Analyst note on SVB Financial Group and Texas Instruments citing macro catalysts and tax reform

significant credit issues for the banks as weaker firms (who are clients) will be better positioned to sell themselves to the tech behemoths looking for innovative ideas. Catalysts: 1) Improving expectations around rising rates (on back of better macro- economic data) will continue to serve as a tailwind for the stock 2) A strong tech IPO market — as SIVB stands to benefit from equity exposure to 1000+ start-up companies 3) Clarity around a tax reform bill once the new administration takes office in January should lead to the markets pricing-in a lift to forward EPS and 4) updated 2017 guidance could reflect a stronger outlook vs. management’s preliminary guidance provided in Oct 2016. Latest report: On its way to regaining its premium multiple 1Q risks: Downside risks are 1) reversal in the outlook for higher rates 2) a sharp sell- off in the equity markets that could derail IPO activity and 3) disappointment on the pace of policy actions under the new administration. Company Description: SVB Financial Group is a financial holding company that serves companies in the technology, life science, venture capital, private equity and premium wine industries. The bank offers diversified financial services such as commercial, investment, international and private banking. Headquartered in Santa Clara, California, SVB Financial Group (Nasdaq: SIVB) operates through offices in the U.S. and international operations in China, India, Israel and the United Kingdom. Texas Instruments (TXN) Vivek Arya +1 646 855 1755 Research Analyst, MLPF&S Buy, PO $82 1Q investment thesis In the aftermath of the US election in November, we think Texas Instruments stands to benefit the most with its 30% effective tax rate and high exposure to industrial, automotive, automation, and communications capex. The company has been one of the largest share gainers in industrial/auto semis entering a seasonally strong period for spending. Unlike peers, Texas instruments has no distraction from M&A while maintaining a grossly under-levered balance sheet (<0.1x net debt/EBITDA vs comps at 2x-4x). We expect TXN to continue to generate industry leading FCF while growing its dividend at 20%+ CAGR. We look toward the strategy update call in early February as the next catalyst for the stock. Table 1: Texas Instruments key stock data Industry Semiconductors Market Cap (mn) $73,899 Price $74.15 P/E (2017) 20.1x % of sell-side rated Buy 35.3% Short interest % of float 1.75% Source: Bloomberg and BofA Merrill Lynch Global Research estimates Deregulation/Gov't Legislation: 60% of TXN’s sales are exposed to the industrial, automotive, and communications equipment end markets. We think these markets could Bankof America <> Merrill Lynch Top 10 US Ideas Quarterly | 03 January 2017) 13 HOUSE_OVERSIGHT_014634