by cable companies and other non-tier 1 backbone providers (pretty much all of our coverage exceptthe ROBC's), a positive for CCOI, which accounts for 25%-35% of global internet traffic at any given time.

● Comcast (CMCSA, MP3) - In a stay-at-home environment, the cable business should remain very stable as demonstrated in our recent media survey HERE. As a broadband leader, we believeCMCSA stands to benefit from increased corporate VPN usage and incremental subscriptions from vacation homes and even additional "work" subscriptions in some homes. Entertainmentand media exposure could drag the business down over the next couple of quarters, as could small enterprise bankruptcies and location closures.

● Charter Communications (CHTR, MO2) - In a stay-at-home environment, the cable business should remain very stable as demonstrated in our recent media survey HERE. As a broadbandleader, we believe CMCSA stands to benefit from increased corporate VPN usage and incremental subscriptions from vacation homes and even additional "work" subscriptions in some homes,unburdened by the entertainment and media exposure of Comcast. Small business closures or fewer lines as workers shift to home offices could be negative.

● Altice USA (ATUS, SB1) - In a stay-at-home environment, the cable business should remain very stable as demonstrated in our recent media survey HERE. With aggressive customer installsduring the COVID-19 lockdown along with its fiber build, ATUS has positioned itself well going forward. Small business location closures and fewer lines in favor of home offices could impactthe business unit.

● AT&T (T, MP3) - WFH should drive steadier broadband business for AT&T as corporate VPNs and greater wholesale needs increase internet backbone traffic and alternative residences likevacation homes take on additional broadband subscriptions, with some even taking on multiple subscriptions. Mobile voice will be more important in the home, with some additional pressureas enterprises need fewer seats in corporate campuses. Advertising and media exposure are short-run headwinds over the next couple of quarters.

● WideOpenWest (WOW, MP3) - In a recessionary stay-at-home environment, high-speed broadband players with minimal video exposure like WOW! could benefit as corporate VPN usage andinternet traffic spike while commercial customers look to cost-cut by trading down or canceling their video packages altogether.

● Cable One (CABO, MP3) - In a recessionary stay-at-home environment, high-speed broadband players with minimal video exposure like Cable One could benefit as corporate VPN usage andinternet traffic spike while commercial customers look to cost-cut by trading down or canceling their video packages altogether.

● Uniti Group (UNIT, SB1) - In a WFH environment, UNIT is facilitating fiber primarily in secondary and tertiary markets, where we postulate we'll see more population growth post-COVID. Theneed for mobile services and residential broadband should drive demand for its fiber networks, and improve churn and market share for its largest customer, Windstream. As such, we believerural areas will attract additional subsidies and will remain relatively less competitive.

● Digital Realty Trust (DLR, MP3) - In a WFH environment, many businesses and clouds are seeing increased traffic, and data centers like DLR could see an increased flow of XCs to support thistraffic and bolster demand as corporate customers shift to work-from-home and other remote solutions. We believe that data centers will need to support broader workforces and populationshifts out of dense urban areas, as compute needs to be near population centers.

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● CyrusOne (CONE, MO2) - In a WFH environment, many businesses and clouds are seeing increased traffic, and data centers like CONE could see an increased flow of XCs to support this trafficand bolster demand as corporate customers shift to work-from-home and other remote solutions. Though enterprise softness could be a near-term headwind, we believe CONE's hyperscaleexposure, which tends to be longer contracts that are less affected by near-term economic volatility, could see it outperform peers over the next couple of quarters.

● Equinix (EQIX, MP3) - In a WFH environment, many businesses and clouds are seeing increased traffic, and data centers like EQIX could see an increased flow of XCs to support this traffic andbolster demand as corporate customers shift to work-from-home and other remote solutions. We believe EQIX is particularly well-positioned with its industry-leading XC volume, which noneof its peers can currently match. Enterprise softness could be a near-term headwind.

● QTS Realty Trust (QTS, MP3) - In a WFH environment, many businesses and clouds are seeing increased traffic, and data centers like QTS could see an increased flow of XCs to support thistraffic and bolster demand as corporate customers shift to work-from-home and other remote solutions. We believe that data centers will need to support broader workforces and populationshifts out of dense urban areas, as compute needs to be near population centers. Enterprise softness could be a near-term headwind.

● Switch (SWCH, SB1) - In a WFH environment, many businesses and clouds are seeing increased traffic, and data centers like SWCH could see an increased flow of XCs to support this trafficand bolster demand as corporate customers shift to work-from-home and other remote solutions. We believe that data centers will need to support broader workforces and population shiftsout of dense urban areas, as compute needs to be near population centers. Enterprise softness could be a near-term headwind.

● CoreSite Realty (COR, MP3) - In a WFH environment, many businesses and clouds are seeing increased traffic, and data centers like COR could see an increased flow of XCs to support thistraffic and bolster demand as corporate customers shift to work-from-home and other remote solutions. We believe that data centers will need to support broader workforces and populationshifts out of dense urban areas, as compute needs to be near population centers. Enterprise softness could be a near-term headwind.

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INTERNETAaron Kessler, (415) 616-8959, [email protected]

E-Commerce Share Gains

We believe COVID-19 and shelter-in-place rules have accelerated the adoption of e-commerce. While some gains are short-lived, our April consumer survey (link) showed that 54% of respondentsexpect to shift more to online shopping post-COVID-19. With e-commerce representing ~15% of U.S. total retail sales (ex vehicles, food, gas), we believe significant runway remains for e-commerceshare gains.

● Amazon (AMZN, MO2) - We believe Amazon remains the biggest horizontal marketplace winner in U.S. e-commerce longer-term. While growth has been robust, it has been somewhat limitedby how quickly its warehouse operations and logistics can scale (e.g. Amazon has hired an additional 175k delivery and warehouse workers to meet the surge in demand).

● Wayfair (W, MP3) - We believe Wayfair is the largest beneficiary in the home goods category as consumers increasingly shift to e-commerce. Longer-term, more retail store closings are alsolikely to shift more spend to Wayfair, which noted ~90% y/y growth in April, and we estimate ~50% growth for 2Q.

● Chewy (CHWY, MP3) - We expect Chewy to be the largest beneficiary of the shift to online pet care products as consumers increasingly realize the convenience of autoship for pet food. On itsApril earnings call, Chewy noted a continued acceleration in sales since late February driven by strong demand from both existing and new customers.

At Home Fitness: COVID-19 is accelerating the trend of at home fitness as consumers shelter-in-place and as gyms and fitness boutiques are closed. We believed Peloton (PTON, MO2) is bestpositioned today to benefit from the at home fitness trend which we believe remains early in its adoption. Our positive view on PTON is based on: 1) large market opportunity that is acceleratingdue to COVID-19; 2) Peloton pioneered the connected fitness market and investments in products, content, brand, and community provide competitive moats; 3) attractive unit economicsincluding falling customer acquisition costs and low churn; 4) expect continued revenue momentum with 55% CY19-21 CAGR; and 5) we expect 20% plus LT EBITDA margins through increasingscale and operating efficiencies.

SMB Web Presence: While the adoption of DIY platforms has been increasing gradually in the last few years, we believe COVID-19 is driving a step function in DIY platforms as SMBs are now feelingthe urgency to have an online presence. We believe this is likely to last past shelter-in-place as SMBs will want to be prepared in the future. Based on our analysis, we believe less than 10% ofwebsites are built using DIY website builder platforms such as Wix (WIX, MO2). According to Built With, there are ~10M sites built using simple website builders. Given the speed to build, ease ofuse, and lower cost of DIY sites, we believe DIY sites will be the primary share gainer among small businesses. We note Wix has the largest share among DIY platforms (~39% according to BuiltWith). Additionally, we believe GoDaddy (GDDY, MO2) should also benefit as more SMBs look to have an online presence.

Online Learning: We expect the shift to more distance learning to accelerate the adoption of online learning platforms, including Chegg (CHGG, MO2). While some of these benefits will be moreshort-lived, we believe shelter-in-place has highlighted the increased convenience and benefits of online learning solutions. Within our coverage, Chegg has benefited from an uptick primarilyfor its Chegg Study solutions as students migrate to online learning from on-campus help.

3P Food Delivery: We believe COVID-19 and shelter-in-place are accelerating the adoption of third-party food delivery platforms. Overall, we believe the online takeout market represented ~10%of restaurant sales in 2019, suggesting significant potential for share gains. According to our April consumer survey, 22% of non-food delivery service users (prior to COVID-19) had signed up fora service, while 65% of existing users are increasing usage. Among respondents that use food delivery apps in our survey, 42% use DoorDash, followed by 25% for Uber Eats (UBER, suspended),23% use GrubHub (GRUB, MP3), and 10% use others. We expect most of the key players to benefit from the shift to online takeout. We note GrubHub’s growth has been more mixed, however,as COVID-19 has negatively impacted its NY and corporate business.

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WIRELESS, TOWERS, AND SATELLITE TELECOMMUNICATIONSRic Prentiss, (727) 567-2567, [email protected]

Social Distancing has been a primary tool to combat the COVID-19 virus pandemic, and Telecommunications companies have played key roles in keeping society connected. In fact, the wordtelecommunications comes from the Greek word tele (far off, or at a distance) and the Latin word communicare (to make common, or to share). So, as the world moves into the “new normal”post-COVID-19 environment, we believe “sharing at a distance” will continue to be a major trend, and the deployment of wireless 5G networks and services will introduce even more ways toaccomplish that.

In addition, stay-at-home and work-from-home orders have spotlighted the need for better broadband connections in exurb and rural areas. We expect companies like ShenandoahTelecommunications (SHEN, MP3) and Telephone and Data Systems (TDS, SB1) will continue their focused fiber expansion strategy, while T-Mobile US (TMUS, MO2) will use low band spectrumdeployed on towers to bring 5G services to these exurb and rural areas sooner than RBOCs. And, upcoming next-generation satellite launches by EchoStar (SATS, SB1) and ViaSat (VSAT, MO2)will improve broadband speeds in the exurb and rural areas as well.

Tele-medicine has seen a spike in usage during the COVID-19 crisis, and we think 5G networks can deliver an even better experience (including health monitoring) that can drive continuedmomentum for this trend. The crisis has also impacted factories and manufacturing, and here again, wireless telecommunications can help as new wireless spectrum (i.e., CBRS) is becomingavailable for in building systems that can make changing production lines or retooling easier.

The logistics industries have been challenged in these difficult times, and the “new normal” may be able to take advantage of 5G services that could allow drones, and other autonomous solutions,to fulfill delivery of on-line shopping. And, the investment in the Indian wireless carrier Reliance Jio by Facebook (FB, SB1) - plus reports of other pending techco investments in Indian carriers -suggests wireless and towers are important to what the technology industry views as the new normal, and could indicate potential interest in DISH Network (DISH, SB1) building a new, greenfield,nationwide 5G network in the U.S.

Bottom Line: It is never a good time for a pandemic, but thankfully in this day and age, we have the ability to share at a distance (i.e., telecommunications) via 4G wireless smartphones vs. slow,dial-up landlines or even wireless candy bar phones. And this decade, that has begun with the COVID-19 virus making the world worse, should also prove to be the decade in which 5G changesthe world for the better, and helps everyone adjust to the new normal.

Top Picks To Benefit From "New Normal"

● Shenandoah Telecommunications (SHEN, MP3)

● Telephone and Data Systems (TDS, SB1)

● T-Mobile US (TMUS, MO2)

● EchoStar (SATS, SB1)

● ViaSat (VSAT, MO2)

● DISH Network (DISH, SB1)

● SBAC Communications (SBAC, MO2)

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APPLICATION SOFTWAREBrian Peterson, (404) 442-5888, [email protected]

Alexander Sklar, (404) 442-5804, [email protected]

We believe that the current work from home environment highlights the increasing need for modern productivity and collaboration tools, which can help businesses to maintain their operationswhile also satisfying the flexibility and security requirements demanded by a remote work environment. Many of these products are still in the early innings of adoption, and we believe that thepandemic highlights the deficiencies of existing technology solutions, and will serve as a catalyst for the modernization of these legacy technologies.

RingCentral (RNG, SB1) - RingCentral provides a host of communication tools including phone, video, and messaging capabilities, which have become of increasing importance for businessoperations in a remote work environment. These tools enable uninterrupted business communication leveraging a mobile-first approach, and we believe that the current backdrop highlightsthe need for a modern, cloud-based communications suite, that provides the flexibility demanded by today’s distributed workforce.

Box (BOX, MO2) - Box provides a digital platform to enable document sharing and collaboration tools, while serving the needs of enterprises demanding modern security and compliance features.These tools allow employees to share documents and collaborate across teams, with advanced productivity tools including workflow functionality and artificial intelligence, while also addressingconcerns surrounding data residency, governance, and security issues. We believe that cloud content management will be of increasing strategic importance as businesses seek tools to supportemployee productivity in a remote work environment.

INFRASTRUCTURE SOFTWARERobert Majek, (212) 297-5653, [email protected]

We believe the COVID-19 pandemic has accelerated some long-term trends within infrastructure software, including 1) the shift to remote work/access; 2) digital collaboration; and 3) over-the-top (OTT) video. Below we highlight these trends and include companies who are positioned best to benefit from these trends.

● Remote work/access {Citrix Systems (CTXS, MO2), VMware (VMW, MO2), Microsoft (MSFT, SB1)}: We have been saying for some time that we thought desktop virtualization has beengetting a boost from a) Windows 10 migrations; b) increased security concerns; and c) improved economics based on cloud delivery of the management plan from Citrix and of full desktopas a service from Citrix partners, as well as from competitors VMware, Microsoft Virtual Desktop, and Amazon Workspaces. We believe COVID-19 and the rush to supply work-from-homesolutions are providing an additional sharp stimulus to those trends, and believe this represents a structural acceleration in demand for desktop virtualization solutions that could extendbeyond the current crisis.

● Over The Top (OTT) Video {Akamai Technologies (AKAM, MO2), Fastly (FSLY, MP3), Limelight Networks (LLNW, MO2)}: OTT is already a secular trend that we believe could be acceleratedby restrictions on mobility or live event cancellations, or even just people being worried about going to movie theaters or other public entertainment. Based on our recent industry/competitorchecks: underlying industry traffic, albeit off its March peak, has remained strong and has stabilized at a high level relative to pre-COVID traffic (see recent CDN Provider note here). Moreover,these positive checks were underscored by Limelight's own recent research and were a driving force in our upgrade of LLNW (see LLNW upgrade here and Sustained Video Demand note here).

● Digital Collaboration {Microsoft (MSFT, SB1), Atlassian (TEAM, MP3)}: We also expect to see increased demand, again with COVID as a catalyst for what was already a secular trend, forenterprise solutions enabling digital/virtual rather than in-person collaboration. These include Microsoft Office 365 Teams for chat, messaging, web conferencing; Atlassian collaborationtools for software development, IT and business teams; Cisco (CSCO, MO2) Webex; Slack (WORK, not covered) messaging; and Zoom (ZM, not covered) video conferencing.

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CONNECTED DEVICESAdam Tindle, (727) 567-2693, [email protected]

COVID-19 Driving Accelerated Adoption of Key Trends

The impact of COVID-19 has largely been a negative catalyst across our connected devices coverage due to near term demand destruction, though there are a few structural changes that shouldresult in a sustainable adoption of key products/services over time. The most documented change is within the workforce that has rapidly shifted to a work-from-home environment. Consider, inmid-March only ~30% of U.S. workers had reported working remotely, and this accelerated to over 60% by the end of March. Moreover, 74% of executives are planning for a permanent increasein remote working according to the Global Workplace Survey.

We believe Outperform rated NETGEAR (NTGR, MO2) is a clear beneficiary of the WFH trend as strong network connectivity has gone from “nice to have” to “need to have” as applications havemoved from discretionary (streaming entertainment) to non-discretionary (facilitating full-time work applications at home). NETGEAR has historically generated ~60% of its revenue from thesale of routers and WiFi enablement products (extenders, mesh), and is considered a market leader in high-performance products. To wit, NETGEAR has held ~50% share in the U.S. consumerWiFi market for several years, and its strategy to be first to market in new, high-performance technologies should only enable further differentiation in an environment where performance isbecoming increasingly more important. We have already begun to witness the initial impact of the acceleration of remote working as NETGEAR reported mid-single-digit organic revenue growthwithin its connected home business, compared to high-single digit declines during FY19.

We also view Strong Buy-rated Alarm.com (ALRM, SB1), which creates software that enables smart properties within both the residential and commercial market, as a beneficiary in this newnormal. The residential market, which comprises ~90% of Alarm’s SaaS revenue, is still less than halfway through a key technology upgrade to enable interactive security and remote features(arm/disarm, thermostat, video, etc. via software application). Consider, of the ~25 million professionally installed security homes, less than 10 million utilize interactive technology. This transitionto interactive should provide Alarm with a durable mid-teens growth rate for the next several years.

Moreover, commercial is fairly nascent at ~7% of SaaS revenue, but has been growing 50%+. New features such as unattended access and touchless entry are becoming increasingly moreimportant, and Alarm’s software is enabling this technology. Within commercial, Alarm is targeting ~4 million properties in North America at an average revenue per user (ARPU) that is 2-3xresidential, or between $10-$15/month. This would imply Alarm has a ~$600 million/year commercial opportunity just in North America, assuming no incremental ARPU accretion.

DATA INFRASTRUCTURESimon Leopold, (212) 856-5464, [email protected]

Businesses and consumers consider, now more than ever, network connectivity as an essential service. The sudden migration from office campuses and schools to households has placed asignificant strain on networks. In North America, robust designs and sufficient capacity has led to a mostly smooth transition as peak traffic loads spread out through the day. However, in somenations, network performance has degraded and operators have throttled non-essential activities, such as video streaming, to reduce the burden. To adjust, operators have shifted priorities toaddress network choke points. To a degree, we suspect the added investment may represent pull-in from future spending, but network capacity at the edge is not fungible, so moving thousandsof employees from a single office campus to a 25-mile radius around that campus has an effect on how networks are built and operated.

Our research has concluded that operator-biased suppliers suffer less than enterprise-exposed suppliers during the pandemic; essentially, each business’s health reflects the health of itscustomers. We expect more favorable spending patterns from operators - e.g., Verizon (VZ, MO2), Comcast (CMCSA, MP3), Microsoft (MSFT, SB1) - than from enterprises, with certain verticals (e.g.,hospitality, energy, transport) and the SMB (Small-Medium Business) segment suffering. When it comes to the shift, we favor suppliers that support consumer broadband and metro networkcapacity.

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● Ciena (CIEN, MO2) leads the market, providing optical capacity to North American operators with a strong position in Europe and hyper-scale. As traffic loads shift from corporate campusesto residential neighborhoods, operators will need to add capacity to address choke points.

● CommScope (COMM, MO2) is the leading supplier of equipment to cable TV operators, the primary provider of broadband in North America. Although it is experiencing a secular headwindfrom the decline in video subscriptions, its cable TV and operator broadband businesses appear poised to benefit.

● Harmonic (HLIT, MO2) is leading the evolution to virtualize broadband in cable TV networks with a reference award at Comcast and over two dozen operators around the globe. The next-generation architectures help cable TV operators cost-effectively address the growing traffic burdens.

● Juniper (JNPR, MO2) has a bias towards telcos and cloud operators who make up the majority of business, with a third of its business from large enterprises. Traffic growth fuels its salesof routers and switches.

● Nokia (NOK, SB1) is primarily a play on 5G traction, but it is also the leading provider outside of China for consumer broadband enabling technologies such as Fiber to the Home, is third-ranked in edge routing, and is among the top three scale suppliers of optical transmission after Ciena and Huawei.

ADVANCED INDUSTRIAL TECHNOLOGYBrian Gesuale, (727) 567-2287, [email protected]

Several advanced industrial tech names under coverage at Raymond James are positioned to benefit from post-COVID “new normal” dynamics, including social distancing, germ concern, skintemperature screening, and broader pandemic-driven economic fallout. Our top names in this industry are as follows:

● FLIR Systems (FLIR, SB1) – While still a small part of FLIR’s revenue, we believe EST (elevated skin temperature) screening could shift from being an episodic government-centric product toa consistent dual market opportunity. FLIR has experienced a spike in demand for EST related cameras to the extent it is having to reallocate R&D, sales, training, capital, and manufacturingcapacity. FLIR booked $100M of orders during 1Q (~5% of full-year revenue) and shipped $30-40 million of those bookings. Historically, during other pandemics such as SARS and MERS, wehave tracked spikes in demand for EST and quick pullbacks as concern with the pandemic dissipates. However, in these past cases, demand has been centered in APAC regions and mainlyfor applications at ports and borders. Looking back at the SARS outbreak, during its peak in 2003, we estimate FLIR sold 100-500 camera systems with a revenue contribution of less than $10million. COVID appears to be different in that the demand is much more robust and diverse, with strong global interest across many industries including hospitality, factories, and distribution.Looking ahead, we expect demand to carry through at least 2020, and remain a viable business in 2021 albeit it at a lower run rate.

● NIC Inc. (EGOV, SB1) – EGOV is a leading provider of digital government solutions that enable government customers to provide a higher level of service to businesses and citizens. Thesesolutions enable government partners to accelerate digital transformation in a much more cost-effective manner vs. internal development. We believe EGOV could receive a boost from “germconcern” as government customers accelerate their shift to digital government from brick and mortar transactions. EGOV’s solutions provide the ability to immediately reduce the person-to-person interactions that take place in government offices between workers and citizens (think permitting offices, DMVs, etc.).

● Cubic Corp. (CUB, SB1) – CUB is a leading integrator of payment systems and intelligent travel solutions, and has a proven track record of delivering large-scale, transit fare collection andintelligent transportation management systems (~60% of revenue). We expect the pandemic to accelerate long-term adoption of contactless payment, while in the near term we could seeincreased demand for traffic congestion solutions as citizens return to work and opt for personal transportation vs. public transit.

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FINTECHJohn Davis, (727) 567-2510, [email protected]

E-Commerce Part of COVID-19 ‘New Normal’ + Accelerated Cash-to-Card

While certainly not a secret, e-commerce is part of the new normal in the post COVID-19 world we find ourselves in today. Although stay-at-home-orders are now being relaxed in variousjurisdictions at different speeds, we think this change in consumer behavior will likely be here to stay, and although it may not be as strong as during the height of the crisis, we expect e-commerceto remain above pre-crisis levels. Within payments, Paypal (PYPL, MO2) is the largest beneficiary as a ‘pure-play’ on e-commerce, and since earnings, the stock has been off to the races (+31%vs. S&P 500 +7%) and is near all-time highs. In addition, Visa (V, MO2) and Mastercard (MA, MO2) will also benefit from heightened e-commerce – specifically, Visa noted at its recent investor daythat ~$0.15 of every $1 spent in the physical world is on a Visa card, but online it jumps to ~$0.43 of every $1 spent.

We also expect COVID-19 to accelerate the cash-to-card tailwind, particularly in the U.S. Although card spend penetration is likely already ~60% in the U.S., we expect consumers to shift theirpreferences further away from cash and towards tap-to-pay. With the technology largely in place across the ecosystem and consumers wary of high-contact surfaces, tap-to-pay is set to take offin the U.S., which will benefit the networks of Visa and Mastercard primarily (which also benefit from the shift to e-commerce).

BANKSMichael Rose, (312) 655-2940, [email protected]

David P. Feaster, Jr., (727) 567-2560, [email protected]

David J. Long, (312) 612-7685, [email protected]

William J. Wallace IV, (301) 657-1548, [email protected]

Mergers & Acquisitions (M&A)

M&A is a secular theme in the bank space, although the COVID-19 pandemic has ground activity levels to a halt (link). Indeed, in recent years, activity levels have been among the strongest wehave seen going back to 1990 (as far back as our data set reliably goes), with 2020 expected to be another solid year (link). However, we’d expect activity to re-accelerate later this year and into2021 where the push for scale and efficiencies will be needed to offset what is likely to be another period of prolonged low-interest rates. To this end, stronger banks with a history of deal-makingare readying their already stout capital levels where we have seen a spate of subordinated debt and preferred equity issuances in recent weeks. Once the worst of the pandemic is behind us, wesee the have’s (banks with stout capital levels, strong PTPP profitability, and high P/TBV multiples) swooping in to consolidate the have not’s (credit plagued banks with low PTPP profitabilityand low P/TBV multiples) especially in attractive markets.

Branch Consolidation

Branch consolidation has been a significant source of operating leverage for the banks the past several years, given those M&A trends. Most banks had believed the vast majority of these savingshad been harvested, and management would need to look to other sources of expense savings. However, the stay-at-home orders in the pandemic have driven a significant increase in mobile/digital adoption for banking transactions, leaving more transactions outside of the branch footprint. The increased utilization of lower-cost channels has left management believing there could befurther room for branch network optimization going forward. That said, we believe this will likely be a longer-term trend and is unlikely to occur imminently, as branch and staffing reductions in themidst of the crisis would be a negative from a publicity standpoint. While we may not see overall branch networks decline for smaller community banks, we will likely see shrinking square footage.

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Office Commercial Real Estate (CRE) Trends

One of the potential longer-term risks we are paying attention to in the bank space (outside of the obvious risks in restaurant, hotel, retail, and energy portfolios) is what will happen with OfficeCRE portfolios (this question is likely in the minds of the Office REIT team as well). It is too early to have an idea of what WFH will mean for the need for office space as businesses open back upand evaluate the need for physical office space. There are three scenarios that we could see play out:

1. The most positive scenario would be that the large majority of companies keep all of their space, and get their employees back in the office where they are more productive (fewer distractionsfrom the home, better peer collaboration). In fact, in this scenario, there would likely even be a need for some businesses to expand their physical space in order to better accommodate forsocial distancing. In this scenario, there would be no additional credit stresses to the bank CRE portfolios, and there could even be some loan growth opportunities.

2. The most negative scenario is that some portion of businesses believes the cost-benefit analysis suggests they could shrink their office space and require WFH for a bulk of employees. In thisscenario, there would be a glut of supply as leases come due which could put meaningful pressure on cash flows and add significant stresses to bank Office CRE portfolios.

3. The third scenario we envision is a cross between the first two where businesses shrinking space requirements are offset by those increasing space to accommodate for social distancing. Inthis scenario, we could see some pressure to cap rates, which could add some stresses on LTV’s, but ultimately we would see cash flows as stable and bank losses as manageable.

Beneficiaries From These Trends In Banking

● OceanFirst Financial (OCFC, SB1)

● First Mid Bancshares (FMBH, SB1)

● Wintrust Financial (WTFC, SB1)

● Banner (BANR, MO2)

● Enterprise Financial Services (EFSC, MO2)

● First Foundation (FFWM, MO2)

● Seacoast Banking Corporation of Florida (SBCF, MO2)

● United Bankshares (UBSI, MP3)

● Atlantic Union Bankshares (AUB, MP3)

● BancorpSouth Bank (BXS, MP3)

● Community Bank System (CBU, MP3)

● CVB Financial (CVBF, MP3)

● Glacier Bancorp (GBCI, MP3)

● United Community Banks (UCBI, MP3)

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INSURANCE, BROKERAGE, AND DISTRIBUTIONC. Gregory Peters, (727) 567-1534, [email protected]

The most notable trend in insurance following the onset of the COVID-19 pandemic has been the drastic decrease in miles driven nationwide, resulting in lower accident frequency and lowerloss ratios for personal auto insurers. Prior to seasonal adjustment, miles driven in March 2019 were down 18.6% y/y versus an ~2.7% increase in February. This was the sharpest contractionto occur since have we been tracking the data beginning in 1991. While we do not expect this trend to be a “new normal,” we do expect industry profitability to remain elevated over the nextcouple of quarters as the economy gradually starts to reopen.

The flip side of this trend has been a decrease in new applications, which also correlates with new car sales. As working from home changes commuting patterns, we wouldn’t necessarily expectdemand for auto insurance to change significantly. Perhaps the composition of coverages provided by the industry could change. Individuals working intermittently could opt for a usage-basedproduct (e.g. pay per mile) vs. a standard auto policy based on other variables including credit scores, zip code, etc. Others who would typically commute through public transportation couldshift to ride-sharing alternatives for which industry premiums have been already increasing over the past couple of years. All in, we expect the industry to generate attractive profits and prices toremain stable, which bodes well for our Strong Buy-rated names in the space, including Allstate (ALL, SB1), Kemper (KMPR, SB1), and Progressive (PGR, SB1).

We believe the behavioral changes induced by the COVID-19 pandemic will have more long-lasting changes to the insurance brokerage/distribution industry. We believe the consumerization ofinsurance trends that helped fuel PGR’s growth over the past several years will be accelerated in favor of direct-to-consumer platforms (online + telephonic) vs. the legacy agency channel thatrelies on face-to-face meetings. We believe transacting digitally will become the new normal, especially for complex risks such as home, auto, small business insurance, and health plans.

Brokers relying on telesales capacity will also benefit. In a work from home scenario, companies like Outperform rated eHealth (EHTH, MO2) and Willis Towers Watson (WLTW, MO2) can increasesales capacity without the physical limitations of a call center. This could reduce reliance on outsourced sales capacity and increase revenue leverage as captive agents could be up to 50% moreefficient.

Insurance Top Picks for “New Normal”

● Personal Lines: Allstate (ALL, SB1), Kemper (KMPR, SB1), and Progressive (PGR, SB1).

● Insurance Brokers: Arthur J. Gallagher (AJG, SB1), eHealth (EHTH, MO2), and Willis Towers Watson (WLTW, MO2).

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CAPITAL MARKETSPatrick O'Shaughnessy, (312) 612-7687, [email protected]

Online Brokers

With more people working from home, trading volumes are likely to remain somewhat elevated. In fact, our recent conversation with TD Ameritrade (AMTD, MP3) suggested that the work fromhome environment, along with the move to zero-base commissions and a higher volatility backdrop, helped fuel record trading activity in March and calendar 1Q20. To the extent that onlinebrokerage customers remain engaged in the markets during this work from home period and beyond, this will marginally boost transaction revenue (primarily from options trades) and paymentfor order flow; moreover, as this trading activity generally generates very high incremental margins, there may be a slightly more pronounced flow through to earnings as well. However, onlinebrokers now generate the majority of their revenue (and net income) from monetizing their client cash, which will likely remain under sustained pressure in a low-interest-rate environment.

Online Brokers That Benefit Most From The "New Normal": E*TRADE Financial (ETFC, MP3), The Charles Schwab (SCHW, MP3), TD Ameritrade (AMTD, MP3)

Commercial Real Estate Service Providers

There is currently much conversation about the future of commercial real estate given commentary from many companies about increasingly allowing employees to work from home, whichtheoretically may result in reduced demand for office space. In addition, widespread retail bankruptcies as well as de-urbanization are poised to threaten the viability of many retail locations.De-urbanization would also result in more people moving to the suburbs and away from city centers; this may impact demand for multi-family housing, which tends to be a staple of large cities,and could result in lower commission revenues as suburban real estate typically has a lower cost per square foot. Potentially offsetting these headwinds for CRE brokerages are the potential foroffice space square footage per employee to increase in an era of social distancing, and the renewed demand for warehouse/logistics square footage due to increased online shopping.

Commercial Real Estate Service Providers That Benefit Most From The "New Normal": CBRE Group (CBRE, MO2), Newmark Group (NMRK, MO2), Jones Lang LaSalle (JLL, MO2)

Rating Agencies

We believe that following this economic downturn, there will be fewer corporate issuers managing to a BBB rating, less debt issuance for the purpose of share repurchases, less debt issuance forM&A activity, and higher balance sheet cash levels in general. The recent and expected downgrades of BBB firms to non-investment grade status is a trend that is likely to continue, while widercredit spreads could be a headwind to high-yield and leveraged loan issuance. Reduced demand for office space may result in permanently reduced demand for CMBS. That said, S&P Globalrecently noted that the higher level of investment-grade issuance YTD represents windfall issuance rather than pull-forward for refinancing that would have otherwise taken place. While we stillbelieve that both S&P Global (SPGI, MP3) and Moody’s (MCO, MP3) will continue to demonstrate strong pricing power in their respective ratings businesses (2-3% per year, on average), thesechallenges in more cyclical issuance categories (high yield, leveraged loans, structured finance) could be a headwind to revenue growth.

Rating Agencies That Benefit Most From The "New Normal": Moody’s (MCO, MP3), S&P Global (SPGI, MP3)

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https://raymondjames.bluematrix.com/docs/pdf/9b53e069-0076-4006-bca4-cc239fbf885a.pdf?pdf

https://raymondjames.bluematrix.com/docs/pdf/3cca192d-de00-4deb-925f-ab94362a2c2b.pdf?pdf

WASTE SERVICESPatrick Tyler Brown, (404) 442-5803, [email protected]

The “work-from-home” move has created a stream shift where we’ve seen a reduction in commercial/industrial collection volumes from lower business activity and a jump in residential volumesfrom “sheltering-in-place” with the debate being: how permanent will the WFH shift be and how will haulers preserve profitability?

Lower commercial/industrial activity has caused some (not many) customers to “pause” their services, which has been concerning since these collection lines are the most profitable with revenuesbeing “binary” in nature: either the customer is paying, or, if service has been paused, there is nearly zero revenue to the waste company. However, as states have opened back up, there has beensequential improvement through May indicating service has been restored for those customers who were forced to temporarily close.

On the opposite side is the residential customer where garbage can weights have jumped ~20% from being largely “flat” for the last decade. For most of this time, margins have been very tightin this segment, and this recent spike in can weights has only added to the pressures. The issue here is a price-cost imbalance across most of the industry where pricing for residential contractsis typically linked to CPI that has been running below unit-cost inflation for waste companies. Given the surge in residential can weights, post-collection costs have increased as well without anyimmediate ability to recoup the cost through price increases.

Best Positioned Companies

While we like the whole solid waste group, we’d point to the following companies as better positioned:

● Casella Waste Systems (CWST, SB1) – Nearly all of their residential contracts are subscription-based which enables a greater ability to reprice/impose fees to recoup the post-collection costs.From a post-collection standpoint, CWST’s landfill asset can benefit from rising prices given capacity constraints in the Northeast region.

● Waste Connections (WCN, SB1) – The company’s “franchise market” contracts are structured so that a rate of return/return on capital is essentially guaranteed, so WCN will be able to recoupthe elevated costs whereas it will be more challenging for its peers.

We don’t see a stark drop in revenues since service frequency and/or container size would have to be dramatically cut:

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.

Source: Company documents and Raymond James research

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And you really can’t reduce frequency and/or dumpster size more given where the averages are:

.

Source: "Boots-on-the-ground" data, unspecified haulers/brokers, and Raymond Jamesresearch; *0.5 yards denotes residential tote service for a commercial property

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Source: "Boots-on-the-ground" data, unspecified haulers/brokers, and Raymond Jamesresearch; *On-call service to be roughly monthly service

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Source: Company documents and Raymond James research

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Actions taken to preserve cash flow by trimming capex:

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Source: Industry data points, Company documents, and Raymond James research

.

Source: Industry data points, Company documents, and Raymond James research

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TRANSPORTSPatrick Tyler Brown, (404) 442-5803, [email protected]

B2C Parcel Shift

The biggest immediate impact is a mix shift for the parcel carriers to more residential deliveries (vs. business-to-business deliveries) as a direct result of people “sheltering-in-place”.

While positive from a volume perspective (we believe volume growth could actually accelerate due to COVID), we stress that B2C business is far less profitable than B2B given an inherent lackof density associated with residential deliveries.

● To this point, anecdotal evidence suggests that on average packages per stop in a B2B delivery are between 4-5, while B2C only averages 1.1-1.2 packages/stop.

● To put some magnitude on these trends, during its 1Q20 earnings call, UPS management noted that B2C deliveries toward the end of March (when widespread sheltering-in-place was active)comprised ~70% of overall domestic volumes (normally, UPS runs closer to 50/50 between B2C/B2B).

Company-Specific Implications (FDX, UPS)

While we continue to believe company-specific cost actions can somewhat offset the profit headwinds, given the inherently (far) less profitable B2C package stream (absent industry pricingactions), we believe the key question becomes: where does the mix shift go structurally post COVID? In other words, how much of the B2C mix shift lingers even as initial virus fear is lifted? Thehigher the B2C mix, the worse for United Parcel Service (UPS, SB1) and FedEx (FDX, MO2) --- the lower, the better.

.

Source: Company filings, Transcripts, and Raymond James estimates

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Source: Raymond James research

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Acceleration of “Heavy Goods Final Mile”

Our transport team published a note on this theme recently (link).

Similar to parcels, the idea is that the delivery of heavy-goods into the home (furniture, gym equipment, appliances, etc.) structurally accelerates given increased consumer acceptance for e-commerce in these items.

● It was likely already one of the fastest-growing verticals in transport (5-6x pace of GDP), but, based on initial retailer commentary, could further accelerate and increase volume tailwindsfor third party providers in space.

While we think revenue prospects are brightening in this segment, we do stress that it remains a challenging business from a margin standpoint (high training costs, complicated move, equipmentneed) --- but it is likely a structural theme to play post-COVID.

Company-Specific Implications

Companies with the most exposure include XPO Logistics (XPO, MO2), J.B. Hunt Transport Services (JBHT, MO2), and Forward Air (FWRD, MP3).

.

Source: Company filings, Investor presentations, and Raymond James estimates

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https://raymondjames.bluematrix.com/docs/pdf/50cc5656-127b-44d1-93fc-bee270d74790.pdf?pdf

MACHINERY - TRUCK OESFelix Boeschen, (212) 856-5403, [email protected]

Acceleration of “Heavy Goods Final Mile”

Exactly the same as in the transports (heavy goods final mile boon); we believe the shift toward those deliveries likely comes with stark equipment implications – particularly if absorbed bytraditional TL/LTL carriers.

● Moving legacy TL/LTL equipment through neighborhoods is not feasible, so you need different specs (largely straight trucks) including the height of the vehicle (i.e. box of the truck), shorteningthe turn radius, and various technology additions - all of which we believe could drive increased demand.

Company/Industry Specific Implications

● Truck Body: Wabash National (WNC, SB1) - The most direct way to play this theme is through the truck body manufacturers (WNC out of Raymond James transport team's coverage) as theyshould benefit from increased demand for these specialized lighter-vehicle truck bodies going into neighborhoods. We believe the sweet spot in terms of vehicle size is likely somewhere inthe Class 4-6 range for these moves (depending on equipment moved). We think WNC is particularly poised to take share given its exposure to lighter vehicle classes (90% of rev tied to Class6 or lighter) and cross-selling opportunities with legacy trailer customers.

● Medium Duty Exposure: Allison Transmission (ALSN, SB1) and Navistar International (NAV, MP3): OEs with increased medium-duty exposure may relatively (vs. Class 8 peers) benefit fromthis trend.

.

Source: Wards Auto and Raymond James research

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.

Source: SPAR investor presentation and Raymond James estimates

.

Source: Company filings and Raymond James research

Other potential impacts from post-COVID for Transports/Truck OES include:

● Length of Haul: Due to possible structural e-commerce acceleration, we could see a shortening of the length of haul as distribution centers continue to cluster closer to the end-consumer(likely slight positive for truckers/slight negative for intermodal players).

● Congestion Levels: Assuming consumers elect to stay away from mass transit in favor of personal cars, we could see increased levels of congestion longer-term. This would largely haveequipment implications – vehicles/features best suited in stop/start environments (incremental positive to ALSN).

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BUILDING PRODUCTS AND APPLIANCESSam J. Darkatsh, (727) 567-2537, [email protected]

Initially following the COVID-19 outbreak, building products demand was concentrated within small ticket DIY and food preservation. Specific categories that benefited included paint - Masco(MAS, MP3) - and outdoor lawn and garden (both of which also aided by favorable spring weather), refrigerators and freezers - Whirlpool (WHR, MP3), and tools - Stanley Black & Decker (SWK,MP3). Categories most adversely impacted were big-ticket, discretionary, installed purchases like flooring - Mohawk Industries (MHK, MO2), and kitchen & bath (especially cabinets, countertops).Further impairing installed purchase demand was the (temporary or permanent?) closure of many small independent dealers/retailers, a channel in which many of these projects are derived.

One would imagine that consumer behavior might bifurcate going forward into several camps, depending on employment levels, consumer confidence, credit availability, home values, anddiscretionary income levels. Those consumers who have retained employment would likely look to beautify their home’s living spaces, especially now that more time would be spent in the home.This might especially be the case in categories with more non-discretionary purchases like major appliances (WHR), but also enhanced living spaces like kitchen remodeling, outdoor decking,and larger-scale remodeling projects (often in order to add home office space) like GMS Inc. (GMS, SB1), Foundation Building Materials (FBM, SB1), Eagle Materials (EXP, MO2), and Beacon RoofingSupply (BECN, MP3). This activity might be further accelerated by consumers moving from urban to more suburban areas, where space is more plentiful. The move to the suburbs also likelyincludes a shift towards single-family housing and away from multi-family housing (to increase distancing). Historically, single-family units have consumed greater quantities of building productsat a higher mix vs. multi-family. That said, elevated levels of unemployment generally prompt considerably lower spending on big-ticket, discretionary purchases, which likely acts as an inhibitorto all the above.

CONSTRUCTION MATERIALSJoshua Wilson, (727) 567-2647, [email protected]

Much like the dynamics mentioned above for building products/appliances, the same single-family vs. multi-family homes dynamic applies for construction materials related to residentialconstruction (i.e., SF consumes more than MF). Regarding heavy construction beyond residential, WFH lessens traffic/infrastructure needs, but the relocation of the population (from urban areasto the suburbs, as well as possibly the acceleration of the pre-COVID shift from the NE/W to the SE/S) boosts needs in certain locales. It’s also not yet clear to what extent a shift back to automobilesand away from public transportation will have an effect. To the extent there is a benefit, Eagle Materials (EXP, MO2) and Construction Partners (ROAD, MO2) seem well-positioned.

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HOUSEHOLD, PERSONAL CARE, AND LEISURE PRODUCTSJoseph Altobello, (212) 883-4606, [email protected]

A “New Normal” in Household, Personal Care, and Leisure ProductsThe onset of COVID-19 and the response by businesses and consumers alike have certainly created a “new normal” for companies across our coverage universe. While broad-based retail closuresand shifts in consumer spending have had a negative impact on a number of our names, we do believe there are some positive aspects of this new environment. Perhaps the most pronouncedexamples of this are in the leisure space, as consumers reassess their recreation plans this coming summer given the lack of vacations, camps, and travel sports. For example, we believe boatingcould benefit, as it represents a highly controlled activity and one that lends itself well to social distancing. Supporting this point, in late April boat dealer MarineMax (HZO, MO2) surprisingly citedpositive year-over-year sales trends for the month despite nearly all leads generated online through virtual boat tours, while fellow dealer OneWater (ONEW, MO2) noted similar trends, with Aprilcomps up mid-to-high single digits and lead generation roughly double what it was last year, while both indicated this momentum has continued into May.

In addition to boating, we’ve also seen a positive impact on pet health and wellness, as PetIQ (PETQ, MO2) realized product sales growth of 32% year-over-year in the first quarter. Trendsaccelerated significantly during the month of March and even more so in April, along with a channel shift toward online purchases. While a mild winter and an early flea and tick season certainlyhelped the company gain momentum, with many veterinarians closed except for emergencies, PETQ’s status as a supplier of both OTC and prescription pet health products should positionit well. At the same time, recent data indicates an uptick in pet adoptions during this stay-at-home period, while anecdotally we appear to be seeing more frequent pet walks, which in turnincreases the exposure of pets to fleas and ticks. Lastly, though golf retail closures have pressured companies like Callaway (ELY, MO2) and Acushnet (GOLF, MP3), we are starting to see significantimprovement in this regard, with over 80% of off-course specialty golf retailers now open. In addition, nearly all U.S. golf courses are now open, and we would expect to see an uptick in roundsplayed throughout the spring given the nature of the sport – easy to maintain social distancing and a great way to get out of the house for a few hours with friends.

Companies Poised to Potentially Benefit From “New Normal”Brunswick (BC, MO2)/MarineMax (HZO, MO2)/Malibu Boats(MBUU, MO2)/MasterCraft Boat (MCFT, MO2)/OneWater Marine (ONEW, MO2): Boating is a relatively controlled activity and one thatdoes appear to lend itself well to social distancing, while many families will be forgoing other typical summer activities, such as vacations, camps, or travel sports.

Acushnet (GOLF, MP3)/Callaway Golf (ELY, MO2): Golf courses and retail stores have largely re-opened, so we’d expect to see rounds played trends improve throughout the spring, particularlygiven the nature of the sport (easy to maintain social distancing and a way to get out of the house for a few hours with friends).

PetIQ (PETQ, MO2):More families staying home appears to be leading to increased pet adoptions and could lead to more frequent pet walks, which in turn increases exposure to fleas and ticks.

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CONSUMER HARDLINE RETAILMatthew McClintock, (212) 856-4891, [email protected]

There are two major topics that are likely long-term trends for the retail industry in a post-COVID-19 world. First is digital, and second is consolidation.

Digital growth rates in this channel have exploded in the most recent quarter. To put these rates in perspective, a typical "good" digital growth rate pre-COVID was 20%. Many retailers did multiplesof that in 1Q and that’s even despite COVID only impacting half the quarter. The growth rates we have heard for April are substantially higher, with Best Buy (BBY, SB1) calling out better than 300%growth that month, and we have heard that some retailers broke 400%. The most interesting thing to note here is that digital growth tends to remain elevated even after stores re-open. Not in the400% range, but at a much higher level than growth was pre-COVID. Nike (NKE, MO2) called out that it was seeing triple-digit digital growth in China even after 80% of all their stores had reopened.

Next is consolidation. Consolidation has been happening in retail for the last several years, and Target (TGT, SB1) has been one of the better retailers at winning, as measured by the best trafficincreases in company history for the last few years, and that was even before COVID happened. COVID is likely to create a lot of bankruptcies or a lot of zombie retailers. To put this in perspective,Sears has been a zombie retailer for 20 years, and, even up until COVID, it still provided market share gains every year to other retailers. Just from a digital perspective, Target’s digital businesswas up 140% in 1Q20 and Kohl's (KSS, not covered) was only up slightly more than 20%. That is one form of consolidation. But the trend we think many people miss is that there is likely goingto be a consolidation of shopping trips. That means mono-product retailers are going to have a tougher time going forward even if they are outstanding. Target is a multi-product retailer so itcan generate enough gravitas to get a consumer out of their home to physically go to a store. We believe a retailer needs to be Lululemon Athletica (LULU, SB1) good as a mono-product retailerto get people to physically visit your store in today’s digital world.

CONVENIENCE STORE INDUSTRYBobby Griffin, (727) 567-2546, [email protected]

For the convenience store industry, there are a couple of important trends to pay attention to in a post-COVID-19 world. One is the longevity of “work from home” (WFH) and how this trendwill impact traffic. Although the vast majority of states have re-opened in some capacity, fuel volumes sold by the convenience store still remain under notable pressure (the latest figures stillshow a ~27% y/y decline per OPIS) compared to pre-COVID-19 levels. This likely indicates WFH is still in effect for a large group of the population and consumers are still being selective abouttheir shopping trips (see consolidation details above). The potential for incremental traffic pressure (versus pre-COVID-19 trends) would likely only further pressure the smaller operators andaccelerate industry consolidation. Recall, the U.S. c-store industry (~153k total stores) is highly fragmented with roughly two-thirds of the industry operating less than 10 store chains. The otherquestion is on fuel margins and whether the potential for ongoing traffic pressure will accelerate the upward trend in margins that has persisted over the last decade.

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RESTAURANTSBrian M. Vaccaro, (404) 442-5866, [email protected]

Restaurants, especially within the full-service segment, have been among the most significantly impacted industries during the COVID-19 pandemic. Management teams have had to navigateseismic and unprecedented shifts in business conditions over a very short time period, shifting to an off-premise only model in the early days of the crisis (late March/early April), followed bygradually re-opening dining rooms only a few weeks later (early May). The pandemic has also 1) served to accelerate secular shifts in consumer behavior that had been gaining momentumin recent years (e.g. increased off-premise sales, adoption of digital ordering/loyalty programs); and 2) had an uneven impact across segments and day-parts (fine dining and breakfast mostnegatively impacted).

Off-Premise

During the pandemic, off-premise sales surged for many full-service concepts (many 3-5x pre-COVID levels, some replacing 50-60% of pre-COVID sales volumes), providing an important lifelinefor many chains as dining rooms were closed. Importantly, we believe there has been significant new customer trial of full-service to-go options during this period (including family meal packsand the like), which will likely result in a sustained level of higher off-premise sales in a post-COVID world. For perspective, full-service concepts typically generated 10-15% of sales via off-premisein a pre-COVID world; we could see that percentage potentially doubling on a sustained basis in a post-COVID, social distancing environment. As one would expect, brands focused primarilyon off-premise occasions have seen sharp increases in sales during the pandemic, with quick-service restaurant (QSR) pizza concepts and Wingstop (WING, MP3) seeing comp gains of 20-35%y/y in recent months.

Digital Adoption/Customer Loyalty

Brands with established digital strategies (apps, ordering capabilities, marketing, etc.) have excelled during the pandemic as customers sought familiar favorites with convenience and safetytop of mind. Chipotle (CMG, MP3) and Wingstop have been among the biggest beneficiaries of these dynamics in a COVID world, each seeing digital sales mix surge to >2/3 of the overall salesmix, with Chipotle further capitalizing on the opportunity to grow its loyalty program (recently ~11.5M members, up from 8.5M in early February). We expect some, though not all, of these digitalgains to “stick” as the country continues to re-open and normalize. Companies with optimized digital channels should also be able to leverage customer data to drive deeper engagement andbrand loyalty over time.

Segment and Day-Part Implications

During the pandemic, we have seen a notable divergence in day-part performance with the breakfast and late-night occasions impacted most negatively. With many consumers' morningcommutes temporarily suspended and breakfast cuisine perceived to be relatively more replaceable, and without active nightlife or entertainment, these two segments have been particularlychallenged. That said, the scope of the pandemic's impact has been broad and felt across all dining occasions.

Fine Dining

From an industry segment perspective, fine dining has seen some of the most precipitous declines with business travel largely ceasing and full-service experiential dining generally suffering (highend down mid-80’s in April). While we expect a recovery in the segment, going forward, we acknowledge the potential for greater longer-term remote work and reduced business travel couldweigh on the sales trends of these concepts. That said, we believe the industry could see some level of offsetting supply rationalization led by independents as weaker players exit the industryfollowing this challenging period. Moreover, if the impact of COVID-19 dissipates (either via vaccine or achieving herd immunity), we would expect demand to eventually normalize, as we believeconsumers value the experiential value proposition offered by the fine dining category.

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ENERGYPavel Molchanov, (713) 278-5270, [email protected]

John Freeman, (713) 278-5251, [email protected]

Justin Jenkins, (713) 278-5258, [email protected]

Praveen Narra, (713) 278-5288, [email protected]

J.R. Weston, (713) 278-5276, [email protected]

The “new normal” in energy: less oil demand overall, though varying by fuel, and mostly a non-event for electric power.

As travel patterns adapt to the post-crisis landscape, there will be medium- and long-term impacts on oil demand. Let’s first look at ground transport. As most people resume going to work orschool, gasoline demand in North America and China, and diesel demand in Europe, should be the fastest to recover to a large extent. This includes not only personal vehicles but also buses andtaxis (subways and light rail systems are irrelevant for oil demand because they are electrified). However, recovery will not be 100% anytime soon given the increased popularity of work-from-home/learn-from-home. The partial offset to this will be a shift away from urban public transit towards the perceived safety of personal vehicles. Also, ground transport will likely get a boost fromsome leisure travelers choosing to drive themselves over intermediate distances (500 to 1,000 miles), or take an intercity bus or train, rather than fly. Putting everything together, we forecast thatglobal vehicle fuel consumption in 2021 will be impacted by 1.6 million bpd (or 3%) versus pre-COVID levels, all else held constant, with the impact decreasing to 400,000 bpd in 2022.

Compared to vehicle fuel, jet fuel will be much more affected, in absolute terms and especially on a percentage basis. Social distancing is inherently difficult – perhaps impossible – in a mode oftransportation that has been designed to cram in as many people as possible. A subset of the public will simply refuse to get on planes until they get vaccinated, thereby diminishing leisure travelby air. This includes leisure travel to major events (e.g., sports), some of which will be postponed for an indefinite period, even after economic re-opening is otherwise complete. Also includedis the impact of unemployment, i.e. some people might want to fly but cannot afford it. Similarly, some amount of business travel will not come back. Having learned how to use Zoom, Webex,etc., those of us in the financial sector and business more broadly will be able to keep using that tool to replace a portion of business trips. The same applies to conference planning: some events,having gone virtual, will stay virtual. We forecast that jet fuel consumption in 2021 will be impacted by 2.0 million bpd (or 25%) versus pre-COVID levels, all else held constant, with the impactdecreasing to 800,000 bpd in 2022.

As it relates to electric power, the pandemic’s immediate impact has been muted, and the long-term read-through should be negligible. Residential power demand is fundamentally non-cyclical;people need to run their air conditioning, household appliances, etc. regardless of the personal or macroeconomic situation. The commercial and industrial segments of the power market areeconomically sensitive – industrial more so than commercial – but as the post-COVID recession subsides, power demand at retail stores, factories, etc. will substantially come back. While fewerpeople will work from offices, that should be largely offset by a boost in residential power demand, since a computer consumes the same amount of power regardless of where it is located.Similarly, the electricity mix will be minimally affected on a long-term basis. Globally, coal is losing share; non-hydro renewables (wind and solar) are gaining share, and for natural gas thetrajectory varies from region to region. All of these are structural trends that reflect underlying power sector fundamentals.

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Company CitationsCompany Name Ticker Exchange Closing Price RJ Rating RJ EntityAbbott Laboratories ABT NYSE $89.62 MO2 Raymond James & AssociatesAcushnet Holdings Corp. GOLF NYSE $33.88 MP3 Raymond James & AssociatesAkamai Technologies, Inc. AKAM NASDAQ $102.89 MO2 Raymond James & AssociatesAlarm.com Holdings, Inc. ALRM NASDAQ $64.91 SB1 Raymond James & AssociatesAllison Transmission Holdings, Inc. ALSN NYSE $35.32 SB1 Raymond James & AssociatesAltice USA, Inc. ATUS NYSE $23.28 SB1 Raymond James & AssociatesAmazon.com, Inc. AMZN NASDAQ $2,754.58 MO2 Raymond James & AssociatesAmedisys, Inc. AMED NASDAQ $198.65 MO2 Raymond James & AssociatesAmerican Homes 4 Rent AMH NYSE $27.35 SB1 Raymond James & AssociatesArbor Realty Trust, Inc. ABR NYSE $10.08 MO2 Raymond James & AssociatesArthur J. Gallagher & Co. AJG NYSE $97.28 SB1 Raymond James & AssociatesAT&T Inc. T NYSE $29.72 MP3 Raymond James & AssociatesAtlantic Union Bankshares Corporation AUB NASDAQ $22.89 MP3 Raymond James & AssociatesAtlassian TEAM NASDAQ $180.36 MP3 Raymond James & AssociatesBancorpSouth Bank BXS NYSE $22.27 MP3 Raymond James & AssociatesBanner Corporation BANR NASDAQ $35.99 MO2 Raymond James & AssociatesBeacon Roofing Supply, Inc. BECN NASDAQ $26.20 MP3 Raymond James & AssociatesBest Buy Co., Inc. BBY NYSE $84.71 SB1 Raymond James & AssociatesBioTelemetry, Inc. BEAT NASDAQ $44.95 MP3 Raymond James & AssociatesBox, Inc. BOX NYSE $20.95 MO2 Raymond James & AssociatesBroadmark Realty Capital Inc. BRMK NYSE $10.15 MO2 Raymond James & AssociatesBrunswick Corporation BC NYSE $63.97 MO2 Raymond James & AssociatesCable One, Inc. CABO NYSE $1,747.20 MP3 Raymond James & AssociatesCallaway Golf Company ELY NYSE $16.76 MO2 Raymond James & AssociatesCasella Waste Systems, Inc. CWST NASDAQ $49.74 SB1 Raymond James & AssociatesCBRE Group, Inc. CBRE NYSE $43.52 MO2 Raymond James & AssociatesCenturyLink, Inc. CTL NYSE $10.04 MU4 Raymond James & AssociatesCharter Communications, Inc. CHTR NASDAQ $510.02 MO2 Raymond James & AssociatesChegg, Inc. CHGG NYSE $64.95 MO2 Raymond James & AssociatesChewy, Inc. CHWY NYSE $49.44 MP3 Raymond James & AssociatesChipotle Mexican Grill, Inc. CMG NYSE $1,048.90 MP3 Raymond James & AssociatesCiena Corporation CIEN NYSE $53.36 MO2 Raymond James & AssociatesCigna Corporation CI NYSE $185.48 SB1 Raymond James & AssociatesCisco Systems, Inc. CSCO NASDAQ $45.22 MO2 Raymond James & AssociatesCitrix Systems, Inc. CTXS NASDAQ $140.89 MO2 Raymond James & AssociatesCogent Communications Holdings, Inc. CCOI NASDAQ $79.04 MU4 Raymond James & AssociatesComcast Corporation CMCSA NASDAQ $38.57 MP3 Raymond James & AssociatesCommScope Holding Company, Inc. COMM NASDAQ $8.51 MO2 Raymond James & AssociatesCommunity Bank System, Inc. CBU NYSE $55.13 MP3 Raymond James & AssociatesConstruction Partners, Inc. ROAD NASDAQ $17.51 MO2 Raymond James & AssociatesCoreSite Realty Corporation COR NYSE $120.19 MP3 Raymond James & Associates

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Covetrus, Inc. CVET NASDAQ $19.27 MO2 Raymond James & AssociatesCubeSmart CUBE NYSE $26.96 MO2 Raymond James & AssociatesCubic Corporation CUB NYSE $46.91 SB1 Raymond James & AssociatesCVB Financial Corp. CVBF NASDAQ $18.14 MP3 Raymond James & AssociatesCVS Health Corporation CVS NYSE $64.02 SB1 Raymond James & AssociatesCyrusOne Inc. CONE NASDAQ $76.27 MO2 Raymond James & AssociatesDexCom, Inc. DXCM NASDAQ $398.09 MO2 Raymond James & AssociatesDigital Realty Trust, Inc. DLR NYSE $143.07 MP3 Raymond James & AssociatesDISH Network Corporation DISH NASDAQ $33.87 SB1 Raymond James & AssociatesE*TRADE Financial Corporation ETFC NASDAQ $50.26 MP3 Raymond James & AssociatesEagle Materials Inc. EXP NYSE $70.37 MO2 Raymond James & AssociatesEchoStar Corporation SATS NASDAQ $27.63 SB1 Raymond James & AssociateseHealth, Inc. EHTH NASDAQ $100.55 MO2 Raymond James & AssociatesEnterprise Financial Services Corp. EFSC NASDAQ $30.48 MO2 Raymond James & AssociatesEquinix, Inc. EQIX NASDAQ $696.84 MP3 Raymond James & AssociatesExtra Space Storage Inc. EXR NYSE $91.79 MU4 Raymond James & AssociatesFacebook, Inc. FB NASDAQ $235.68 SB1 Raymond James & AssociatesFastly, Inc. FSLY NYSE $81.67 MP3 Raymond James & AssociatesFedEx Corporation FDX NYSE $136.11 MO2 Raymond James & AssociatesFirst Foundation Inc. FFWM NASDAQ $15.36 MO2 Raymond James & AssociatesFirst Mid Bancshares, Inc. FMBH NASDAQ $24.49 MP3 Raymond James & AssociatesFLIR Systems, Inc. FLIR NASDAQ $39.80 SB1 Raymond James & AssociatesForward Air Corporation FWRD NASDAQ $47.64 MP3 Raymond James & AssociatesFoundation Building Materials, Inc. FBM NYSE $15.48 SB1 Raymond James & AssociatesGilead Sciences, Inc. GILD NASDAQ $75.49 MP3 Raymond James & AssociatesGlacier Bancorp, Inc. GBCI NASDAQ $34.83 MP3 Raymond James & AssociatesGMS Inc. GMS NYSE $24.21 SB1 Raymond James & AssociatesGoDaddy Inc. GDDY NYSE $74.79 MO2 Raymond James & AssociatesGrubHub Inc. GRUB NYSE $68.95 MP3 Raymond James & AssociatesHarmonic Inc. HLIT NASDAQ $4.67 MO2 Raymond James & AssociatesHealthcare Realty Trust Incorporated HR NYSE $29.83 MO2 Raymond James & AssociatesHealthcare Trust of America, Inc. HTA NYSE $26.82 MP3 Raymond James & AssociatesHealth Catalyst, Inc. HCAT NASDAQ $31.06 SB1 Raymond James & AssociatesHologic, Inc. HOLX NASDAQ $54.57 MO2 Raymond James & AssociatesInvitation Homes Inc. INVH NYSE $27.81 SB1 Raymond James & AssociatesJ.B. Hunt Transport Services, Inc. JBHT NASDAQ $118.39 MO2 Raymond James & AssociatesJernigan Capital, Inc. JCAP NYSE $13.14 MP3 Raymond James & AssociatesJohnson & Johnson JNJ NYSE $139.67 MO2 Raymond James & AssociatesJones Lang LaSalle Incorporated JLL NYSE $101.03 MO2 Raymond James & AssociatesJuniper Networks, Inc. JNPR NYSE $22.26 MO2 Raymond James & AssociatesKB Home KBH NYSE $29.38 SB1 Raymond James & AssociatesKemper Corporation KMPR NYSE $71.96 SB1 Raymond James & AssociatesLadder Capital Corp LADR NYSE $7.83 SB1 Raymond James & Associates

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Life Storage, Inc. LSI NYSE $92.73 MP3 Raymond James & AssociatesLimelight Networks, Inc. LLNW NASDAQ $7.45 MO2 Raymond James & Associateslululemon athletica inc. LULU NASDAQ $295.13 SB1 Raymond James & AssociatesM.D.C. Holdings, Inc. MDC NYSE $33.08 SB1 Raymond James & AssociatesMalibu Boats, Inc. MBUU NASDAQ $50.07 MO2 Raymond James & AssociatesMarineMax, Inc. HZO NYSE $21.64 MO2 Raymond James & AssociatesMasco Corporation MAS NYSE $48.70 MP3 Raymond James & AssociatesMastercard, Inc. MA NYSE $298.01 MO2 Raymond James & AssociatesMasterCraft Boat Holdings, Inc. MCFT NASDAQ $19.00 MO2 Raymond James & AssociatesMicrosoft Corporation MSFT NASDAQ $200.34 SB1 Raymond James & AssociatesMohawk Industries, Inc. MHK NYSE $98.36 MO2 Raymond James & AssociatesMoody's Corporation MCO NYSE $276.17 MP3 Raymond James & AssociatesMSCI Inc. MSCI NYSE $342.17 MP3 Raymond James & AssociatesNavistar International Corporation NAV NYSE $26.12 MP3 Raymond James & AssociatesNETGEAR, Inc. NTGR NASDAQ $24.75 MO2 Raymond James & AssociatesNewmark Group, Inc. NMRK NASDAQ $4.75 MO2 Raymond James & AssociatesNexPoint Real Estate Finance, Inc. NREF NYSE $16.59 SB1 Raymond James & AssociatesNexPoint Residential Trust, Inc. NXRT NYSE $33.33 SB1 Raymond James & AssociatesNIC Inc. EGOV NASDAQ $22.62 SB1 Raymond James & AssociatesNIKE, Inc. NKE NYSE $101.40 MO2 Raymond James & AssociatesNokia Corporation NOK NYSE $4.45 SB1 Raymond James & AssociatesOceanFirst Financial Corp. OCFC NASDAQ $16.76 SB1 Raymond James & AssociatesOneWater Marine Inc. ONEW NASDAQ $23.08 MO2 Raymond James & AssociatesPayPal Holdings, Inc. PYPL NASDAQ $172.50 MO2 Raymond James & AssociatesPeloton Interactive, Inc. PTON NASDAQ $58.06 MO2 Raymond James & AssociatesPetIQ, Inc. PETQ NASDAQ $34.42 MO2 Raymond James & AssociatesPhreesia, Inc. PHR NYSE $28.07 MO2 Raymond James & AssociatesPhysicians Realty Trust DOC NYSE $17.46 MO2 Raymond James & AssociatesPublic Storage PSA NYSE $191.03 MP3 Raymond James & AssociatesQTS Realty Trust, Inc. QTS NYSE $65.06 MP3 Raymond James & AssociatesRadNet, Inc. RDNT NASDAQ $14.89 MO2 Raymond James & AssociatesRedwood Trust, Inc. RWT NYSE $6.83 MO2 Raymond James & AssociatesRingCentral, Inc. RNG NYSE $279.48 SB1 Raymond James & AssociatesS&P Global Inc. SPGI NYSE $327.82 MP3 Raymond James & AssociatesSBA Communications Corporation SBAC NASDAQ $289.29 MO2 Raymond James & AssociatesSeacoast Banking Corporation of Florida SBCF NASDAQ $20.23 MO2 Raymond James & AssociatesShenandoah Telecommunications Company SHEN NASDAQ $52.15 MP3 Raymond James & AssociatesStanley Black & Decker, Inc. SWK NYSE $135.59 MP3 Raymond James & AssociatesSwitch, Inc. SWCH NYSE $18.63 SB1 Raymond James & AssociatesTarget Corporation TGT NYSE $119.81 SB1 Raymond James & AssociatesTD Ameritrade Holding Corporation AMTD NASDAQ $36.75 MP3 Raymond James & AssociatesTelephone and Data Systems, Inc. TDS NYSE $19.72 SB1 Raymond James & AssociatesThe Allstate Corporation ALL NYSE $95.83 SB1 Raymond James & Associates

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The Charles Schwab Corporation SCHW NYSE $34.08 MP3 Raymond James & AssociatesThe Progressive Corporation PGR NYSE $79.90 SB1 Raymond James & AssociatesT-Mobile US Inc. TMUS NASDAQ $110.19 MO2 Raymond James & AssociatesUber Technologies, Inc. UBER NYSE $30.58 SUnited Bankshares, Inc. UBSI NASDAQ $27.03 MP3 Raymond James & AssociatesUnited Community Banks, Inc. UCBI NASDAQ $19.36 MP3 Raymond James & AssociatesUnitedHealth Group Incorporated UNH NYSE $296.22 SB1 Raymond James & AssociatesUnited Parcel Service, Inc. UPS NYSE $110.52 SB1 Raymond James & AssociatesUniti Group Inc. UNIT NASDAQ $8.88 SB1 Raymond James & AssociatesVelocity Financial, Inc. VEL NYSE $4.00 MO2 Raymond James & AssociatesVerizon Communications Inc. VZ NYSE $54.28 MO2 Raymond James & AssociatesViaSat, Inc. VSAT NASDAQ $38.58 MO2 Raymond James & AssociatesVisa Inc. V NYSE $193.98 MO2 Raymond James & AssociatesVMware, Inc. VMW NYSE $149.45 MO2 Raymond James & AssociatesWaste Connections, Inc. WCN NYSE $91.26 SB1 Raymond James & AssociatesWayfair, Inc. W NYSE $205.12 MP3 Raymond James & AssociatesWhirlpool Corporation WHR NYSE $124.30 MP3 Raymond James & AssociatesWideOpenWest, Inc. WOW NYSE $6.04 MP3 Raymond James & AssociatesWillis Towers Watson Public LimitedCompany

WLTW NASDAQ $199.31 MO2 Raymond James & Associates

Wingstop Inc. WING NASDAQ $138.71 MP3 Raymond James & AssociatesWintrust Financial Corporation WTFC NASDAQ $43.84 SB1 Raymond James & AssociatesWix.com Ltd. WIX NASDAQ $253.70 MO2 Raymond James & AssociatesXPO Logistics, Inc. XPO NYSE $75.69 MO2 Raymond James & AssociatesPrices�are�as�of�the�most�recent�close�on�the�indicated�exchange.�See�Disclosure�section�for�rating�definitions.�Stocks�that�do�not�trade�on�a�U.S.�national�exchange�may�not�be�registered�forsale�in�all�U.S.�states.�NC=not�covered.

IMPORTANT INVESTOR DISCLOSURESRaymond James & Associates (RJA) is a FINRA member firm and is responsible for the preparation and distribution of research created in the United States. Raymond James & Associates islocated at The Raymond James Financial Center, 880 Carillon Parkway, St. Petersburg, FL 33716, (727) 567-1000. Non-U.S. affiliates, which are not FINRA member firms, include the followingentities that are responsible for the creation or distribution of research in their respective areas: in Canada, Raymond James Ltd. (RJL), Suite 2100, 925 West Georgia Street, Vancouver, BC V6C3L2, (604) 659-8200; in Europe, Raymond James Euro Equities SAS (also trading as Raymond James International), 45 Avenue George V, 75008, Paris, France, +33 1 45 64 0500 and Raymond JamesFinancial International Ltd., Ropemaker Place, 25 Ropemaker Street, London, England, EC2Y 9LY , +44 203 798 5600.

This document is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country or other jurisdiction wheresuch distribution, publication, availability or use would be contrary to law or regulation. The securities discussed in this document may not be eligible for sale in some jurisdictions. This research isnot an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or takeinto account the particular investment objectives, financial situations, or needs of individual clients. Past performance is not a guide to future performance, future returns are not guaranteed,and a loss of original capital may occur. Investors should consider this report as only a single factor in making their investment decision.

For clients in the United States: Any foreign securities discussed in this report are generally not eligible for sale in the U.S. unless they are listed on a U.S. exchange. This report is being providedto you for informational purposes only and does not represent a solicitation for the purchase or sale of a security in any state where such a solicitation would be illegal. Investing in securitiesof issuers organized outside of the U.S., including ADRs, may entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting requirements of,

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the U.S., including ADRs, may entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting requirements of, the U.S. Securities and ExchangeCommission. There may be limited information available on such securities mentioned in this report. Please ask your Financial Advisor for additional details and to determine if a particularsecurity is eligible for purchase in your state.

The information provided is as of the date above and subject to change, and it should not be deemed a recommendation to buy or sell any security. Certain information has been obtained fromthird-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. Persons within the Raymond James family of companies may have informationthat is not available to the contributors of the information contained in this publication. Raymond James, including affiliates and employees, may execute transactions in the securities listed inthis publication that may not be consistent with the ratings appearing in this publication.

Raymond James ("RJ") research reports are disseminated and available to RJ's retail and institutional clients simultaneously via electronic publication to RJ's internal proprietary websites (RJClient Access & RaymondJames.com). Not all research reports are directly distributed to clients or third-party aggregators. Certain research reports may only be disseminated on RJ's internalProprietary websites; however, such research reports will not contain estimates or changes to earnings forecasts, target price, valuation or investment or suitability rating. Individual ResearchAnalysts may also opt to circulate published research to one or more clients electronically. This electronic communication is discretionary and is done only after the research has been publicallydisseminated via RJ's internal factors including, but not limited to, the client's individual preference as to the frequency and manner of receiving communications from Research Analysts. Forresearch reports, models, or other data available on a particular security, please contact your Sales Representative or visit RJ Client Access or RaymondJames.com.

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Analysts Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonusdetermination, including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail andinstitutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity andrevenue generated in covered stocks.

The analysts Tavis C. McCourt, Ed Mills and Chris Meekins, primarily responsible for the preparation of this research report, attest to the following: (1) that the views and opinionsrendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst’s compensation was, is, or will bedirectly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject companyin the last 12 months.

Ratings and DefinitionsRaymond James & Associates (U.S.) definitions: Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and outperform the S&P 500 over the next six to 12 months.For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected toappreciate and outperform the S&P 500 over the next 12-18 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, an Outperform rating is used for securitieswhere we are comfortable with the relative safety of the dividend and expect a total return modestly exceeding the dividend yield over the next 12-18 months. Market Perform (MP3) Expectedto perform generally in line with the S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12 months and should besold. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicableregulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are

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no longer in effect for this security and should not be relied upon.

Raymond James Ltd. (Canada) definitions: Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least 15% and outperform the S&P/TSX Composite Index overthe next six months. Outperform (MO2) The stock is expected to appreciate and outperform the S&P/TSX Composite Index over the next twelve months. Market Perform (MP3) The stock isexpected to perform generally in line with the S&P/TSX Composite Index over the next twelve months and is potentially a source of funds for more highly rated securities. Underperform (MU4)The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next six to twelve months and should be sold. Suspended (S) The rating and price target have beensuspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, includingwhen Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon.

In transacting in any security, investors should be aware that other securities in the Raymond James research coverage universe might carry a higher or lower rating. Investors should feel freeto contact their Financial Advisor to discuss the merits of other available investments.

Coverage Universe Rating Distribution* Investment Banking Relationships

RJA RJL RJA RJL

Strong Buy and Outperform (Buy)Market Perform (Hold)Underperform (Sell)

55% 56%41% 35%4% 9%

21% 25%14% 10%3% 0%

*�Columns�may�not�add�to�100%�due�to�rounding.

Suitability Ratings (SR)

Medium Risk/Income (M/INC) Lower to average risk equities of companies with sound financials, consistent earnings, and dividend yields above that of the S&P 500. Many securities in thiscategory are structured with a focus on providing a consistent dividend or return of capital.

Medium Risk/Growth (M/GRW) Lower to average risk equities of companies with sound financials, consistent earnings growth, the potential for long-term price appreciation, a potential dividendyield, and/or share repurchase program.

High Risk/Income (H/INC) Medium to higher risk equities of companies that are structured with a focus on providing a meaningful dividend but may face less predictable earnings (or losses),more leveraged balance sheets, rapidly changing market dynamics, financial and competitive issues, higher price volatility (beta), and potential risk of principal. Securities of companies in thiscategory may have a less predictable income stream from dividends or distributions of capital.

High Risk/Growth (H/GRW) Medium to higher risk equities of companies in fast growing and competitive industries, with less predictable earnings (or losses), more leveraged balance sheets,rapidly changing market dynamics, financial or legal issues, higher price volatility (beta), and potential risk of principal.

High Risk/Speculation (H/SPEC) High risk equities of companies with a short or unprofitable operating history, limited or less predictable revenues, very high risk associated with success,significant financial or legal issues, or a substantial risk/loss of principal.

Stock Charts, Target Prices, and Valuation MethodologiesValuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and quantitative factors, including an assessment of industrysize, structure, business trends, and overall attractiveness; management effectiveness; competition; visibility; financial condition; and expected total return, among other factors. These factorsare subject to change depending on overall economic conditions or industry- or company-specific occurrences.

Target Prices: The information below indicates our target price and rating changes for the subject companies over the past three years.

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Risk FactorsGeneral Risk Factors: Following are some general risk factors that pertain to the business of the subject companies and the projected target prices and recommendations included on RaymondJames research: (1) Industry fundamentals with respect to customer demand or product/service pricing could change and adversely impact expected revenues and earnings; (2) Issues relating tomajor competitors or market shares or new product expectations could change investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management,financial condition or accounting policies or practices could alter the prospective valuation; or (4) External factors that affect the U.S. economy, interest rates, the U.S. dollar or major segments ofthe economy could alter investor confidence and investment prospects. International investments involve additional risks such as currency fluctuations, differing financial accounting standards,and possible political and economic instability.

Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available at raymondjames.bluematrix.com/sellside/Disclosures.action. Copies of research or Raymond James' summary policies relating to research analyst independence can be obtained by contacting any Raymond James &Associates or Raymond James Financial Services office (please see RaymondJames.com for office locations) or by calling 727-567-1000, toll free 800-237-5643.

International DisclosuresFor�clients�in�the�United�Kingdom:

For clients of Raymond James Financial International Limited (RJFI): This document and any investment to which this document relates is intended for the sole use of the persons to whom itis addressed, being persons who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (high networth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended)or any other person to whom this promotionmay lawfully be directed. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, notintended for private individuals or those who would be classified as Retail Clients.

For clients of Raymond James Investment Services, Ltd.: This report is for the use of professional investment advisers and managers and is not intended for use by clients.

For purposes of the Financial Conduct Authority requirements, this research report is classified as independent with respect to conflict of interest management. RJFI, and Raymond JamesInvestment Services, Ltd. are authorised and regulated by the Financial Conduct Authority in the United Kingdom.

For�clients�in�France:

This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or ProfessionalClients as described in "Code Monetaire et Financier" and Reglement General de l'Autorite des marches Financiers. It is not intended to be distributed or passed on, directly or indirectly, to anyother class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.

For clients of Raymond James Euro Equities: Raymond James Euro Equities is authorised and regulated by the Autorite de Controle Prudentiel et de Resolution and the Autorite des MarchesFinanciers.

For�institutional�clients�in�the�European�Economic��rea�(EE�)�outside�of�the�United�Kingdom:

This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted.

For�Canadian�clients:

This report is not prepared subject to Canadian disclosure requirements, unless a Canadian analyst has contributed to the content of the report. In the case where there is Canadian analystcontribution, the report meets all applicable IIROC disclosure requirements.

For Recipients in Brazil:

This is a strictly privileged and confidential communication between Raymond James & Associates and its selected clients. This communication contains information addressed only to specific

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individuals in Brazil and is not intended for distribution to, or use by, any person other than the named addressee. This communication (i) is provided for informational purposes only, (ii) shouldnot be construed in any manner as any solicitation or offer to buy or sell any investment opportunities or any related financial instruments, and (iii) should not be construed in any manner as apublic offer of any investment opportunities or any related financial instruments. If you are not the named addressee, you should not disseminate, distribute or copy this communication. Pleasenotify the sender immediately if you have mistakenly received this communication.

The investments analyzed in this report may not be offered or sold to the public in Brazil. Accordingly, the investments in this report have not been and will not be registered with the BrazilianSecurities and Exchange Commission (Comissão de Valores Mobiliários, the “CVM”), nor have they been submitted to the foregoing agency for approval. Documents relating to the investmentsin this report, as well as the information contained therein, may not be: (i) supplied to the public in Brazil, as the offering of investment products is not a public offering of securities in Brazil; nor(ii) used in connection with any offer for subscription or sale of securities to the public in Brazil.

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