The document discusses economically sensitive stocks that may perform well in the current economic environment of slow, mid-cycle growth. It highlights top stock picks from the industrial, business services, and consumer sectors that have compelling risk/reward profiles given slowing macroeconomic indicators but continued reliance on upper-income consumers. Analysts believe the global economy is transitioning from early to middle stage of the business cycle and see opportunities in longer-cycle projects, construction, and companies with aftermarket revenues.

1. June 21, 2011 Baird Equity Research
Baird
Economically Sensitive Investing in a Slow, Mid-Cycle Growth Environment
While acknowledging recent fears of a significant macroeconomic slowdown, Baird’s
Industrial, Business Services and Consumer analysts generally agree that the global
economy is transitioning from early cycle to the lower-growth middle stage of the
business cycle. As such, we see multiple ways to invest across these economically
sensitive end-markets. In this research report, we highlight our top Industrial, Services,
and Consumer stocks that possess compelling risk/rewards amid the current
slow-growth, mid-cycle environment.
s Slowdown or downturn? While macroeconomic risks have been building (starting
with the end of QE2 and ending with uncertainties surrounding the Greek debt crisis),
our analysts largely agree that the current environment appears to be indicative of a
shift to lower levels of growth observed during the middle portion of an economic
cycle, with the sharp pullback in economic indicators influenced by supply chain
disruptions related to the Japan earthquake.
s Uncomfortably soft labor market. The BLS Employment Report showed a slowdown
in Nonfarm payroll growth from +232k in April to +54k in May, confirmed by the ADP
Report, which showed private sector employment growth slowing from +177k in April
to +38k in May. Furthermore, the 4-week moving average of Initial Jobless Claims has
risen solidly above the sub-400k level observed 1-2 months ago. Of note, while initial
jobless claims rise preceding and during recessions, they have also historically risen
during prior mid-cycle slowdowns.
s Continued reliance on the upper-income consumer. Employment for college
graduates has increased on a y/y basis for 18 of the 20 last months, while employment
for non-graduates has decreased for 17 of those 20 months. The above labor
dynamics coupled with higher gas prices favor companies catering to upper income
consumers.
s The Industrial Cycle: what’s different this time? Behavior of key industrial sub-sectors
during the current recovery has differed from prior cycles, particularly as construction
activity has remained disengaged. Residential construction has lagged (historically one
of the earlier sectors to rebound), while traditional later-cycle areas such as mining
activity and natural resource extraction related equipment, have recovered more
quickly than typical. Still, the current industrial up-cycle is relatively young measured
by historical standards such as months of Y/Y IP growth.
Document structure: the current note presents Top Ideas (page 2), Macro commentary
(pages 3-8) and Sector-Specific comments (pages 9-42).
[ Please refer to Appendix
- Important Disclosures
and Analyst Certification ]
Team Baird Research
www.rwbaird.com

2. June 21, 2011 | Baird
Details
Price Current Price
Target (6/20/2011) Key Investment Points
Industrials - Sector Specific commentaries pg 9 - 23
Cyclical margin and end market demand recovery plus secular growth and margin
JCI $63 $37.39 expansion opportunities
Large Late Cycle exposure, more aggressive growth strategy, achieving all of
CAT $148 $98.18 Caterpillar's targets would imply $15-20 in EPS by 2015, or roughly 3-4x the prior peak
Rising demand driven by investment in Oil & Gas infrastructure, backlog shows first
JEC $55 $41.27 sequential improvement in two years
Substantial exposure to construction markets suggests significant growth potential from
cyclical volume improvement. Cyclical growth should be leveraged by realization of
SWK $90 $68.83 acquisition synergies from the merger with Black & Decker
Mid-cycle dynamic is supportive of several key fundamental factors, with cyclical trends
increasingly positive, an improving pricing environment and acquisition activity expected to
ARG $78 $66.84 accelerate
Significant exposure to energy efficiency movement provides a secular theme and should
drive growth in excess of core industrial peers. Concerns over HVAC demand,
commodity inflation, and expiration of the high-efficiency HVAC tax credit should
RBC $95 $64.27 moderate throughout 2011
Well positioned to benefit from favorable parcel industry trends, supported by both the
FDX $117 $87.50 growing industrial environment and more rational industry pricing
Attractive aftermarket business mix, increasing penetration in emerging markets,
CLC $50 $44.72 restructured I/E segment but more margin runway available
Business Services- Sector Specific commentaries pg 24 - 32
Significant progress improving positioning into higher-margin, better secular growth sub-
sectors positions SFN for continued profitability growth assuming macro expansion
continues. Valuation attractive, especially on FCF basis with FCF/sh. regularly materially
SFN $15 $8.77 exceeding EPS.
Accelerating top-line momentum is driving margin and earnings leverage as previous
investments in sales staff have begun to pay off; a recent bond offering coupled with
enhanced alliance agreements in CTAS# higher-growth hygiene business may provide
CTAS $35 $32.29 opportunity for additional EPS upside, beyond cyclical dynamics
Mid-cycle corporate focus on organic-growth-enhancing expansion programs favors
Consulting and Offshore BPO. We think Genpact is well-positioned to benefit from this
growth # if market growth returns to pre-recession levels of 15-20%, we think 20%+
G $19 $15.70 growth at Genpact is possible (from +13% in 2011E/2012E).
Late cycle and countercyclical exposure. Roughly 55% of the business (Corporate
Finance and Restructuring at 32% and Forensic and Litigation Consulting at 23% of
revenues) is driven by financial distress in high yield borrowers as well as the litigation
and forensic accounting engagements that often follow cases of fraud or corporate
FCN $46 $36.41 malfeasance
Consumer - Sector Specific commentaries pg 33 - 42
Near-term operating momentum (supported by internal drivers, higher-income customer
PNRA $150 $119.85 demographic), healthy long-term growth prospects
Footwear momentum, 57% of revenues non-apparel thus less exposed to commodity
ZUMZ $35 $24.48 driven cost increases
Internal merchandising and execution improvement in C2H11/F2H12 would be
URBN $40 $28.97 exaggerated by continued improvement in trends for higher-income consumers
Unique needs-based merchandise offering focused on traffic-driving C.U.E. (consumable,
usable, edible) items plus strong competitive position (4x the size of its next five
competitors combined) should continue to support healthy top-line trends even in a
TSCO $74 $63.46 challenging environment
We like O'Reilly for contrarian-minded investors noting: 1) an aging vehicle population, 2)
industry consolidation, 3) CSK-related growth, 4) a heavier commercial mix, and 5)
ORLY $70 $63.00 stronger cash flow through better inventory management
Robert W. Baird & Co. 2

3. June 21, 2011 | Baird
Macro Thoughts – Industrial Perspective
From a fundamental perspective, Baird’s Industrial analysts generally agree that the global economy is
transitioning from early cycle to the middle stages of cyclical recovery. Aggregate general industrial
indicators such as industrial production and capacity utilization generally bottomed in mid-2009 and
have improved steadily since, consistent with transition to a normal cyclical expansion (albeit at lower
absolute levels relative to prior recoveries), and suggesting that industrial companies are transitioning
to more normal, “mid-cycle” growth rates.
The PMI appears to have peaked, and is now moderating from the cycle highs, while continuing to
support the prospect for additional growth. While the U.S. PMI posted a sharp sequential drop in May,
the absolute reading remains at a healthy level (53.5). New orders also remained above the 50.0 level
(while also reflecting a sharp sequential deceleration). Recent global shocks (Japan earthquake,
Middle East unrest) coupled with an increasing inflation backdrop may have had a profound impact on
this sentiment indicator. At 22 months, the current PMI up-cycle (defined as readings over >50)
remains relatively short compared to the average up-cycle of 31 months (since 1960).
Industrial Production continues to steadily improve on a y/y basis…but growth is decelerating.
Industrial production (manufacturing ex-tech) has increased +11% (May 88.0) from the cyclical bottom
in June 2009 (79.0) and now stands 13% below the prior peak (July 2007, 100.7). During the months of
May, IP increased on a y/y basis for the 15th consecutive month. In the six previous cycles going back
to the early 1970s, the average duration of growth has been 54 months, suggesting more growth lies
ahead. That being said, growth rates are moderating, as IP grew +3.4% y/y during the month of May
after increasing as rapidly as +8.3% in June 2010. Moreover, the pace of positive estimate revisions to
IP have slowed, again reinforcing our belief the ‘second derivative” is leveling.
Robert W. Baird & Co. 3

4. June 21, 2011 | Baird
Fixed capital investment is rebounding. Global fixed investment (GFI) growth turned positive in 2Q10
and averaged +5% in 2H10. GFI growth is forecasted to be approximately +5% in 2011 and+6% in
2012. GFI growth troughed at -14.5% in 2Q09 versus -4% in 1Q02. In absolute terms, GFI peaked in
4Q07 and troughed in 4Q09. The Blue Chip Economic Indicators forecast for non-residential fixed
investment is currently +7.9% and +8.2% Y/Y growth for CY11/CY12E.
The Industrial Cycle: what’s different this time? While the overall industrial cycle appears to be fairly
normal, the ways in which key industrial sub-sectors have behaved during the current recovery has
differed from prior cycles, particularly as construction activity remains disengaged. The US residential
construction market has historically been one of the earlier sectors to rebound in an economic
recovery, yet housing starts fell 20% year/year in April (to near record-low SAAR), nearly two years
after the official end of the recent recession. Although May starts improved Q/Q, the Y/Y rate was still
negative at 3.4%.
Robert W. Baird & Co. 4

5. June 21, 2011 | Baird
Indeed, the current recovery has occurred almost completely without a boost from domestic housing
markets – itself a function of the heights of the housing bubble in the mid-2000s and the subsequent
declines in home values. As a result, sales of product consumed directly in home construction have
remained weak even as areas such as construction-related-machinery have rebounded driven by
pent-up replacement demand created by the depth of the downturn.
On the other hand, traditional later-cycle areas such as mining activity and natural resource
extraction-related equipment demand, have recovered more quickly than is typical in the early stages
of an upturn, reflecting the abbreviated up-cycle during the last recovery and the tight commodity
market created by years of mining underinvestment observed since the 1980s. As an example, it took
three full years beyond the official end of the 2001 recession (2004) before new mining equipment
orders at suppliers Joy Global and Bucyrus accelerated in earnest, whereas net orders rebounded at
the same suppliers as early as the 1Q10 (and have subsequently returned to peak), just 6-9 months
after the last recession’s official end (June-09).
Mid- and late-cycle opportunities. While Baird’s Industrial analysts project economic growth will
continue, ongoing moderation in comparisons is viewed to be consistent with mid-cycle growth and as
a signal that the initial, and powerful, short-cycle recovery has largely played out. A notable exception
to the above statement can be found in Automotive, where Baird’s Automotive team projects the
industry is in the initial stages of a 4-5 year cyclical recovery in vehicle demand.
Broadly speaking, Baird’s industrial analysts are focusing on companies likely to benefit from
longer-cycle project-oriented work in later-cycle markets, such as oil & gas, mining, power and
infrastructure, particularly in resource-heavy and emerging markets. Investment recommendations
are also focused on the construction market, particularly companies with non-residential construction
exposure, 3PLs and asset-based transportation names with secular themes, as well as companies that
carry a higher aftermarket component to revenues (Filtration) that can provide defensive
characteristic and still grow sales/EPS in slower growth economy. Engineering and construction
companies also continue to see strong order activity for “front-end” (e.g., design-heavy) project work,
which bodes well for emerging later-cycle opportunities .
Macro Thoughts – Business Services Perspective
Our Business Services analysts also largely agree that the US economy is experiencing a shift towards a
mid-cycle slower-growth environment, evidenced in part by May’s economic data showing a
deceleration in the rate of US economic and labor market growth, but also by anecdotal data points
surrounding corporate budgets being directed towards the type of projects normally seen during the
mid-to-late portion of the cycle.
The Human Capital Services coverage team points out recent softness in the labor market. Notably,
the closely followed BLS Employment Report showed a slowdown in Nonfarm payroll growth from
+232k in April to +54k in May. The weakness in the BLS report was supported by the recent slowdown
in the ADP-Macroeconomic Advisors Employment Report, which showed private sector employment
growth slowing from +177k in April to +38k in May.
Some investors may note that the BLS and ADP reports have only exhibited a sharp slowdown for one
month, and the data series have historically been volatile and the recent slowdown occurred during a
period that was arguably impacted by issues that may prove to be transitory (such as supply chain
disruptions stemming from the fall-out from the Japanese natural disasters). However, our Human
Capital Services team notes that other, more leading labor market indicators have softened in recent
Robert W. Baird & Co. 5

6. June 21, 2011 | Baird
months as well, the BLS and ADP reports exhibited broad-based weakness (one-month private sector
diffusion index in BLS series fell from 65.0 in April to 53.6 in May), and other leading macroeconomic
data points (that typically lead the lagging or co-incident labor market data) have been soft as well.
For example, temporary help employment, which has typically proven to be a leading labor market
indicator, has declined slightly on a seasonally adjusted sequential basis in three of the last five
months (per the BLS Employment Report). Furthermore, the 4-wk. moving average of Initial Jobless
Claims has risen solidly above the sub-400k level observed 1-2 months ago, most recently coming in at
425.5k. For perspective, as the chart below indicates, initial jobless claims declined materially in late
2009 and early 2010 as the US economy exited the recession, similar to the early stages of prior
recoveries. Also, as illustrated by the chart below, while initial jobless claims rise preceding and during
recessions, they have also historically risen during prior mid-cycle slowdowns.
Our Facilities Services coverage team points out that in spite of a softening overall employment
picture, employment gains in uniform-wearing industry verticals are outpacing the broader economy
for the first time since late 2006/early 2007, presenting opportunities in the space.
Our BPO coverage team mentions anecdotal evidence surrounding the type of spending seen from
BPO’s client companies suggesting a mid-cycle shift as well. Broadly speaking, during the early stages
of a recovery (2009), clients normally reduce spending significantly. When spending resumed (early
2010), it was largely focused on cost efficiencies, with a short payback focus. However, more recently
client spend has shifted toward revenue-generation types of programs, including new product
introductions, customer acquisition, and geographical expansion. This is indicative of companies
focused on growth, consistent with the middle stage of the business cycle, a view also shared by the
Professional Services coverage team, which notes additionally that Regulatory and Corporate
litigation are showing early signs of growth typically seen in the mature portion of the business cycle.
Robert W. Baird & Co. 6

7. June 21, 2011 | Baird
Macro Thoughts – Consumer Perspective
The consensus view among our Consumer analysts is that we are still in the early stages of the
consumer recovery. Growth rates have moderated recently in some categories but it is unclear
whether slowing trends are a result of shorter-term factors (gas prices, weather, tougher comps) or
larger structural issues (depressed housing market, lingering unemployment). Given the relative
uncertainty, our Consumer analysts are generally focused on companies with more durable top-line
drivers (product cycle momentum, less cyclical end markets), internal profitability initiatives, and
pricing power.
Consumer macro indicators have been improving; however, they are still below pre-recession levels,
indicating potential for further upside to the recovery.
Consumer sentiment improved, but remains well below pre-recession levels. Consumer sentient
(University of Michigan) in June decreased sequentially and y/y to 71.8 (vs. 76.0), remaining above the
recession low of 56.3, but below the 20-year average of 88, and well below the 1997-2007 average of
96.
Trends favor the higher-income consumer, as employment gains for college graduates outpace
employment for non-graduates. Employment for college graduates has increased on a y/y basis for 18
of the 20 last months (+2.3% six-month average), while employment for non-graduates has decreased
for 17 of those 20 months (-0.5% six-month average). Additionally, the gap between the U6 rate and
U3 rate has averaged 7.0% over the past six months, reflecting high levels of forced part-time workers
and discouraged job seekers.
FIGURE 4: YEAR-OVER-YEAR EMPLOYMENT CHANGE
6%
4%
Trailing three months
2%
0%
-2%
Non-College Graduates
-4% College Graduates
-6%
May-05 May-06 May-07 May-08 May-09 May-10 May-11
Source: U.S. Bureau of Labor Statistics
Gas and food prices pressuring the lower-income consumer. Gasoline prices are currently trending
up +38% y/y and +21% sequentially (year-to-date), pressuring traffic and discretionary income
(particularly for lower-income consumers). Looking forward, futures indicate gasoline prices will
remain above year-ago levels in upcoming periods, although the recent pullback in oil/gasoline futures
suggests the year-over-year pressure in the second half of 2011 could be less severe than in the first
half of the year.
Robert W. Baird & Co. 7

8. June 21, 2011 | Baird
FIGURE 5: FOOD AND GASOLINE PRICES
CPI - Food at Home $4.50 U.S. Gasoline Prices
8% (year-over-year % change) Historical Spot Prices
$4.00 Future Prices
6%
$3.50
4%
2% $3.00
0% $2.50
-2% $2.00
-4% $1.50
M ar-08
Jul-08
Sep-08
N ov-08
M ar-09
Jul-09
Sep-09
N ov-09
M ar-10
Jul-10
Sep-10
N ov-10
M ar-11
Jan-08
M ay-08
Jan-09
M ay-09
Jan-10
M ay-10
Jan-11
M ay-11
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Source: Bureau of Economic Analysis, U.S. Department of Commerce; U.S. Energy Information Administration (average regular retail)
While the impact of higher Gas prices is an area of concern for most of the Consumer research teams,
our Restaurants team points out that responses to recent surveys of private restaurant chains are
suggesting that most operators still do not consider higher gasoline prices to be a meaningful issue
impacting consumer spending at this stage.
Robert W. Baird & Co. 8

9. June 21, 2011 | Baird
Sector Commentary - Global Automotive & Truck
David Leiker, CFA
dleiker@rwbaird.com
414.298.7535
Joseph Vruwink
jvruwink@rwbaird.com
414.298.5934
Believe recovery still early in Automotive. Automotive is still in the initial stages of likely a 4-5 year
cyclical recovery in vehicle demand. We believe auto supplier stocks are half way through the up cycle
of outperformance, with most stocks potentially capable of doubling from current levels through
2014/2015.
In the developed automotive markets (U.S. and Europe), light vehicle demand remains 15-30% below
prior-cycle peak levels; modeling a return to “trend,” not peak, demand levels drives 5-6% annual
production growth through 2013/2014. The potential for a strong replacement cycle, returning
markets back to/above last-cycle peak levels of demand, lends further upside to our estimates. Within
the group, we are most attracted to ideas with secular growth opportunities to outpace the level of
end-market growth, in addition to margin expansion potential and attractive valuations.
Truck still well below prior peak. We believe the commercial vehicle stocks have another 2-3 years
left in an up cycle that typically doesn’t peak until incoming orders reach a cyclical peak. Both North
America and Europe are in the initial stages of a strong replacement cycle, with Europe ahead of North
America in terms of incoming orders translating to production by the truck manufacturers. The North
America commercial vehicle market is still 45% below prior-cycle peak demand levels, with annualized
production rates of 225,000 units well below the annualized order rates of 350,000 during previous
months. A return to “trend” demand levels in these two markets drives 15% annual production
growth through 2013/2014.
Top Auto Ideas
GNTX (Outperform, Price Target $42)
s GNTX positioned for +15-20% annual revenue growth over next 3-4 years, in our view, driven by a
combination of cyclical recovery in end-market demand (5-6% annual growth) and 10-15% organic
growth above end-market growth.
s 10-15% annual organic revenue growth possible (+/- production) from the combination of growing
auto-dimming mirror penetration (currently around 20%) and increasing content (adding
features/functionality to the mirror).
- Rear Camera Display shipments, at $65-100 of content, could increase from 1,250,000 units in
2010 to over 8.0 million by 2015-2016 as the government mandates in-vehicle technology to
improve the rearward field of vision in vehicles to eliminate blind spots and prevent backover
accidents.
- Additional technology delivering gains in content include SmartBeam (automatic control of
high/low beam head lamps) and driver assistance features (e.g., lane departure warnings, driver
notification, blind spot detection).
s Margin expansion could be meaningful against double-digit revenue growth backdrop. Other
factors supporting margin expansion include excellent cost management, a strong track record of
productivity gains, and implementing value-added engineering actions.
Robert W. Baird & Co. 9

10. June 21, 2011 | Baird
s Price target. Our $42 price target is based on 14.6 times our estimate of 2014 EBITDA, the median
of the valuation range during the "steady growth" period from 2000-2004.
s Risks: 1) the pace/slope of end-market recovery; 2) adoption rates of auto-dimming mirrors and
advanced features; 3) a shift in mix between large and small vehicles; and 4) raw material and
component costs, primarily purchased electronics components.
JCI (Outperform, PT $63)
s Cyclical margin and end-market demand recovery plus secular growth and margin expansion
opportunities underpin our JCI recommendation.
s Multiple areas for margin expansion. JCI’s three businesses all offer attractive margin expansion
opportunities over the next several years, with the potential to expand segment margin by 200-300
basis points from current levels through 2014:
- Power Solutions, the sale of higher-margin AGM batteries (2x the selling price and 3x the margin
dollars versus a traditional SLI battery), further vertical integration with internal recycling, and
capacity expansion in China could drive segment margin to 16.0-17.0% from current 13.0% level.
- Building Efficiency, an improved business mix (more product-centric offerings versus
lower-margin service and building maintenance), productivity gains in the global service network,
and operating leverage from residential HVAC could drive segment margin to 8.0-9.0% from
current 5.0% level.
- Automotive Experience, higher-margin new business launches, increased vertical integration
following recent seating structure and materials acquisitions, and improvements in Europe could
drive segment margin to 6.0-7.0% from current 4.0% level.
s M&A could supplement organic EPS. We estimate continued deployment of free cash flow towards
acquisitions, generating a 15% return on capital, could add $1.00 to our mid-cycle EPS estimates.
s Price target. Our $63 price target is based on the stock trading at 10.5 times our estimate of
calendar 2014 EBITDA, the median valuation of the S&P 500 Industrials, plus the present value of
equity income net of minority interest expense valued at 17.2x per share, discounted at 10% to
reflect a 12-month time horizon
s Risks: 1) the pace/slope of end-market recovery; 2) the pace/recovery of residential and
non-residential new construction markets (about 5-10% of total sales); 3) the costs associated with
winning/launching automotive new business; 4) raw material prices; and 5) acquisition-integration
risks.
Truck Top Idea
PCAR (Outperform, PT $66)
s Expecting cyclical recovery in developed markets (where PCAR has good exposure through
Peterbilt/Kenworth in North America and DAF in Europe), incremental initiatives to outgrow end
markets, and secular margin expansion opportunities.
s Rebound in operating leverage. As recovery gains steam and pricing improves, as has happened in
past cycles, we expect incremental margin to return to, or even exceed, historical levels.
s History of up-cycle market share gains. PCAR has historically outgrown its end markets by 5-7
percentage points over the course of a cyclical recovery, via market share gains and
acquisitions/international expansion, while also growing profit margin by 100-200 basis points. We
expect these trends to continue over the upcoming cycle, driven by market share gains (DAF
vocational trucks, North America medium-duty), organic growth internationally (primarily in South
America), an improved cost structure, engine in-sourcing in North America, higher parts revenue (a
higher-margin offering), and Financial Services growth.
Robert W. Baird & Co. 10

11. June 21, 2011 | Baird
s Price target. Our $66 target price is based on 8.3x our estimate of 2014 EBITDA, the median
valuation range of the last cycle, discounted to reflect a 12-month horizon
s Risks: 1) the pace/slope of cyclical end-market recovery; 2) commodity prices; 3) credit markets
and credit availability; 4) loan portfolio performance; 5) post-retirement liabilities; and 6) the
maintenance of premium market position.
Robert W. Baird & Co. 11

12. June 21, 2011 | Baird
Sector Commentary – Diversified Industrial & Machinery
Robert F. McCarthy , CFA
rmccarthy@rwbaird.com
312.609.5434
Christopher B. Weltzer, CFA
cweltzer@rwbaird.com
312.609.5463
Machinery versus diversified industrials. The two halves of our coverage universe – machinery and
diversified industrials – can experience the economic cycle quite differently. Machinery manufacturers
deal in long-lived, capital equipment, where demand is ultimately driven by underlying activity levels
(construction spending, for example), but factors like variable replacement cycles, tax incentives, the
availability of financing, and business confidence can significantly influence buying patterns.
Diversified industrials typically focus more on products with less cyclical amplitude and that are tied
more directly to actual activity levels. Construction fasteners and locksets would be two examples.
Seek leverage to late-cycle mining and nonresidential construction markets. We believe exposure to
the traditionally late-cycle markets for mining machinery and nonresidential construction offer
compelling opportunities from this point in the currently developing up-cycle. While mining machinery
orders have rebounded quickly, we see significant growth potential from here in the context of a
stunted up-cycle (through 2008), declining ore yields worldwide, and roughly 20 years of low
commodity prices and associated underinvestment. Despite the relatively slow pace of the current
economic expansion in the developed economies, global mine capacity is already running in the
mid-90% range. The swift recovery in commodity prices signals the tightness of current supply and the
need for additional investments in capacity. Global mining sector capital spending may grow 30+% in
2011 and another 20-25% in 2012; sustained high levels appear likely for three-to-five years.
We also see significant growth potential in US nonresidential construction markets, where spending
levels in the US remain nearly 40% below the prior peak, despite little evidence of significant
overbuilding or a spending bubble during the last upturn. Dodge construction contract square footage
(a measure of real activity), suggests that on a per-capita basis, the US has been meaningfully
under-investing in nonresidential buildings in 2009 and 2010. While certain sectors of nonresidential
building construction are intimately tied to residential construction activity (like retail stores and gas
stations), a significant portion has little direct link and is already showing signs of recovery.
Manufacturing construction contract square footage increased 69% year/year (L3M) in April, while
hotel and motel contracts were up 49% year/year.
CAT (Outperform, PT $148)
s Large late-cycle exposure. Beyond machinery demand tied to nonresidential construction activity,
other major later-cycle markets include oil & gas, energy infrastructure, power generation, and
commercial marine. Mining is traditionally the latest-cycle machinery market, but challenged by the
EMD locomotive business. Clear majority of Caterpillar’s OE sales are to later-cycle markets.
s More aggressive growth strategy. CAT acquired mining machinery maker BUCY purchased EMD
(locomotives) and while planning to acquire MWM (gas engines). We estimate mining could
approach 30% of CAT CY12 sales. Mining is CAT’s highest-margined machinery market by far.
Accretion will be modest through 2012, but CAT projects meaningful synergies by 2013, reaching
$400M by 2015. Our forecasts indicate CAT could repay all acquisition debt from operating cash
flow by 2013.
Robert W. Baird & Co. 12

13. June 21, 2011 | Baird
s Substantial financial targets. Beyond $8-10 of EPS in 2012, achieving all of Caterpillar's targets
would imply $15-20 by 2015, or roughly 3-4x the prior peak. Current (and new) executive
management team has established a 25% incremental operating margin objective; structural
improvement in Machinery margins is an explicit objective.
s Price Target and valuation. Our $148 price target is based on our estimate for normalized,
mid-cycle earnings and a target multiple that is consistent with valuation metrics experienced at
the same point in past business cycles. We assume 2013 will be mid-cycle, when our $148 price
target assumes Caterpillar can achieve a 14x P/E multiple of our $11.70 estimate for normalized
EPS and/or an 8.5x EV/EBITDA multiple of our estimate for normalized EBITDA (~$13.7 billion) plus
the estimated future book value of Caterpillar’s finance subsidiary.
s Risks include global economic growth; residential and nonresidential construction, quarrying and
mining, power generation, industrial, oil and gas, marine, road construction, forestry, commercial
vehicle industry fundamentals, acquisition regulatory approval and integration, and CPS
implementation.
MTW (Outperform, PT $28)
s Potential inflection point reached in Crane. Crane orders surged 72% sequentially in 4Q10,
generating a 1.25x book/bill ratio and bringing full-year orders even with 2010 Crane revenue. 4Q
orders were ~40% above 2010's quarterly average; backlog expanded further in 1Q11, as orders
increased sequentially and book/bill exceeded 1.55x.
s Substantial deleveraging opportunity. High financial leverage from Enodis acquisition (1Q11: $2.0B
debt; 81% D/TC; 6.1x debt/EBITDA), but Manitowoc targets $200 million of debt pay-down in 2011
(supported by ~$100-million proceeds from 1Q11 divestiture of refrigerated display case
operations). Cutting $200 million of debt at 5% adds ~$0.05 to annual EPS and shifts $1.50 of
per-share enterprise value to equity holders.
s Building construction headwind easing. The global recession, plunging real estate values, and
reduced global credit availability created huge declines in new nonresidential building investment
and drove significant Crane order cancellations, beginning in 4Q08. Net new Crane segment orders
have strengthened since that nadir and given backlog of $800 million at 3/31/11, we estimate
Manitowoc could deliver 10-13% Crane growth (=guidance) in 2011 without any growth in full-year
orders.
s Price Target and valuation. Our $28 price target is based on our estimate for normalized, mid-cycle
earnings and a target multiple that is consistent with valuation metrics experienced at the same
point in past business cycles. We assume 2014 will be mid-cycle, when our $28 price target
assumes MTW can achieve a 15.0x P/E multiple of our $2.60 estimate for normalized EPS and/or an
8.0x EV/EBITDA multiple of our estimate for normalized EBITDA (~$850 million).
s Risks. Global economic growth; high financial leverage; residential and non-residential building
construction activity, foodservice fundamentals; input costs; acquisition integration; and foreign
currency fluctuations.
ETN (Outperform, PT $65)
s Big and rapidly growing emerging markets exposure . Just 8% of sales in 2000, emerging markets
were 24% of Eaton’s 2010 sales, and intended to hit 30% by 2014. Growth rates generally exceed
20%. Organic growth augmented by recent electrical acquisitions in South America and South
Africa, and a joint venture with Shanghai Aircraft Manufacturing Co. to support the COMAC C919.
s Significant leverage to NAFTA heavy-duty truck cycle . Eaton is the primary OEM supplier of
heavy-duty truck transmissions, and the stock has historically outperformed while Class 8
(heavy-duty) truck production is accelerating. Industry production is expected to surge ~60% in
2011, but still remain ~30-40% below the 2006 peak. Truck segment to grow 31% in 2011,
contribute ~40% of Eaton’s operating income growth.
Robert W. Baird & Co. 13

14. June 21, 2011 | Baird
s Significant later-cycle exposure. Eaton’s traditional electrical distribution products business is
geared towards nonresidential construction (and particularly industrial, energy, and power
generation investment); plus, large data centers are now a core market. Certain fluid power
markets are later-cycle; the Aerospace segment is ~60% commercial. Eaton estimates 20-25% of
sales are later-cycle; 15-20% non-cyclical (including airline aftermarket).
s Up-cycle growth objectives appear achievable. Management believes an expanding geographic
footprint and significant investments in the global Electrical market have increased Eaton’s
normalized organic market growth rate from +4% to +5% across the cycle, with Eaton targeting +7%
market growth during the up-cycle (2009-2014). Developing markets growth expected to outpace
developed markets, driving 30% of sales by 2015 (up from 22% today) and adding 1.5% to
normalized growth, while innovation efforts contribute an addition 1.5% and acquisitions add 2-4%.
Resultant 12-14% growth would essentially match Eaton’s performance during the prior cyclical
expansion (+13% revenue CAGR) and appears to be a conservative target.
s Price target and valuation. Our $65 price target is based on our estimate for normalized, mid-cycle
earnings and a target multiple that is consistent with valuation metrics experienced at the same
point in past business cycles. We assume 2013 will be mid-cycle, when our $65 price target
assumes ETN can achieve a 13.5x P/E multiple of our $5.40 estimate for normalized EPS and/or an
8.5x EV/EBITDA multiple of our estimate for normalized EBITDA (~$3.2 billion).
s Risks: Global economic growth; automotive, commercial vehicle, mobile equipment, industrial
machinery, HVAC, electrical equipment, power quality, and commercial and military aerospace
fundamentals; acquisition pricing and integration; foreign exchange rates.
Robert W. Baird & Co. 14

15. June 21, 2011 | Baird
Sector Commentary – Industrial Services
Andrew J. Wittmann, CFA
awittmann@rwbaird.com
414.298.1898
Justin P. Hauke
jhauke@rwbaird.com
312.609.5485
Recommend E&C positions with leverage to later-cycle construction opportunities. Despite recent
volatility, we believe later-cycle opportunities are emerging for E&C companies, particularly
internationally, supported by leading indicators of construction activity, capital budgets, and our
proprietary industry backlog model, which we believe suggest risk/reward favors an overweight
position. The graphic below illustrates that E&C industry backlog (a key driver of multiple expansion)
has only recently posted positive growth, with our proprietary model suggesting further momentum
ahead.
As later-cycle opportunities emerge, E&C stocks should outperform earlier-cycle industrial stocks
more leveraged to utilization rate gains (earlier cycle). Thus, while a developed-nation slowdown is
damaging to earnings for the industrial space broadly, E&C exposure to the developing world,
specifically Asia, the Middle East and in resource-driven economies like Canada and Australia, can
offer a cushion versus other industrials more heavily exposed to the U.S. and Western Europe.
Current valuation for the group reflects early/mid-cycle levels at roughly 7.0x EBITDA and 14.0x
earnings. However, as back-end construction activity begins to turn (likely later this year and in to
2012), we believe valuations will warrant modest multiple expansion and drive share outperformance
for the group. History suggests that, paradoxically, peak E&C multiples are often achieved closer to
the peak of the cycle rather than at the trough.
JEC (Outperform, PT $55): Top E&C Pick
s Demand rising. Economic fundamentals are slowly improving and investment in Oil & Gas
infrastructure (~35-40% of revenue) continues to gain steam, driven by (still) high commodity prices
and returning aggregate demand.
Robert W. Baird & Co. 15

16. June 21, 2011 | Baird
s Tight customer relationships. We like Jacobs' relationship-based business model, focused on
long-term share gains from core customers, which we believe is not only lower risk, but also leaves
JEC well positioned to capture share at earlier stages of the cycle as clients cautiously expand capex
budgets.
s Backlog inflection point. Jacobs' F2Q11 backlog moved modestly higher sequentially - its first
sequential gain in two years - which we view as an early indication that greater earnings content
lies ahead paving the way to the next phase of the recovery – and we remain quite positive on
Jacobs' exposure to oil sands work (Canada) and its increasing traction in the Middle East, with the
company's opportunity set potentially enhanced by last December's acquisition of Aker.
s Price target and valuation. Our $55 price target assumes essential flat multiples of 9.5x our FTM
EBITDA estimate (16.2x earnings), a modest premium to historical levels, but recognizing the
cyclical bottom and more robust earnings outlook in F2012 (and F2013 in particular). The multiple
is slightly above JEC's historical 8.7x average and at a slight premium to the E&C group, which we
believe is warranted given the company's industry-leading franchise and evidence of strengthening
fundamentals.
s Risks include economically sensitive markets, acquisition integration risk, a highly competitive
industry, and significant exposure to national government budgets.
PWR (Outperform, PT $25): Top Specialty Contractor Pick
s Electric transmission capex beneficiary. While weather and regulatory delays continue to impact
near-term earnings potential, we continue to view PWR as a compelling stock ahead of the
emerging capex cycle in electric transmission, particularly following the stock’s recent relative
underperformance.
s Eye on 2012. While we see some risk to near-term estimates and execution risk remains in 2H11,
our thesis has always been underpinned by 2012 more than 2011, with recent data points still
supportive of that outlook. We are also encouraged by recent insider buying on the open market by
the company's newly appointed CEO.
s Price target and valuation. Our $25 price target assumes 8.5x FTM EBITDA, a discount to both
recent and historical levels, recognizing the stock's higher risk and recent poor execution, balanced
by what we see as a still-large opportunity set.
s Risks. Highly competitive industry, state and federal regulatory changes, fixed-price contract
exposure and acquisition integration risk.
Robert W. Baird & Co. 16

17. June 21, 2011 | Baird
Sector Commentary – General Industrial & Building Products
Peter Lisnic, CFA, CPA
plisnic@rwbaird.com
312.609.5431
Joshua K. Chan
jchan@rwbaird.com
312.609.4492
Strong cash generation, ex-cyclical growth potential drive our recommendations . Within our
coverage universe, stocks with the most attractive risk/reward profiles appear to be those with
primary end-market exposures closer to their respective cyclical bottoms. From a general industrial
perspective, fundamentals appear to be approaching mid-cycle levels with growth expectations for
2013 (and beyond) the primary determinant of potential equity upside, in our view.
Construction-related markets appear to bottoming in nonresidential verticals, while the painfully slow
“recovery” in residential markets continues, albeit well off from historically normal levels of demand.
While longer-term risk/reward could be favorable in certain cases where residential exposure is
material, our posture remains defensive with our top ideas based on differentiated growth drivers,
leveraged by eventual strong cyclical upside and strong free cash flow.
SWK (Outperform, PT $90)
s Underappreciated cyclical leverage . Substantial exposure to construction markets suggests
significant growth potential from eventual cyclical volume improvement. Cyclical leverage to be
enhanced by realization of cost and revenue synergies from the merger with Black & Decker and
growth opportunities afforded by strong free cash flow generation ($1B+ annually). Earnings power
exceeds $8.50 in our estimation with EPS CAGR exceeding 15%.
s Cost, revenue synergies enhance leverage . Cost synergies from BDK merger on target with
$460MM run-rate projected by end of 2013. Additionally, SWK estimates revenue synergies of
$300-400MM from the Black & Decker acquisition by 2013, adding $0.35-$0.50 to structural EPS
when fully realized.
s $8.50/share in EPS power. Management is targeting sales of $15B and operating margin exceeding
15%, implying earnings power in excess of $8.50/share. Target assumes sales CAGR of 10% from
2010 to 2015 including acquisitions. Based on the company’s strong FCF profile, we believe SWK
can achieve its target without extending financial leverage markedly from current levels.
s Price target and valuation. Our $90 price target is based on a 9.0x EV/EBITDA multiple applied to
our 2012 EBITDA estimate (15.7x P/E multiple), modestly above the blended peer multiples (8.1x
EV/EBITDA, 14.2x P/E), but we believe appropriate considering the company’s cyclical earnings
growth potential and strong FCF profile.
s Risks include: Execution risk surrounding the BDK integration, cyclicality of end markets, rising
and/or volatile commodity costs, private-label competition, adverse foreign currency movements,
and ability to find and successfully integrate acquisitions.
TNB (Outperform, PT $63)
s Attractive mid/late cycle exposure . Shares appear attractive considering cyclical leverage to
improving construction and utility markets, strong free cash flow, and exposure to longer-term
secular growth in electrical infrastructure investment.
s Solid execution in improving markets. TNB’s 2011 outlook assumes continued strength in industrial
demand, improving utility distribution demand, and early stages of recovery in nonresidential
construction markets. Operating margin in primary electrical business has already exceeded
previous peak with volume still materially below previous-cycle high. Capital allocation appears to
Robert W. Baird & Co. 17

18. June 21, 2011 | Baird
be a key company strength with recent bolt-on acquisitions initially appearing to be solid
contributors to growth and return profile of the business.
s Strong FCF buttresses growth potential. Since 2005, free cash flow has averaged 130% of net
income. Acquisitions are the primary targeted use of capital with TNB seeking targets that provide
leading brands and can be leveraged through the company’s distribution network. We estimate
acquisition dry powder could approach $500MM with TNB maintaining net D/TC below 30% and
net debt-to-EBITDA below 2.0x.
s Price target and valuation. Our $63 price target is based on an 8.0x EV/EBITDA multiple (14.5x
cash-adjusted P/E) applied to our 2012 EBITDA estimate, slightly above the average EV/EBITDA
multiple accorded TNB’s electrical equipment peer group and we believe appropriate considering
TNB’s history of execution, and solid FCF.
s Risks include: Cyclicality of construction and industrial end markets, protracted decline in utility
spending, rising and/or volatile commodity costs, and the ability to find and successfully integrate
acquisitions.
Robert W. Baird & Co. 18

19. June 21, 2011 | Baird
Sector Commentary – Industrial Distribution & Services
David J. Manthey, CFA
dmanthey@rwbaird.com
414.465.8020
Luke L. Junk
ljunk@rwbaird.com
414.298.5084
We remain positive on the group in a moderately expanding industrial economy. We expect
continued expansion in US industrial activity and believe we are in the “big middle” of the business
cycle. Historically, this is the point in the cycle when industrial supply stocks have outperformed.
Periods of underperformance are infrequent due to secular positives, and are typically late in the
cycle. We are also increasingly constructive on companies with exposure to non-residential
construction, given our outlook for flattening trends in 2011 and a possible modest recovery in 2012.
Overall this should be a good time frame for the group – watch for catalysts and valuation
opportunities as cyclical factors are positive or less negative for nearly every stock on our list.
ARG (Outperform, PT $78)
s Thesis. We rate ARG Outperform. Mid-cycle dynamic is supportive of several key fundamental
factors, with cyclical trends increasingly positive, an improving pricing environment and acquisition
activity expected to accelerate. Ongoing SAP implementation also provides a meaningful catalyst.
s Price target and valuation. Our $78 price is based on 9x EV/C2012E EBITDA, a slight premium to
the five-year average of 8.6x NTM EV/EBITDA.
s Risks. Key risks include general US economic conditions, demand/pricing, SAP implementation,
opening/operating ASUs, shareholder base turnover
GWW (Outperform, PT $170)
s Thesis. We rate GWW Outperform. Overall, mid-cycle is an advantageous point in the cycle for
industrial supply stocks. Adding to positive cyclical dynamics is the ongoing “cultural renaissance”
at the company, which is driving a more aggressive, growth-oriented approach and sustainably
higher margins and returns driven underscored by the implementation of LEAN and 5S techniques.
As such, we believe the stock deserves a premium relative to its historical valuation.
s Price target and valuation. Our $170 price target represents 9x EV/2012E EBITDA, a premium
(which we believe is warranted) to the historical NTM average of 8.3x.
s Risks. Fundamental risks include macroeconomic conditions, ability to expand margins, pricing
power, benefits from product expansion, sales force additions, global sourcing and international
operations.
Robert W. Baird & Co. 19

20. June 21, 2011 | Baird
Sector Commentary –Process Controls
Michael Halloran, CFA
mhalloran@rwbaird.com
414.298.1964
Brian Meyer
brmeyer@rwbaird.com
414.298.7664
Favor companies benefitting from secular growth opportunities. We believe that market
outperformance by pure cyclical stocks is largely over, and that prevailing market uncertainty and
broadly souring of sentiment remain broad-based headwinds for industrial stocks. Consequently, our
stock recommendations focus on secular drivers over cyclical drivers, and late-cycle exposure over
early-cycle exposure. On this premise, our top picks remain RBC and GDI (see comments below).
From a purely cyclical standpoint, we believe ABB (Outperform, PT $32) is the best way to invest in
the late-cycle acceleration and sentiment shift within the Process Controls space, followed by FLS
(Outperform, PT $142) and CFX (Neutral, PT $24).
RBC (Outperform, PT $95)
s Buyers on 2012 earnings power of $6.50+ (including AO Smith EPC acquisition) and 2015 earnings
power of $7.00-$8.50+/share organically ($9.00+ inorganically). Significant exposure to energy
efficiency movement provides a secular theme and should drive growth in excess of core industrial
peers. Concerns over HVAC demand, commodity inflation, and expiration of the high-efficiency
HVAC tax credit should moderate throughout 2011.
s Price target and valuation. Our $95 price target assumes forward multiples of 8.4x EV/EBITDA and
14.3x earnings versus historical average multiples of 7.7x and 12.9x, respectively. Potential for
further multiple expansion over time with crisp execution of five-year plan.
s Risks. Industrial activity, highly competitive industry and integration of current and future
acquisitions.
GDI (Outperform $100 PT)
s Corporate transformation and secular themes drive impressive earnings power . Continued
structural margin improvement, improving industrial end markets, and significant leverage to shale
oil and gas drilling trends should drive near-term earnings upside. Longer-term margin
improvement story still not fully reflected in stock price; 2012 EPS power is well north of $6.00.
Early stages of transformation from a low-margin, average-growth industrial company to a
high-margin, new market/product-oriented company should drive valuation multiple expansion.
s Price target and valuation. Our $100 price target assumes forward multiples of 10.6x EV/EBITDA
and 16.6x earnings versus historical average multiples of 7.8x and 13.3x, respectively.
s Risks. Exposure to highly cyclical markets, pricing pressure from lower cost countries.
Robert W. Baird & Co. 20

21. June 21, 2011 | Baird
Sector Commentary – Transportation & Logistics
Jon A. Langenfeld, CFA
jlangenfeld@rwbaird.com
414.298.1965
Benjamin J. Hartford, CFA
bhartford@rwbaird.com
414.765.3752
Kenton Moorhead
kmoorhead@rwbaird.com
414.298.1864
Favor 3PLs and asset-based names with secular themes as cycle matures. We identify three key
elements signifying a transition from cyclical recovery to slow-growth expansion in the Transportation
and Logistics sector:
s Duration of cycle. Currently in 30th consecutive month of ISM diffusion index recovery from
trough, versus 40-month average duration of cycle over past 50 years.
s Moderating demand. Demand growth moderating across modes in 2011 following 2009/2010
cyclical recovery, consistent with a maturing cycle. Moderation in international airfreight and ocean
freight, domestic truckload, and rail car loadings a function of strengthening prior-year growth
comparisons and normalizing freight demand and inventory restocking activity.
s Recent underperformance among early cyclicals. Asset-based truckers underperforming the
broader market (Russell 2000 Index) after early-cycle outperformance, consistent with mid- and
late-cycle performance.
We would position investors for rotation into mid- and late-cycle names as cycle matures; favor 3PLs
and asset-based names with secular themes (pricing, margin expansion).
FDX (Outperform, PT $117)
s Industry trends more favorable. Well positioned to benefit from favorable parcel industry trends,
supported by both the growing industrial environment and more rational industry pricing.
s Catalysts: include F12 guidance, which should remove investor overhang and reflect building
earnings power.
s Price target and valuation. Our $117 target price equates to 14.6x F13E EPS (vs 17x average
2004-2006), slightly below its average multiple.
s Risks. Economic sensitivity, constrained growth in domestic express market, operates in a highly
competitive industry which could be subject to price competition and deteriorating profitability.
UNP (Outperform, PT $120)
s Our favorite rail idea. We see a host of beneficial factors underlying our UNP thesis: strongest
commodity group, capable of mid-single-digit volume growth; largest legacy repricing opportunity,
providing above-market pricing growth potential over next cycle; and management’s 65-67%
operating ratio target by 2015 should prove conservative.
s Price target and valuation. Our $120 price target reflects roughly 14x forward estimates, one year
out, a valuation multiple more in line with the S&P 500's average (15.5x 10-year average).
s Risks. Competes in mature, cyclical industry, improving ROC key to thesis, potential liability
exposure for hazardous materials movement, truckload competition in Intermodal, highly regulated
industry potentially subject to further regulation, unionized workforce cost inflation/service
disruptions.
Robert W. Baird & Co. 21

22. June 21, 2011 | Baird
RRTS (Outperform, PT $19)
s Unique asset-light model. LTL brokerage (65% of revenue) offering well positioned to gain market
share given its low-cost model, and LTL pricing dynamics improving. Though the stock remains a
“show me” story, narrowing of valuation gap to 3PL peers provides further upside opportunity.
s Price target and valuation. Our $19 price target reflects 17.5x forward estimates, one year out vs.
18-20x for its 3PL peer group.
s Risks. Acquisition risk, reliance on third-party capacity, unique LTL brokerage margins with
potential for margin squeeze (price in LTL, buy in TL), economic sensitivity, highly competitive
market, limited public company experience.
Robert W. Baird & Co. 22

23. June 21, 2011 | Baird
Sector Commentary – Advanced Industrial Equipment
Richard C. Eastman, CFA
reastman@rwbaird.com
414.765.3647
Robert W. Mason, CFA
rmason@rwbaird.com
615.341.7111
Favor stocks possessing margin expansion ability, defensive elements . Our AIE coverage list generally
enjoys strong business fundamentals in the mid- to latter part of the business cycle. R&D budgets,
which are significant drivers for our Test and Measurement and Analytical Instrument companies, can
experience attractive growth as end demand solidifies.
Rising industrial production/capacity utilization also spurs growth in productivity projects, and new
capacity for our Automation companies, while rising production and utilization in general aids our
aftermarket-driven Filtration companies.
Near term, as investors adjust to what we view as mid-cycle slowing (mean reversion), we believe a
rotation to more defensive growth could prove most beneficial to Filtration companies (CLC, PLL). We
also favor MSA, which has exposure to employment growth (personal occupational safety) as a way to
capitalize on an eventual recovery in employment growth. Additionally, we find each of these stocks
particularly compelling because of specific, targeted underlying margin expansion efforts that could
propel EPS growth above the normal mid-cycle trend.
CLC (Outperform, PT $51)
s Attractive aftermarket business mix . CLC derives ~80% of sales from disposable filtration products.
We expect the business will perform well in a low-growth environment. CLC has an expectation
(and history) of growth +2-3pp above GPD.
s Increasing penetration in emerging markets, especially China (where CLC targets +30% growth),
further supports CLC overall growth objectives.
s Restructured I/E segment, but more margin runway . Following a multi-year restructuring and
upgrading of it Industrial/Environmental (I/E) filtration operations, CLC has already raised the
margin goal for this segment from 10% to 15% (Q2: 12%). If CLC tracks toward 15% by 2014, we
believe CLC would generate attractive incremental profitability in the mid- to later portion of the
business cycle.
s Balance sheet can create value. CLC currently possesses ~$105M of net cash, providing the ability
to also create value in a slower growth environment, via M&A, share repurchases.
s Price target and valuation. Our current price target of $51 is based on 10X our FY12E EV/EBITDA,
versus CLC's historical 8X-11X trading range. The shares currently trade at the low end of the
historic EV/EBITDA multiple range, or 8X FY12E EBITDA.
s Risks for CLC include the economy, ongoing success with productivity improvement programs,
periodic patent litigation between industry participants.
PLL (Outperform, PT $62)
s Leading industry scale. PLL is the largest filtration/separations pure play by revenues, holding an
approximate 7% market share. Pall has a tradition of participation in higher-value-added niche
markets, product innovation, aggressive international expansion, and strong distribution.
Robert W. Baird & Co. 23

24. June 21, 2011 | Baird
s Growth opportunities. PLL’s strong market position in the Life Sciences less influenced by cyclical
macro-economic considerations. PLL should benefit from new medical opportunities including
blood prion removal filters, bacterial detection systems for platelets, and hospital critical care
products. Biopharma growth should be driven by higher volumes of produced
biotherapeutics/vaccines, adoption of single-use/disposable production technologies and emerging
market customer growth. PLL's Industrial business has benefited from a cyclical recovery in
microelectronics markets and general economic improvement. Demand in the commercial
aerospace aftermarket has returned to growth military systems/consumables positioned for strong
FY12. Other secular growth markets for PLL include Asia and municipal and industrial water
markets/systems.
s Strategic growth plan aims for higher margins. PLL’s four-year (FY10-13) financial plan targets EBIT
margin of 19.5%-22.0%. Execution to date against the plan has been noteworthy from 13.9%
starting point (FY09A) to current 17.4% (F3QA). Further, margin expansion expected from a
combination of regionalized HQ structure, value-based pricing and SG&A leverage. Coupled with
further reduction in tax rate, PLL’s FY13 targets equate to $3.77-$4.77 EPS, or +14%-28% CAGR
from FY11E $2.89.
s Price target and valuation. Price target of $62 assumes shares trade at 10X our CY-12E EBITDA
forecast, within PLL's normalized five- and 10-year 9X-13X EV/EBITDA range.
s Risks. Global macro-economy, in particular industrial production/utilization, FX, and execution of
planned margin expansion initiatives.
MSA (Outperform, PT $44)
s Beneficiary of eventual employment recovery. MSA manufactures/sells high-end safety equipment
to protect employees (employment driven). Industrial markets (process, oil & gas, power, non-res
construction, aggregates, other) now about ~70% sales. MSA aims for sales growth of 10%+
(including General Monitors acquisition) from these core markets. We remain cautious on Fire
Service spending due to U.S. funding concerns; however, with help from international demand Fire
Service sales appear to be bumping along a bottom, “stabilizing.” MSA Military sales will improve
this year due to sales of ACH3’s against a 12-15 month backlog.
s Earnings power substantial. MSA delivered ~14% operating margin in CY05 largely resulting from a
rich sales mix. We believe a realistic OP% opportunity/goal is a return to 14%; however, continued
progress on streamlining/realigning the cost structure , principally in Europe, will be key to
offsetting a more normalized forecast sales mix. Sales volume, leverage will also contribute.
Achieving 14% GAAP OP% (sales CAGR +7%, four-year goal) would equate to about $3.50 in EPS in
CY14.
s General Monitors (GMI) attractive strategic fit . GMI adds leadership in fixed based gas detection
products, technology/sensor, sales synergy with MSA portable gas detection products, sales and
earnings accretion.
s Past M&A activity/multiples validate attractiveness of Safety/Personal Protection market .
Several notable transactions support interest in the space: MMM’s $1.2B purchase of Aearo (‘07,
11X LTM EBITDA) and HON’s $1.2B purchase of Norcross (’08, 12X LTM EBITDA) and $1.4B purchase
of Sperian (’10, 11X LTM EBITDA).
s Price target and valuation. Our $44 price target assumes shares trade at 9.5X our CY12E
EV/EBITDA, the midpoint of MSA's seven-year 7X-13X EV/EBITDA trading range, reflecting
expectations for improved operating margin in 2012, balanced by caution over CY11 U.S. Fire
Service spending and continued progress on restructuring.
s Risks. Industrial business cycle, government security subsidies, variations in secular growth rate,
product liability.
Robert W. Baird & Co. 24

25. June 21, 2011 | Baird
Sector Commentary – Human Capital
Mark S. Marcon, CFA
mmarcon@rwbaird.com
414.298.7556
Jeffrey P. Meuler, CFA
jmeuler@rwbaird.com
414.298.7694
Patrick R. Abeln
pabeln@rwbaird.com
414.765.3589
Most staffing/recruiting stocks appear to have largely (although not fully) discounted a mid-cycle
slowdown, but not a recession.
s The median stock performance of covered staffing/recruiting stocks has been -16% YTD (vs. S&P
500 +3%), with ten of the twelve covered names underperforming the broader S&P 500 index YTD.
Similarly, over the LTM, the median performance among our formally covered staffing/recruiting
names has been +1% (vs. +18% for the S&P 500).
s While recent economic data has been disappointing and indicates meaningful deceleration,
staffing/recruiting stocks have also been declining recently, and appear to be largely (although
arguably not fully) discounting a mid-cycle slowdown at current levels with the stocks currently
trading at lower than typical mid-cycle multiples against our C’12E estimates despite our C’12
estimates generally assuming operating margins that are both below the prior cyclical peak and
below what we believe the companies are capable of generating during this cycle (assuming the
macroeconomic expansion continues).
Multiples could remain pressured as long as macroeconomic data remains soft.
While we believe that most staffing/recruiting stocks appear to have discounted a mid-cycle
slowdown to a large extent, and valuations appear attractive assuming that the economic expansion
will continue, multiples could remain depressed and staffing/recruiting stocks could continue to
underperform the broader market if economic data points remain weak. Therefore we continue to
look for a favorable inflection in the leading economic indicators to become more aggressive on
staffing/recruiting stocks.
Additionally, our Human Capital Services team feels that the probability of a recession or elongated
slower growth period is rising.
s Leading indicators, such as the Manufacturing ISM (including the new orders sub-component),
regional ISMs, and the ECRI Weekly Leading Index, suggest the potential for further deceleration in
the rate of economic growth in coming months.
s Hence, in the view of our Human Capital Services team, it appears increasingly clear that the US
economy has at least entered a mid-cycle slowdown, and it also appears that the probability of a
recession over the NTM is rising as well. Additionally, even if the economy emerges from a
“mid-cycle slowdown,” it may enter a period of sub-par intermediate-term growth as the
incremental benefits of monetary and fiscal stimulus wear off (in line with the “New Normal” view
articulated by PIMCO, Rogoff, etc., prior to QE2).
SFN and TBI attractively valued if the economic slowdown proves to be temporary, in our view. SFN
and TBI are among the most attractively valued stocks among the comp group and their stocks have
experienced some of the greatest declines recently. Given cyclical sensitivity, any improvement in
economic data could serve as a catalyst.
Robert W. Baird & Co. 25