December 9, 2011United StatesUS Weekly Kickstart                                                                          ...
December 9, 2011                                                                                                          ...
The charts we are watching: Our 2012 US equity outlookExhibit 1: S&P 500 sales, margins and EPS forecasts vs. consensus   ...
December 9, 2011                                                                                                          ...
December 9, 2011                                                                                                          ...
December 9, 2011                                                                                                          ...
December 9, 2011                                                                                                          ...
December 9, 2011                                                                                                          ...
December 9, 2011                                                                                                          ...
Goldman sachs 12 11-2011
Goldman sachs 12 11-2011
Goldman sachs 12 11-2011
Goldman sachs 12 11-2011
Goldman sachs 12 11-2011
Goldman sachs 12 11-2011
Goldman sachs 12 11-2011
Goldman sachs 12 11-2011
Goldman sachs 12 11-2011
Goldman sachs 12 11-2011
Goldman sachs 12 11-2011
Goldman sachs 12 11-2011
Goldman sachs 12 11-2011
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Goldman sachs 12 11-2011

  1. 1. December 9, 2011United StatesUS Weekly Kickstart Portfolio Strategy ResearchClient response to our 2012 US equity outlookWe met with a range of investors this week to discuss our outlook for US equities in the coming year. We expect sub-trend economicgrowth, 3% growth in S&P 500 earnings (to $100), and flat valuation, leading to a year-end 2012 target of 1250. Most clients agreedwith our view, with pushback focused on margins and Europe. Bullish investors believe margins will grow from the current recordlevels and boost earnings. Others expect resolution in Europe will buoy investor confidence and that the S&P 500 could reach 1400.A small number of investors expect a collapse of the euro; we estimate the market could trade down to 900 in this scenario.Performance Sector views and performance David J. KostinThe S&P 500 fell 0.8% this week. Financials was Our recommended sector weightings gained 3 bp (212) 902-6781 david.kostin@gs.comthe best-performing sector (+0.8%) while Energy this week, and have generated -41 bp of alpha Goldman, Sachs & Co.was the worst-performing sector (-2.1%). We YTD.expect the S&P 500 will trade at 1150 in three Stuart Kaiser, CFAmonths (-7%) and 1250 in 12 months (+1%). (212) 357-6308 stuart.kaiser@gs.com US Portfolio Strategy Baskets Goldman, Sachs & Co. Our recommended trades vs. the SPX: HighS&P 500 Earnings Sharpe Ratio <GSTHSHRP> was up 0.2%, High Amanda Sneider, CFAOur top-down EPS forecasts of $100 and $106 for Quality <GSTHQUAL> was down 0.5%, with (212) 357-9860 amanda.sneider@gs.com2012 and 2013 reflect +3% and +7% growth, Defensives <GSSBDEFS> and Dividend Growth Goldman, Sachs & Co.respectively. Bottom-up consensus forecasts a <GSTHDIVG> trading flat. Peter Lewis10% increase in 2012 to $108, and a 10% increase (212) 902-9693 peter.lewis@gs.com Domestic Sales <GSTHAINT> vs. Internationalin 2013 to $119. Goldman, Sachs & Co. Sales <GSTHINTL> was up 0.3%.Valuation Ben Snider S&P 500 stock performance this week (212) 357-1744 ben.snider@gs.comTop-down, S&P 500 trades at an NTM P/E of Goldman, Sachs & Co. Leaders: GCI, MS, WDC, JPM, and DF.12.5X. Bottom-up, it trades at an NTM P/E of 11.8X Laggards: BHI, TSO, JNPR, BSX, and NFX.and an LTM P/B of 2.1X. Note: The ability to trade these baskets will depend upon market conditions, including liquidity and borrow constraints at the time of trade.Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have aconflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-USaffiliates are not registered/qualified as research analysts with FINRA in the U.S.The Goldman Sachs Group, Inc. Goldman Sachs Global Economics, Commodities and Strategy ResearchGoldman Sachs Global Economics, Commodities and Strategy Research 1
  2. 2. December 9, 2011 United StatesConversations we are having with clients: Client response to our 2012 US equity outlookThis week we met with a wide range of investors to discuss the outlook recapitalization of European banks, and clarity in the region’s future willfor US equities in 2012. Roughly two thirds of the clients we met with cause a surge in investor confidence. Investors commonly quote 1400 as aagree with our base case view that the S&P 500 will deliver lackluster target S&P 500 price level in this “risk-on” scenario of multiple-expansion.returns next year. Among those that do not, Europe is the key factor with The divergence between this view and our own is the path to resolution.bulls outnumbering bears. Investors with global or cross-asset mandates Bulls expect clarity in the near term that will reassure investors. We expectbroadly see US equities as attractive in relative terms. Our outlook is based the situation to worsen before it gets better with market pressure necessaryon three central points: for progress. Our global equity forecasts point to 3- and 6-month downside1. Stagnant economy. Our US economics team expects a fifth straight year in Europe, Asia and the US before recovery in 2H 2012. Clients with global orof sub-trend economic growth with 1.6% GDP growth forecast in 2012 and cross-asset mandates broadly see equities as attractive relative to low bondthe environment persisting in 2013 with 2.2%. They expect unemployment yields and the US as appealing globally due to recent growth momentum.to remain elevated at 9%, fiscal drag from a divided Congress, and EU Summit demonstrates progress but lacked “regime change.”restrained capex in the face of political and economic uncertainty. Overall, policymakers are making progress and signaled a commitment to2. Modest earnings growth. We expect margins to peak in 2011 and fall address the twin sovereign and banking system crises. However, lack ofslightly in 2012. Combined with weak sales growth, this means S&P 500 clarity on the IMF’s role and no clear change in the ECB’s activities inearnings should grow only 3% to $100 in 2012. Consensus expects $108. sovereign debt markets will likely leave some investors disappointed.3. Stable valuation. P/E multiples tended to remain flat during 17 Others who disagree with our forecast argue that margins will continue“stagnation” periods of prolonged weak but positive economic growth in to expand as sales grow, even in a sub-trend economic environment.OECD countries since 1980. A flat P/E of roughly 12x is supported by our However, history shows that margins don’t always expand when sales grow.dividend discount model and uncertainty-based P/E model, although other During the last 40 years S&P 500 margins have hit cycle peaks andapproaches such as the Fed model and the historical ROE vs. price/book contracted six times, and in each period sales continued to grow. Rather,relationship suggest significant upside to fair value. Flat valuation along margins tend to contract in periods of positive but decelerating sales growth.with modest earnings growth translates into our S&P 500 year-end We expect significantly slower sales growth in 2012 than the 11% rate in2012 target of 1250, roughly unchanged from the current level. 2011, as does consensus.For clients who agree with our outlook, we recommend three strategies Margins are the key difference between our earnings forecast and theinvolving our thematic baskets. Buy: (1) High Quality Stocks (Bloomberg consensus view for 2012. We have similar expectations for sales growth inticker: <GSTHQUAL>) with safe balance sheets and a history of stable 2012 at 3.7% vs. 5.1% for consensus (ex-Financials and Utilities). However,growth; (2) Dividend Growth and Yield (<GSTHDIVG>) as investors navigate we expect margins to contract to 8.7% in 2012 from 8.9% in 2011 whilean environment of weak price returns and low yields; (3) stocks with high US consensus expects them to grow to 9.4%. Each 50 bp shift in margins equalssales exposure vs. firms with high international revenues (<GSTHAINT> vs. about $4 in S&P 500 EPS. The 70 bp gap between our margin forecast and<GSTHINTL>). These strategies have generally outperformed in 2011 and consensus explains 75% of the $8 difference in 2012 EPS estimates.should continue to work in 2012 given our outlook. Stocks that appear in at Fear of euro collapse frames more bearish views. A small minority ofleast two of these baskets include ACN, OXY, WAG, CTL, JPM, and WFC. investors expects a euro breakup and a deep recession in Europe. In thisBullish investors hold more positive outlooks for margins and Europe, case our uncertainty-based P/E model suggests the S&P 500 could fall byand argue that our target is too low. Some investors generally agree with roughly 25% to 900. Even if collapse is avoided, the continuation of “passiveour muted outlook for the economy and corporate earnings, but feel that an containment” and delay of resolution continues to raise the costs in bothagreement to end Europe’s debt crisis will inevitably be reached next year. financial and economic terms, creating a poor condition for equity markets.They argue that the stabilization of sovereign balance sheets,Goldman Sachs Global Economics, Commodities and Strategy Research 2
  3. 3. The charts we are watching: Our 2012 US equity outlookExhibit 1: S&P 500 sales, margins and EPS forecasts vs. consensus Exhibit 2: Uncertainty-based P/E model points to possible downsideas of December 8, 2011 as of November 25, 2011 Top-down Bottom-Up 24 GS Forecast Consensus 22 2011E 2012E 2013E 2011E 2012E 2013E S&P 500 forward P/E estimate S&P 500 ex-Financials and Utilities 20 Sales Per Share $873 $905 $949 $871 $915 $961 Y/Y growth 11.2 % 3.7 % 4.9 % 11.0 % 5.1 % 5.0 % 18 Y/Y growth ex- Energy 8.0 2.3 4.3 8.3 4.9 4.8 16 Profit Margin 8.9% 8.7% 8.9% 9.0% 9.4% 10.0% 14 EPS $78 $79 $84 $79 $86 $96 Y/Y growth 16.6% 1.2% 6.9% 17.4% 9.8% 11.6% 12 12.0X 95% confidence range 10.1X Utilities EPS $3 $3 $3 $3 $3 $3 10 Financials EPS 16 17 18 16 18 19 Predicted P/E 8.2X 8 S&P 500 EPS $97 $100 $106 $98 $108 $119 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Y/Y growth 15.9% 2.7% 6.6% 16.5% 10.4% 10.5%Source: Compustat, FirstCall, I/B/E/S, and Goldman Sachs Global ECS Research. Source: Goldman Sachs Global ECS Research.Exhibit 3: Margins often contract when sales growth is positive but slowing Exhibit 4: Each 50 bp shift in margins equals roughly $4 in 2012 S&P 500 EPSas of December 8, 2011 as of December 8, 2011 40 Sensitivity of 2012 EPS forecast to S&P 500 (Ex-Financials & Utilities) 30 sales growth and margin Sales 20 growth 2012 Profit Margin 7.7 % 8.2 % 8.7 % 9.2 % 9.7 % Y/Y Change (%) 10 0 5.7 % 92 97 101 106 111 2012 Sales Growth (10) 4.7 91 96 101 105 110 Margin (20) growth 3.7 91 95 100 104 109 (30) Margins fall while sales 2.7 90 95 99 103 108 growth remains positive (40) 1.7 89 94 98 103 107 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015Source: Compustat and Goldman Sachs Global ECS Research. Source: Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 3
  4. 4. December 9, 2011 United States S&P 500 PerformanceExhibit 5: S&P 500 sector performance over the last week Exhibit 6: S&P 500 price return and daily trading volumeas of December 8, 2011 as of December 8, 2011 1,400 7 Financials 0.8 S&P 500 daily price level (lhs) Cons Discretionary (0.1) 1,300 6 Shares traded (billions) Information Tech (0.4) S&P 500 Price Level 5 Telecom Services (0.4) 1,200 4 Consumer Staples (0.4) S&P 500 1,100 200-day moving average S&P 500 (0.8) 3 Industrials (1.3) 1,000 2 Utilities (1.6) 900 S&P 500 daily trading volume (rhs) 1 Health Care (1.7) Materials (1.9) 800 0 8-Dec-09 8-Sep-10 8-Dec-10 8-Sep-11 8-Dec-11 8-Jun-10 8-Jun-11 8-Mar-10 8-Mar-11 Energy (2.1) (3.0) (2.0) (1.0) 0.0 1.0 1-week Total Return (%)Source: FactSet and Goldman Sachs Global ECS Research. Source: FactSet and Goldman Sachs Global ECS Research.Exhibit 7: S&P 500 sector performance over time Exhibit 8: BEST and WORST performing S&P 500 STOCKS BY SECTORas of December 8, 2011 as of December 8, 2011 Total Return Percentage Change (%) BEST STOCKS WORST STOCKS 1-Week 1-Month 3-Month 6-Month YTD 12-Month Return (%) Return (%) Utilities (2)% (2)% 4% 6% 14 % 17 % Sector Ticker 1-week YTD Ticker 1-week YTD Cons Discr GCI 14 % (14)% DRI (9)% (4)% Consumer Staples (0) 0 4 3 10 12 Consumer Staples DF 6 21 ADM (5) (2) Health Care (2) (2) 2 (4) 8 10 Energy HP 2 22 BHI (11) (13) Cons Discretionary (0) (2) 7 2 5 5 Financials MS 9 (41) CBG (9) (26) Information Tech (0) (3) 8 4 4 4 Health Care LLY 3 17 BSX (10) (30) Energy (2) (5) 4 (6) 3 7 Industrials RHI 4 (8) TXT (7) (24) Telecom Services (0) (2) 4 (2) 1 6 Info Tech WDC 8 (7) JNPR (10) (46) Industrials (1) (2) 8 (6) (3) (0) Materials PX 2 10 ATI (5) (14) Materials (2) (6) (1) (8) (10) (5) Telecom Services VZ 0 11 S (10) (42) Financials 1 (6) 2 (12) (19) (16) Utilities NEE 2 13 NRG (5) (5) S&P 500 (1)% (3)% 5% (2)% 0% 3% S&P 500 GCI 14 % (14)% BHI (11)% (13)%Source: FactSet and Goldman Sachs Global ECS Research. Source: FactSet and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 4
  5. 5. December 9, 2011 United StatesS&P 500 Performance (cont’d)Exhibit 9: TOP 10 performing SUB-SECTORS over the last week Exhibit 10: BOTTOM 10 performing SUB-SECTORS over the last weekas of December 8, 2011 as of December 8, 2011 Investment Banking & Brokerage 5 Health Care Technology (5) Human Resource & Employment… 4 Life Sciences Tools & Services (5) Other Diversified Financial Services 4 Agricultural Products (5) Homefurnishing Retail 3 Electronic Equipment & Instruments (5) Home Improvement Retail 2 Health Care Facilities (5) Homebuilding 2 Oil & Gas Equipment & Services (5) Brewers 2 Casinos & Gaming (6) Auto Parts & Equipment 2 Coal & Consumable Fuels (7) Industrial REITs 2 Home Entertainment Software (8) Semiconductor Equipment 2 Real Estate Services (9) 0 2 4 6 (10) (9) (8) (7) (6) (5) (4) (3) (2) (1) 0 1-week Total Return (%) 1-week Total Return (%)Source: FactSet and Goldman Sachs Global ECS Research. Source: FactSet and Goldman Sachs Global ECS Research.Exhibit 11: TOP 10 performing S&P 500 STOCKS over the last week Exhibit 12: BOTTOM 10 performing S&P 500 STOCKS over the last weekas of December 8, 2011 as of December 8, 2011 Return (%) Return (%) Company Name Ticker Sector 1-week YTD Company Name Ticker Sector 1-week YTD Gannett Inc. GCI Cons Discr 14 (14) Baker Hughes BHI Energy (11) (13) Morgan Stanley MS Financials 9 (41) Tesoro Corp. TSO Energy (11) 17 Western Digital WDC Info Tech 8 (7) Juniper Networks JNPR Info Tech (10) (46) JPMorgan Chase JPM Financials 6 (22) Boston Scientific BSX Health Care (10) (30) Dean Foods Co. DF Consumer Staples 6 21 Newfield Exploration NFX Energy (10) (43) Northern Trust NTRS Financials 5 (28) Sprint Nextel Corp. S Telecom Services (10) (42) CarMax Inc. KMX Cons Discr 5 (4) Darden Restaurants DRI Cons Discr (9) (4) eBay Inc. EBAY Info Tech 5 11 Halliburton HAL Energy (9) (18) Lowes Cos. LOW Cons Discr 4 1 Agilent Technologies A Health Care (9) (17) Tellabs Inc. TLAB Info Tech 4 (39) CBRE Group Inc CBG Financials (9) (26) S&P 500 Average (1) (1) S&P 500 Average (1) (1)Source: FactSet and Goldman Sachs Global ECS Research. Source: FactSet and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 5
  6. 6. December 9, 2011 United StatesEarnings and SalesExhibit 13: EARNINGS GROWTH: S&P 500 bottom-up consensus estimates Exhibit 14: SALES GROWTH: S&P 500 bottom-up consensus estimatesas of December 8, 2011 as of December 8, 2011 2011E Earnings Per Share Growth Annual 2011E Sales Per Share Growth Annual 1QA 2QA 3QE 4QE 2011E 2012E 1QA 2QA 3QE 4QE 2011E 2012E Energy 30 42 68 34 43 2 Energy 18 29 32 19 24 6 Materials 53 50 22 (2) 31 12 Materials 14 13 13 10 13 8 Information Technology 27 23 9 15 18 16 Information Technology 14 13 11 12 12 9 Industrials 25 24 17 4 17 13 S&P 500 10 13 13 9 11 5 S&P 500 16 19 18 13 17 10 Industrials 12 13 10 8 10 6 Financials 8 11 20 25 16 16 Consumer Discretionary 12 13 13 1 9 8 Consumer Staples 8 10 11 6 9 3 Health Care 8 13 3 11 9 10 Health Care 5 7 9 5 6 1 Consumer Staples 8 8 6 3 6 8 Consumer Discretionary 4 6 6 4 5 5 Utilities (10) 5 1 11 1 0 Telecom Services (1) 3 1 4 2 4 Telecom Services (0) (10) 6 (7) (3) 9 S&P 500 (ex-Energy) 14 16 11 10 13 12Source: FactSet and Goldman Sachs Global ECS Research. Source: FactSet and Goldman Sachs Global ECS Research.Exhibit 15: TOP-DOWN vs. BOTTOM-UP: Goldman Sachs vs. Consensus Exhibit 16: TOP-DOWN vs. BOTTOM-UP: Sales and Marginsas of December 8, 2011 as of December 8, 2011 11% Contribution to EPS Annual earnings growth rates Bottom-up Consensus 10% Forecast GS Top-Down EPS Bottom-up GS Top-Down Bottom-Up S&P 500 Net Profit Margin 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2013E 9% (trailing four quarters) 8.9 Telecom Services $3 $3 $2 $3 16 % 5% 9% 15 % 8% Information Technology 19 21 21 23 6 8 16 12 7% Energy 15 17 15 17 5 12 2 11 6% 5.9 Health Care 12 13 13 14 3 3 10 8 5% Goldman Sachs Consumer Staples 9 10 10 11 1 3 8 10 Portfolio 4.7 4% Strategy Utilities 3 3 3 3 (1) 6 0 4 3.9 Forecast 3% Industrials 9 10 11 12 (2) 3 13 12 1979 1984 1989 1994 1999 2004 2009 2014 Consumer Discretionary 8 9 10 11 (7) 5 8 16 Materials 2 3 4 5 (27) 22 12 14 Goldman Sachs Consensus Portfolio Strategy Bottom-UpS&P 500 ex-Financials 82 88 90 100 1 7 9 11 2012E 2013E 2012E 2013E Financials 17 18 18 19 11 5 16 6 Sales Growth 3.7 % 4.9 % 5.1 % 5.0 % Margin Level 8.7 % 8.9 % 9.4 % 10.0 %S&P 500 Operating EPS $100 $106 $108 $119 3% 7% 10 % 10 % Margin Change (%) Y/Y (2) 2 5 6 Margin Change (bp) Y/Y (22) 17 41 59Source: FactSet and Goldman Sachs Global ECS Research. Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 6
  7. 7. December 9, 2011 United StatesRevisionsExhibit 17: EARNINGS and SALES REVISIONS Exhibit 18: Stocks with the most POSITIVE and NEGATIVE EPS REVISIONSAggregate dollars % change, as of December 8, 2011 as of December 8, 2011 EPS REVISIONS SALES REVISIONS POSITIVE 2012 EPS REVISIONS NEGATIVE 2012 EPS REVISIONS 1 month 3 month 1 month 3 month 1 month 3 month 1 month 3 month 12E 13E 12E 13E 12E 13E 12E 13E Ticker Revis. Return Revis. Return Ticker Revis. Return Revis. Return Consumer Staples 0.1 % 0.1 % (1.3)% (1.7)% 0.4 % 0.4 % 0.0 % 0.1 % WDC 186 % 13 % 4% 11 % SHLD (112)% (25)% (127)% 7% Industrials 0.0 (0.3) (3.0) (3.7) (0.4) (0.3) (1.1) (1.6) DE 10 2 7 (0) NFLX (53) (23) (86) (67) Consumer Discretionary (0.1) (0.2) (2.1) (2.3) (0.4) (0.4) (1.0) (1.0) SUN 9 2 8 1 MU (18) (2) (61) (7) Utilities (0.1) (0.4) (0.7) (0.6) NM NM NM NM Health Care (0.1) (0.2) (0.6) (0.5) (0.7) 0.1 (0.7) (0.1) PHM 7 2 39 35 AMAT (18) (14) (18) 1 Energy (0.2) 0.5 (5.6) 1.5 (1.0) 4.2 (9.3) 1.3 DNR 7 (8) (9) 8 TLAB (14) (9) NM 0 S&P 500 (0.3) (0.2) (3.6) (2.7) (0.4) 0.7 (2.4) (0.2) CTL 7 (5) 28 6 MPC (14) (11) (11) (10) Information Technology (0.4) 0.1 (0.6) (0.5) (0.4) (0.4) (1.1) (0.6) RAI 5 4 5 8 ADI (13) (6) (15) 6 Telecommunication Services (0.6) 0.2 (7.1) (8.2) 0.1 0.6 0.3 1.2 DHI 5 2 0 25 WY (13) (4) (36) (3) Materials (0.7) (0.4) (9.1) (5.0) 0.4 0.6 0.0 0.1 TSN 5 3 5 18 CSC (12) (24) (15) (12) Financials (0.7) (1.1) (8.2) (8.8) NM NM NM NM AKS 4 (9) (34) (3) HPQ (11) (1) (14) 16 S&P 500 (0)% (3)% (4)% 5% (0)% (3)% (4)% 5%Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research. Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research.Exhibit 19: S&P 500 1-Month EPS Revision Sentiment vs. 1-Month Return Exhibit 20: 1-Month Earnings Revision Sentiment by SECTORas of December 7, 2011 as of December 7, 2011 60% 30 % 4% 2% S&P 500 1-Month FY2 EPS Revision Sentiment (lhs) 40% [(# pos. revisions - # neg. revisions)/ total revisions] 20 % 0% 1-Month Revision Sentiment S&P 500 Monthly % Return (2)% Earnings Sentiment (4)% 20% 10 % (6)% (8)% (0)% 0% (10)% (12)% 1-Month Earnings Revision Sentiment by Sector (20)% (10)% (14)% [(# pos. revisions - # neg. revisions)/ total revisions] Price Performance (rhs) (16)% (40)% (20)% Energy Health Care Consumer Discr S&P 500 Materials Info Tech Industrials Consumer Staples Utilities Financials Telecom Services (60)% (30)% Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research. Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 7
  8. 8. December 9, 2011 United StatesValuationExhibit 21: Aggregate valuation metrics for S&P 500 and sectors Exhibit 22: Standard deviation vs. 10-year history (Z-Score)bottom-up consensus valuation, as of December 8, 2011 bottom-up consensus, as of December 8, 2011 EV/ EV/ Price/ FCF PEG NTM EV/ EV/ Price/ FCF PEG Median Sales EBITDA Book Yield Ratio P/E Sales EBITDA Book Yield P/E Ratio Z-Score S&P 500 1.3x 7.1x 2.1x 6.5 % 1.0x 11.8x S&P 500 (1.0) (1.7) (1.4) (1.2) (1.7) (1.9) (1.6) Telecommunication Services 1.8 5.9 1.8 9.7 2.7 16.9 Financials NM NM (1.7) NM (1.0) (1.2) (1.2) Consumer Staples 1.2 9.4 3.5 5.5 1.6 14.4 Health Care (1.3) (1.0) (0.9) (2.2) (0.5) 2.6 (0.9) Consumer Discretionary 1.3 7.2 2.9 6.4 1.0 14.0 Information Technology (0.5) (1.0) 0.9 (1.4) (1.1) (0.6) (0.8) Utilities NM 7.5 1.5 1.9 3.9 13.9 Energy (0.6) (0.5) 0.0 1.0 0.6 (0.7) (0.2) Industrials 1.5 8.6 2.5 6.5 0.8 12.3 Materials 0.2 (0.4) 0.8 (0.1) 0.1 (0.5) 0.0 Information Technology 2.0 7.7 3.4 8.0 0.9 12.0 Consumer Discretionary 2.5 0.8 2.4 (0.2) 0.0 (0.2) 0.4 Materials 1.3 6.6 2.4 6.4 0.9 11.8 Industrials (1.1) 0.2 1.3 1.3 0.6 (1.4) 0.4 Health Care 1.1 7.1 2.4 9.5 1.3 11.1 Telecommunication Services (0.2) 1.8 1.0 0.2 3.4 2.6 1.4 Energy 1.0 4.8 2.0 2.8 0.7 10.1 Utilities NM 1.4 0.6 0.0 1.7 3.8 1.4 Financials NM NM 0.9 NM 0.8 9.5 Consumer Staples 2.4 2.8 0.0 1.3 2.0 2.7 2.2Source: Compustat, FirstCall, via FactSet, and Goldman Sachs Global ECS Research. Source: Compustat, FirstCall via FactSet, and Goldman Sachs Global ECS Research.Exhibit 23: Historical NTM P/E and LTM P/B values for the S&P 500 Exhibit 24: Top stocks by fastest 2012E earnings growth and lowest NTM P/Eaggregate bottom-up consensus valuation, as of December 8, 2011 by sector, as of December 8, 2011 30 GROWTH VALUE 25 Fastest EPS Growth (%) Lowest P/E (x) P/E Sector Ticker 2012E 2013E Ticker NTM Rel to SPX NTM P/E (x) 20 15 Cons Discr AMZN 67 83 GCI 5.9 0.5 10 Consumer Staples DF 24 25 SVU 5.7 0.5 11.8 5 10-yr rolling avg Energy NBR 54 17 VLO 4.8 0.4 0 1/76 1/79 1/82 1/85 1/88 1/91 1/94 1/97 1/00 1/03 1/06 1/09 1/12 Financials ZION 75 26 LNC 5.1 0.4 Health Care EW 39 28 CI 7.8 0.7 6 Industrials LUV 97 33 RRD 7.4 0.6 5 P/B LTM P/B (x) 4 Info Tech MU 81 NM FSLR 5.5 0.5 3 Materials ATI 49 31 CLF 5.7 0.5 2 10-yr rolling avg Telecom Services AMT 68 26 PCS 10.1 0.9 1 2.1 0 Utilities NRG 25 (20) AES 8.8 0.7 1/76 1/79 1/82 1/85 1/88 1/91 1/94 1/97 1/00 1/03 1/06 1/09 1/12Source: Compustat, FactSet, and Goldman Sachs Global ECS Research. Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 8
  9. 9. December 9, 2011 United StatesS&P 500 Factor PerformanceExhibit 25: S&P 500 factor return ranking for the week ended December 8, 2011 (a) Last Week Spread (%) Performance Spread of Top Quintile Less Bottom Quintile (%) Last Last Five Trading Days Last Last Growth Metrics (b) (2) (1) 0 1 2 Week 2-Dec 5-Dec 6-Dec 7-Dec 8-Dec Month Quarter EPS Growth (0.5) 0.4 0.4 (0.2) (0.4) (0.8) (0.6) 3.2 GROWTH (1.3) 0.2 0.4 (0.2) (0.7) (1.0) (1.4) 1.3 EBITDA Growth (1.3) 0.1 0.2 (0.1) (0.9) (0.6) (0.8) 2.3 Sales Growth (1.9) (0.3) 0.3 (0.5) (0.6) (0.8) (1.7) (0.2) (b) Value Metrics EV/DACF 1.5 0.0 (0.3) 0.7 0.3 0.9 2.5 5.2 P/B 1.4 0.0 (0.2) 0.2 (0.2) 1.5 3.3 10.0 EV/EBITDA 1.2 (0.0) (0.2) 0.5 0.1 0.7 1.3 5.0 VALUATION 0.8 0.3 (0.2) 0.3 (0.2) 0.6 1.5 7.4 EV/FCF 0.6 0.5 (0.1) 0.5 (0.2) (0.1) 0.3 1.5 P/E 0.6 0.3 (0.1) (0.0) (0.0) 0.4 1.3 8.2 P/Div (1.1) (0.1) 0.1 (0.4) (0.3) (0.5) (1.3) 2.9 (b) Profitability Metrics ROE 0.3 (0.1) (0.4) (0.1) (0.4) 1.3 3.6 5.1 ROCE 0.1 (0.3) (0.3) (0.1) (0.2) 1.0 2.0 6.5 CROCI (0.0) (0.1) 0.3 (0.6) (0.3) 0.6 1.1 6.4 PROFITABILITY (0.1) (0.2) (0.1) (0.3) (0.6) 1.0 2.5 7.3 Other Metrics(c) Short Interest Level 0.1 0.3 1.3 (0.5) 0.3 (1.2) (2.9) (4.2) Equity Capitalization 0.6 (0.1) (0.9) 0.5 0.1 0.9 3.6 4.6(a) Factor return analysis uses S&P 500 companies included in the Goldman Sachs Americas coverage universe with stock prices greater than $5 at the time of publication.(b) Growth, Value and Profitability analysis is based on Goldman Sachs Investment Profile scores (“IP Scores”). Growth, value and profitability metrics are indexed based on composites of several methodologies todetermine the stocks percentile ranking within the region’s coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:Growth is a composite of next year’s estimate over current year’s estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE.Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book.(c) “Other metric” analysis based on current market prices and data sourced from NASDAQ and NYSE via FactSet.Source: NASDAQ and NYSE via FactSet, IDC, and Goldman Sachs Global ECS Research.Goldman Sachs Global Economics, Commodities and Strategy Research 9

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