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Canaccord Genuity on Apple, Dean Foods, and United Rentals

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Apple is discussed during the presidential debate, Dean Foods posts double-digit gains, and United Rental soared on news that its third-quarter profit rose 12%.

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The following are excerpts from Canaccord Genuity analysts' commentaries.

Apple (NASDAQ:AAPL): Boy, great question and important question, because you're absolutely right – maybe.
From Tuesday's presidential debate, the candidates were asked the question: The outsourcing of American jobs overseas has taken a toll on our economy. What plans do you have to put back and keep jobs here in the United States? A follow-up to that was the question: iPad, the Macs, the iPhones, they are all manufactured in China. One of the major reasons is labor is so much cheaper here. How do you convince a great American company to bring that manufacturing back here? Mitt Romney responded by saying, "The answer is very straightforward. We can compete with anyone in the world as long as the playing field is level. China's been cheating over the years. One by holding down the value of their currency. Number two, by stealing our intellectual property; our designs, our patents, our technology. There's even an Apple store in China that's a counterfeit Apple store, selling counterfeit goods. They hack into our computers. We will have to have people play on a fair basis, that's number one."

While the counterfeit Apple store to which Romney was referring was not an authorized reseller of Apple products, it nonetheless sells authentic Apple products. Yes, there are stores around China that sell Apple products smuggled into the country. With respect to counterfeit Apple products, as the Wall Street Journal put it, "There are certainly counterfeit Apple products floating around China, but for the most part Chinese consumers are savvy enough to know whether they're buying a real iPhone or a fake one. Those who buy the fake ones often can't afford the real deal, and are simply trying to broadcast that they belong to the class that own legitimate Apple products." Romney has cranked up his anti-China rhetoric of late, but, that happens almost every American election year.

Last January, the New York Times published an article titled: "How the US Lost Out on iPhone Work," where US President Obama once asked Steve Jobs, "What would it take to make iPhones in the United States? Why can't that work come home?" Jobs' reply was apparently, "Those jobs aren't coming back." According to the New York Times, Apple's executives believed, "The vast scale of overseas factories as well as the flexibility, diligence, and industrial skills of foreign workers have so outpaced their American counterparts that 'Made in the USA' is no longer a viable option for most Apple products." Sound like a lame excuse? In 2010, the average manufacturing wage was roughly $2.00 in China and $34.75 in the US. If the cost of US labor would only add $50, $75, or $100 to the cost of each iPhone would consumers pay? Sure. Is a generation of American workers, sitting row upon row assembling iPhones, the country's future? No.

Dean Foods (NYSE:DF): Milking the cow.
Dean Foods posted double-digit gains after announcing that wholly-owned subsidiary, WhiteWave Foods, plans to raise up to $320 million in an initial public offering. It plans to offer 20 million Class A common shares for between $14 and $16 per share. In August, Dean revealed that it would spin off WhiteWave, its fast-growing unit, which sells Horizon Organic dairy products and Silk soy milk, by selling 20% of the subsidiary. This shouldn't come as a big surprise as Dean Foods had suggested for some years that it could eventually spin off the WhiteWave division in order to unlock the value of that business.

Dean Foods's chairman and chief executive, Gregg Engles, will become chairman and CEO of the new WhiteWave Foods. He will step down as CEO of Dean Foods after about 18 years in that role, but remain chairman. Gregg Tanner, president of Dean's fresh dairy direct division, the company's largest unit by sales, will be promoted to CEO of Dean Foods. WhiteWave said it would use the proceeds to pay down debt among other purposes. Dean Foods, which will have almost complete control of the voting rights in Whitewave after the offering, in turn plans to use the money to repay a portion of its own debt. WhiteWave will list on the New York Stock Exchange under the symbol "WWAV."

Separately, Dean Foods said Q3 sales for WhiteWave rose 13% to $598 million from a year ago, driven by continued strong volume growth across the segment's coffee creamers and beverages and plant-based foods and beverages portfolios, and significant increases in marketing investments. Additionally, Dean said it expects operating income for the segment of $64 million, up 22% from a year ago.

United Rentals (NYSE:URI): Rent to buy.
United Rental soared on news that its third-quarter profit rose 12% to $73 million on strong demand for its industrial and commercial rental equipment. Revenue jumped 68.3% higher to $1.22 billion as rental revenue surged 74.0% to $1.05 billion. The company also said it expects to post total revenue for 2012 of $4.6-4.7 billion, well above analyst estimates of $4.25 billion. For the unfamiliar, United Rentals, with more than 800 locations in the US and Canada, calls itself the largest equipment rental company in the world. Like other rental equipment companies, it has been hit hard in recent years by the downturn in the construction industry.

The start of a construction recovery and a recent trend toward renting, rather than owning, equipment appear to have boosted United Rentals' prospects. In April, the company completed its acquisition of rival RSC Holdings in a deal worth about $2.53 billion. The deal significantly increased United Rentals' share of the rental equipment market, giving it a greater presence in industrial, maintenance and non-residential construction markets.

The company previously focused on construction and industrial customers, utilities, municipalities and homeowners. Analysts say improving non-residential construction and industrial spending patterns, coupled with continued uncertainty prompting heavy equipment users to rent rather than buy, bode well for the company.

Editor's note: For more information on Canaccord Genuity, click here.
No positions in stocks mentioned.
Canaccord Financial and its affiliated companies may have a Corporate Finance or other relationship with the companies mentioned and may trade in any of the Designated  Investments mentioned herein either for their own account or the accounts of their customers, in good faith and in the normal course of market making. The authors have not received, and will not receive, compensation that is directly based upon or linked to one or more specific Corporate Finance activities, or to coverage herein.
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