11 April 2018 | 3:54AM EDT

Top 25 Tactical Trades for Earnings Season

The cross-currents of tax reform, wage inflation, rising rates and repatriation have John Marshall
+1(212)902-6848 |
driven unusually high dispersion in earnings estimates over the past 5 months. The john.marshall@gs.com
Goldman Sachs & Co. LLC
environment is likely to get more complicated rather than less as widening credit
Katherine Fogertey
spreads, trade war fears and Tech regulation are escalating issues over the past +1(212)902-6473 |
katherine.fogertey@gs.com
month. We expect this environment to favor stock pickers focused on estimate Goldman Sachs & Co. LLC

revisions with a keen awareness of positioning. In this report, we leverage our Vishal Vivek
+1(212)902-2603 | vishal.vivek@gs.com
analysts’ fresh estimates to identify the 25 most out-of-consensus opportunities Goldman Sachs & Co. LLC
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from our Americas coverage universe in collaboration with our analysts. We see Arun Prakash, CFA
+1(212)934-6218 | arun.prakash@gs.com
Goldman Sachs India SPL
potential for upward earnings revisions to drive upside in AMTD, DWDP, DXC and
WMT shares and downward earnings revisions to drive downside in CAKE, GM and
UTHR shares.

Key positioning observations as we approach earnings season:

n Index options: Open interest shows investors are not well hedged ahead of
earnings season and put-call skew show calls are in high demand relative to
puts. At the macro level, the “buy-the-dip” sentiment continues to dominate
positioning.
n Single Stock options: Put skew and put-call volume ratios show that fear at the
single stock level has increased ahead of earnings. Options imply a +/- 5.6%
move on earnings day for the average stock in the S&P 500; the third highest
implied move in the past 8 years.
n Staples and Energy have underperformed their normal relationship with macro
assets by more than 20% over the past year, setting up for a relief rally on
positive estimate revisions.
n Tech underperformance over the past three weeks as mean-reversion rather
than evidence of serious tail risks; we are selective and balanced in our TMT
exposure on today’s list.
n Heavily shorted names are less volatile than the SPX for the first time in 6
years. This suggests investors that short stocks (i.e. Hedge Funds) are not
making big changes to their positions on a daily basis, while investors that trade
at the index level are rapidly changing their positioning.

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 a conflict 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-US affiliates are not registered/qualified as research
analysts with FINRA in the U.S. This report is intended for distribution to GS institutional clients only.
 Goldman Sachs

Our 25 most differentiated ideas for the next 3 months of earnings

Exhibit 1: Companies where our analysts are most out-of-consensus for the coming quarter and expect shares to move
Goldman Sachs analyst estimates vs. consensus; options chosen are monthly expiry closest to first out of the money calls, puts

Upside to estimates
Performance, EPS: Chg in EPS Options :
Stock Move
Short Interest GS vs Consensus consensus (buy calls)
1yr vs Implied 8Q avg
Earnings GS Perf vs SI / Current Next 4 2 months Move move
Company Ticker Sector date (e) Rating Price sector ADV Q Q’s ago % % Term strike cost

ConocoPhillips COP Energy 26-Apr B/A 62.34 26% 4% 9% 14% 2% 3.3 1.9 May 62.50 3.6%
Occidental OXY Energy 8-May B/A* 70.51 12% 2% > 20% > 20% 1% 4.6 2.5 May 72.50 2.1%
Pioneer Natural PXD Energy 2-May B/A 178.32 (5%) 3% 19% 20% 2% 5.8 5.1 May 180.00 4.3%
TD Ameritrade AMTD Financials 23-Apr N/A 59.92 39% 2% > 20% 13% 2% 5.9 2.7 May 60.00 4.1%
Bank of America BAC Financials 16-Apr B/A* 30.48 14% 2% 3% 1% 0% 5.1 1.2 April 31.00 1.4%
State Street STT Financials 20-Apr B/A* 99.91 9% 2% 1% 2% 0% 5.9 3.4 May 100.00 3.8%
Edwards Life EW Healthcare 24-Apr B/A* 140.30 40% 2% 5% 2% 0% 7.3 7.0 May 145.00 3.3%
Eaton ETN Industrials 1-May B/N 77.59 (9%) 3% 4% 3% 0% 5.2 2.4 May 80.00 1.9%
Northrop Grumman NOC Industrials 25-Apr B/A 346.74 33% 2% 6% 3% 0% 5.6 1.9 May 350.00 3.0%
DowDuPont DWDP Materials 3-May B/A 65.89 (7%) 2% 8% 6% 0% 4.8 1.3 May 67.50 2.5%
Westrock WRK Materials 27-Apr B/N* 64.56 14% 4% 4% 4% (1%) 5.6 2.1 May 65.00 3.3%
Estee Lauder EL Staples 2-May B/N 152.30 84% 3% 5% 4% 0% 5.5 4.6 May 155.00 3.0%
Wal-Mart WMT Staples 17-May B/N* 86.45 25% 4% 4% 2% (1%) 4.7 4.6 May 87.50 2.7%
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Broadcom AVGO TMT 24-May B/N 239.75 (14%) 1% 2% 7% 1% 8.4 5.1 June 240.00 5.8%
Cisco CSCO TMT 16-May B/A* 42.51 4% 2% 2% 4% 1% 5.9 4.0 May 43.00 3.4%
DXC Tech DXC TMT 24-May B/N* 102.53 13% 4% 7% 12% (0%) 8.1 5.7 June 105.00 4.6%
Teradyne TER TMT 25-Apr B/A 43.44 23% 5% 12% 9% (0%) 7.7 5.3 May 45.00 4.3%
Twitter TWTR TMT 25-Apr B/A 29.53 81% 1% 9% 2% 1% 14.9 12.2 May 30.00 8.7%
Average 21% 3% 8% 7% 0% 6.3 4.1 3.7%

Downside to estimates
Performance, EPS: Chg in EPS Options :
Stock Move
Short Interest GS vs Consensus consensus (buy puts)
1yr vs Implied 8Q avg
Earnings GS Perf vs SI / Current Next 4 2 months Move move
Company Ticker Sector date (e) Rating Price sector ADV Q Q’s ago % % Term strike cost

Cheesecake CAKE Discretionary 25-Apr S/N 51.94 (35%) 12% (3%) (4%) (1%) 6.2 4.5 May 50.00 3.1%
United Therapeutics UTHR Healthcare 25-Apr S/N 111.97 (19%) 10% (3%) (17%) 7% 9.6 6.3 May 110.00 5.5%
Esterline Tech ESL Industrials 3-May S/N 71.90 (29%) 5% (6%) (2%) (2%) 7.3 8.7 May 70.00 4.9%
General Motors GM Industrials 26-Apr S/C 39.07 (2%) 3% (13%) (10%) (1%) 5.2 2.7 May 39.00 3.7%
Johnson Controls JCI Industrials 26-Apr S/N 33.72 (31%) 5% (8%) (2%) (0%) 5.5 4.4 May 33.00 3.1%
Corning GLW TMT 24-Apr S/N 27.34 (22%) 3% (3%) (6%) 0% 6.3 5.0 May 27.00 3.3%
TripAdvisor TRIP TMT 8-May S/A 40.83 (20%) 9% (12%) (13%) 1% 7.3 8.2 May 40.00 6.0%
Average (23%) 7% (7%) (8%) 1% 6.8 5.7 4.2%

Source: Goldman Sachs Global Investment Research, Thomson Reuters, Bloomberg

*Indicates the stock is on the Conviction List. See the following content for drivers of
our analysts’ views. Prices as of April 10, 2018. OXY, PXD estimates based on EBITDA.
** Note: in the GS Rating column, the second designation refers to the following:
N=Neutral coverage view, A=Attractive coverage view and C=Cautious coverage view.
Options risks: Call buyers risk losing their premium paid if shares close below the strike
price at expiration. Put buyers risk losing their premium paid if shares close above the
strike price at expiration.

Options prices and volatility levels in this note are indicative only, and are based on our estimates
of recent mid-market levels and exclude transaction costs, unless otherwise stated. Practical
implementation of any trading strategy discussed herein may not be achievable and as a result, any
projected results of any such trading strategy discussed herein may not be replicable.

11 April 2018 2
 Goldman Sachs

Investors have positioned for bullish index, bearish stock asymmetry

We monitor put-call skew to understand supply/demand for directional asymmetry

among equity investors. While options volumes remain strong and options prices are
generally rising (both indicating increased levels of uncertainty), there is a divergence
between macro and micro investors. At the index level, put-call skew has recently
decreased and is in its 15th percentile relative to the past year; this indicates to us that
investors have greater near-term upside expectations than normal. In contrast, Put-call
skew on the average stock in the S&P 500 is in its 80th percentile relative to the past
year, suggesting nervousness about potential asymmetric downside this earnings
season.

Combining these observations, we are focused on identifying opportunities for

relief rallies in single names where fears may be overblown. On average, put-call
skew has increased the most in the Tech sector over the past 6 months, suggesting
fears are unusually elevated as we approach earnings. Put-call skew has also increased
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significantly in Discretionary and Financials. Put-call skew has only declined for Utilities.

Exhibit 2: Index put-call skew is low relative to average stock put-call skew
SPX and S&P 500 average stock 1 month 25 delta put-call normalized skew: (25dp-25dc)/50dc

0.60 0.20

S&P 500 Avg Stock 3-mon Norm Skew

0.55 0.18
SPX Index 3-mon Norm Skew

0.50
0.16
0.45
0.14
0.40
0.12
0.35
0.10
0.30
0.08
0.25
SPX Index 1-mon Skew
0.20 0.06
S&P 500 Avg Stock 1-mon Skew
0.15 0.04
Aug-17

Feb-18
Jun-17

Jul-17

Sep-17
May-17

Apr-18
Oct-17
Apr-17

Jan-18
Nov-17

Dec-17

Mar-18

Source: Goldman Sachs Global Investment Research

The Tech mean reversion is 2/3rds complete. QQQ outperformed its normal
relationship with macro assets by about 6% from Jan 1st to Mar 12th. We believe there
was a flight to the safety of Tech following February volatility leading the sector to get
crowded. Since March 12th, QQQ has declined about 4% relative to macro assets.

While headlines about tech stocks have dominated the news cycle and have been
widely cited as a key cause of stock price weakness by the investors we speak with, we
believe it is more likely that simple crowding earlier in the year was a key reason for the
recent underperformance. We think this observation should be reassuring to
fundamental managers that have yet to see a strong connection between regulatory risk
and near-term fundamentals (i.e. maybe there isn’t a big tail risk developing here?).
While we continue to see some overpositioning in Tech, we see less of a headwind after

11 April 2018 3
 Goldman Sachs

the recent mean-reversion. Given the sharp increase in put-call skew in the tech sector,
we believe calls are unusually attractive in the tech sector ahead of earnings.

Exhibit 3: Tech has pulled back over the past month

QQQ vs. SPY, Europe, China, 10y Treasuries, Oil

6%
QQQ Performance vs SPY,FEZ,FXI,IEF,USO

4%

Outperformance vs ETF
2%

0%

-2%

-4%

Aug-17

Sep-17

Feb-18
Jan-18
Jul-17
Jun-17

Oct-17

Nov-17

Apr-18
May-17

Dec-17

Mar-18
For the exclusive use of PEISMA@TREESDALELLC.COM

Source: Goldman Sachs Global Investment Research, Bloomberg

Consumer Staples positioning still likely to be a tailwind. The Staples sector has
rebounded about 4% relative to its normal relationship with macro assets. The analysis
below shows that this is only a small reversal of the 16% underperformance since the
US Presidential Election. The last two mean reversions have come during sideways
markets for the SPX, suggesting this effect is not just driven by risk-on/risk-off periods,
but instead is driven by sentiment shifts unique to Consumer Staples.

Exhibit 4: Staples sector has underperformed macro assets since the US Presidential Elections
XLP vs SPY, 10y Treasuries, Emerging Markets, China, Oil

4%

0%

-4%
Outperformance vs ETF

-8%

-12%

-16%

XLP Performance vs SPY,IEF,VWO,FXI,USO

-20%
Jul-17

Sep-17
Jan-17

Jan-18
Nov-16

May-17
Mar-17

Nov-17

Mar-18

Source: Goldman Sachs Global Investment Research, Bloomberg

Energy looks like the least crowded sector. Over the past two years, Energy equities
have underperformed their normal relationship with oil and the SPX by more than 30%.
While we are sympathetic to the view that there has been a structural shift that has

11 April 2018 4
 Goldman Sachs

caused the breakdown in this relationship, our lack of inquiries on the sector suggest
that generalist interest is at unusually low levels. We believe there is likely to be some
mean-reversion (XLE higher or WTI lower) but do not expect a full mean-reversion to the
old levels. Our constructive view on Energy equities is bolstered by strength in Energy
corporate credit over the past year. This suggests that investors are pricing limited
upside to valuations rather than pricing a large downside tail risk.

Exhibit 5: Energy stocks have underperformed relative to oil

XLE/SPX Spread vs 2 year Oil swap

10%

0%
XLE/SPX spread (Cumulative Return)
-10%
Indexed Performance

2 Year Oil Swap

-20%

-30%
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-40%

-50%

-60%
Jan-13

Jul-13

Jul-14

Jul-15

Jan-17

Jan-18
Jul-12

Jul-16

Jul-17
Apr-12

Jan-14

Jan-16
Oct-12

Apr-13

Oct-13

Apr-14

Jan-15
Oct-14

Apr-15

Oct-15

Apr-16

Oct-16

Apr-17

Oct-17

Apr-18
Source: Goldman Sachs Global Investment Research, Bloomberg

Volatility increase isolated to Equity for the moment. Equity volatility has remained
persistently elevated over the past few weeks, but volatility has yet to rise in other asset
classes. Below we show SPX implied vol indexed to two years ago, compared with the
average 3-month implied volatility across 10Y interest rate options, Euro, Yen, Pound,
CDX HY, Copper and Oil. We believe this shows there is room for equity investor
concerns to decline and underpins our constructive view ahead of earnings.

Exhibit 6: Cross-asset volatility has not increased along with equity volatility
SPX 3m implied vol vs average 3-month implied volatility across 10Y interest rate options, Euro, Yen, Pound, CDX
HY, Copper and Oil

1.6
SPX 3-month implied volatility
Cross-Asset Volatility
1.3
Indexed to start of period

1.0

0.7

0.4
Feb-17

Feb-18
Jun-16

Jan-17

Jun-17
Jul-17
Jul-16

Sep-16

Aug-17
Sep-17
Apr-16

Aug-16

Jan-18

Apr-18
May-16

Oct-16

Oct-17
Apr-17
Mar-17

May-17

Mar-18
Nov-16

Nov-17
Dec-17
Dec-16

Source: Goldman Sachs Global Investment Research

11 April 2018 5
 Goldman Sachs

Heavily shorted names showing lower than expected volatility. For the first time in
6 years, the volatility of the S&P 500 has been greater than the volatility of the most
shorted stocks. This suggests investors that short stocks (i.e. Hedge Funds) are not
making big changes to their positions on a daily basis, while investors that trade at the
index level are rapidly changing their positioning. We believe it is increasingly important
for portfolio managers to know how much of their stocks are owned by passive funds as
that appears to be one of the primary sources of the recent volatility. It may be less
important than normal to track the institutional investor ownership of stocks as that is
not the primary source of recent volatility.

Exhibit 7: Low volatility of shorts suggest Hedge Funds aren’t driving recent volatility
1 month realized volatility of GSCBMSAL vs SPX

40

35 Usually heavily shorted names are more

volatile than the SPX, but recently shorts
have been less volatile.
Realized volatility (1-month)

30
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25

20

15

10

5
Most Shorted Basket SPX
0
Aug-12

Feb-13

Aug-13

Aug-14

Feb-16

Aug-16

Feb-17

Aug-17
Feb-14

Feb-15

Aug-15

Feb-18
May-12

May-13

Nov-13

May-14

Nov-14

May-15

Nov-15

May-16

May-17

Nov-17

May-18
Nov-12

Source: Goldman Sachs Group Inc., Bloomberg Nov-16

11 April 2018 6
 Goldman Sachs

Earnings day moves rise, but average daily moves rise faster

Over the past few years, single stock volatility has become concentrated around
earnings events. This reversed over the past quarter as macro volatility increased
and non-earnings news was the primary driver for stock volatility. Despite this
shift, we remain focused on buying volatility for known earnings events as they
remain large predictable sources of volatility.

Exhibit 8: Earnings day moves remain above average Exhibit 9: Earnings day moves have dropped to 2.9 times an average
Average earnings day move; Average daily move for 1 month before and daily move
after the earnings event; S&P 500 stocks Average earnings day move / Average daily move 1-month before and
after earnings; S&P 500 stocks

10% 5

Earnings-day move / average daily

Avg Earnings Day Moves
Average earnings day Earnings day moves are 2.9 times as
Avg Non-Earnings Day Moves
8% moves are still high stock moving as an average day,
relative to non-earnings 4 above the average of 2.4 times over
the past 18 years.
Average moves

6%
3

move
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Average
4%
2
2%
1
0%

Quarter
Quarter

Source: Bloomberg, Goldman Sachs Global Investment Research Source: Bloomberg, Goldman Sachs Global Investment Research

Consumer Discretionary and Staples earnings day moves are large. While the
Consumer Discretionary sector has had big moves for years, moves in the Consumer
Staples sector have recently increased and present unusually strong alpha opportunities.
In historically macro sectors such as Utilities, Energy and Financials, earnings day
volatility has remained consistent with history.

Exhibit 10: Earnings day moves are significant for Discretionary Exhibit 11: Earnings day moves relative to average daily moves;
and Information Technology stocks above historical levels for all sectors
Average earnings day move; Average daily move for 1 month before and Average earnings day move / Average daily move for 1 month before
after the earnings event and after the earnings event

6 6%
Earnings day move relative to avg
Earnings-day move / average daily

daily move (past 4Q) Avg Earnings Day Moves (past 4Q)
5 5%
18-year average Avg Non-Earnings Day Move (past 4Q)
4 4%
Average Moves

3 3%
move

2 2%

1 1%

0 0%
Energy
Discretionary

InfoTech

Materials

Financials
Staples

Industrials

Healthcare

Utilities

Energy
Healthcare

Industrials

Materials
Staples

Financials
InfoTech
Discretionary

Utilities

Source: Bloomberg, Goldman Sachs Global Investment Research Source: Bloomberg, Goldman Sachs Global Investment Research

The increased volatility around earnings events comes with higher returns. We
monitor the percentage of the total quarterly return that has come from the 6 business

11 April 2018 7
 Goldman Sachs

days around earnings (i.e. the “earnings period”) to evaluate how important it is to be
invested during earnings. We find that for most years and most sectors, earnings
periods contribute a disproportionate amount of the total return. In sectors like Tech, the
percentage of the return during earnings period is far in excess of the number of days.
The 6 day earnings period is 11% of the days each quarter, so any number over 11% is a
disproportionate contribution. Over the past three years, Financials, Health Care and
Staples are the only sectors where total returns have come disproportionately on
non-earnings period days.

Exhibit 12: Earnings week contributes a large amount to quarterly Exhibit 13: Tech returns come during earnings weeks
returns 3 year avg. earnings week return/quarterly return by sector
3Y rolling avg. earnings week/quarterly return (neg. omitted)

70%
FAAMG
3yr rolling avg earnings week

60% Materials
Tech
return / Qtrly return

50%
Utilities
40% Discretionary
Industrials
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30%
Staples
20% AVERAGE
Healthcare
10%
Financials
0% 0% 10% 20% 30% 40% 50%
1999

2001

2004

2006

2009

2011

2014

2016
1998

2000

2002
2003

2005

2007
2008

2010

2012
2013

2015

2017
2018

3yr rolling avg earnings week return / Qtrly return

Source: Bloomberg, Goldman Sachs Global Investment Research Source: Bloomberg, Goldman Sachs Global Investment Research

11 April 2018 8
 Goldman Sachs

Timing of earnings reports by sector

For investors that aim to trade earnings revisions at the sector level with options, it is
important to be aware of the timing of reports within the sector. Below, we highlight the
percentage of market cap reporting in each week of this earnings season; at the top of
the list are the sectors with the highest concentration of earnings reports early in this
season.

Exhibit 14: Financials, Healthcare and Industrials are the most concentrated early reporters, while Consumer earnings are well spread over
earnings season
% of index weight reporting in each week; April options expire Friday April 20th
Sector/Wk Ending 13-Apr 20-Apr 27-Apr 4-May 11-May 18-May later
Financials (XLF) 28% 31% 18% 21% 0% 0% 1%
Late <------------> Early

Industrials (XLI) 2% 20% 58% 11% 1% 2% 4%

Health Care (XLV) 0% 26% 34% 32% 2% 2% 5%
Energy (XLE) 0% 10% 63% 20% 7% 0% 0%
Real Estate (XLRE) 0% 14% 33% 42% 3% 0% 7%
Utilities (XLU) 0% 12% 32% 44% 12% 0% 0%
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Materials (XLB) 0% 8% 37% 34% 6% 2% 12%

Information Technology (XLK) 0% 3% 51% 23% 4% 6% 13%
Consumer Staples (XLP) 0% 21% 32% 19% 4% 8% 17%
Consumer Discretionary (XLY) 0% 6% 42% 12% 13% 9% 17%

Source: Bloomberg, StreetEvents

We compare the concentration of earnings reports by sector (above) to the term

structure implied by the sector ETF options (below) to identify where the options market
is underestimating earnings-related volatility.

Exhibit 15: Term structure for ETF vs. SPX options till June expiry
ATM implied volatility for respective terms; ETF (blue) and SPX (grey) data on separate axes for each chart

InfoTech Industrials Healthcare Financials Discretionary Utilities

(XLK) (XLI) (XLV) (XLF) (XLY) (XLU)
4-May

4-May

4-May
13-Apr
20-Apr
27-Apr

11-May
18-May

13-Apr
20-Apr
27-Apr

11-May
18-May

13-Apr
20-Apr
27-Apr

11-May
18-May

4-May
13-Apr
20-Apr
27-Apr

11-May
18-May

4-May

4-May
13-Apr
20-Apr
27-Apr

11-May
18-May

13-Apr
20-Apr
27-Apr

11-May
18-May

Source: Goldman Sachs Group Inc

11 April 2018 9
 Goldman Sachs

Implied earnings moves are up significantly, near 11-year average

The average implied earnings day move ahead of this earnings season is +/-5.6%,
up sharply from last quarter and near its 11-year average (including the 2008
Crisis). Implied moves are up because of higher market volatility as well as increased
dispersion expectations. We see the elevated implied move as further evidence of high
risk aversion ahead of this earnings season.

Exhibit 16: The average stock is implying an earnings day move of 5.6%
S&P 500 average stock implied and realized earnings day moves; based on index members in each quarter

14

12.3

12
Implied Moves

Realized Moves
10 9.6
9.1
Earnings day move (+/- %)
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8.2
8
7.2 7.1
6.8
6.6
6.2 6.0 6.1
5.8 5.9 6.0 6.0 5.8 5.8
6 5.6 5.7 5.5 5.5
5.4 Long termAvg = 5.5% 5.3 5.6
5.2 5.1 5.2
5.0 4.9 5.0 5.0 5.0 5.0 5.0 4.9 5.1
4.8 4.9 4.8 4.9
4.5 4.7 4.7 4.6 4.7 4.6 4.7 4.6 4.7 4.7 4.5 4.5 4.7 4.7
4.3 4.6 4.5 4.4 4.3
4.1 4.2 4.2 4.2 4.1
4.0 4.1 3.9 3.8
3.8 3.9 3.8
4 3.6 3.7 3.7 3.8
3.4 3.4 3.4 3.5 3.4 3.3
3.5 3.4
3.4 3.5 3.4 3.5 3.4 3.4
3.1 3.2 3.1 3.3
3.0 3.2 3.0 3.1 3.0
2.8

0
2006Q1
2006Q2
2006Q3
2006Q4
2007Q1
2007Q2
2007Q3
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
Source: Bloomberg, Goldman Sachs Group Inc

Exhibit 17: The April earnings season tends to imply relatively high earnings moves
Historical average S&P 500 stock implied and realized earnings day moves by quarter

Average Historical Implied Moves Average Historical Realized Moves

5.9
5.5 5.4 5.3

3.9
3.7 3.7
3.4

Jan-Mar Apr-Jun Jul-Sep Oct-Dec

Source: Bloomberg, Goldman Sachs Group Inc

11 April 2018 10
 Goldman Sachs

How can implied moves be consistently above earnings day moves yet straddle
and call buying is profitable in our studies? Implied moves are driven by options
across strikes and terms. Expensive out-of-the-money (OTM) options tend to inflate
implied moves. We believe OTM options are driven up by investors hedging or
speculating on a big move on earnings day. This information leads us to systematically
favor buying at-the-money (ATM) options for earnings events rather than OTM options.

Call buying ahead of earnings has consistently outperformed. Call buying has been
profitable ahead of earnings in each year on aggregate since 1996. While the returns
from call buying in 1Q2018 were negative, we expect this to reverse in 2Q2018.

Exhibit 18: Buying calls ahead of last quarter’s earnings yielded a -4% return on premium
Profit at mid-market for buying first OTM calls, five days before earnings event and selling one day after

50% Average of Call buying returns Average

Profit/Loss, return on premium

Call buying ahead of earnings has

40% consistently outperformed

30%
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20%

10%

0%

-10%
1996

2001

2002

2003

2004

2005

2010

2011

2012

2013

2014
1997

1998

1999

2000

2006

2007

2008

2009

2015

2016

2017

2018 Q1
Source: Goldman Sachs Group Inc, OptionMetrics

Exhibit 19: Buying straddles ahead of last quarter’s earnings yielded +15% return on premium
Profit at mid-market for buying closest to ATM straddles 5 days before earnings event and selling one day after

Straddle buying ahead of earnings

20% Average of Strangle buying returns Average has seen positive performance on
average
Profit/Loss, return on premium

15%

10%

5%

0%

-5%

-10%
1996

1997

1999

2001

2002

2004

2006

2007

2009

2012

2014

2015

2017
1998

2000

2003

2005

2008

2010

2011

2013

2016

2018 Q1

Source: Goldman Sachs Group Inc, OptionMetrics

11 April 2018 11
 Goldman Sachs

Upside to consensus: Fundamental ideas in brief

Our investment process: We screened for the top 25 opportunities out of the entire
Goldman Sachs US coverage universe of approximately 1,000 companies. We
focused our analysis on stocks with liquid options to improve the tradability of the view.
We generally only considered companies where earnings were greater than $0.05 per
share for the next four quarters. These first two criteria reduced the tradable events to
608 stocks. We only considered stocks where our analysts are above/below Thomson
Reuters’ consensus for the upcoming quarter and for the year on a key financial metric.
All of the criteria combined narrowed the list of potential opportunities to 233 stocks.

Discussions with our analysts were the key to narrowing the list of 233 to 25. We
spoke with each analyst to understand their reasons for being above or below
consensus. We then selected those stocks that our analysts believe are most likely to
react in the direction of their earnings view.
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Below are brief summaries of the drivers of our analysts’ out-of-consensus

earnings views for the companies highlighted with “upside to estimates”. Please
refer to each analyst’s recent research for more details.

Energy: COP, OXY, PXD

Energy: ConocoPhillips (COP): Strong free cash flow generation, constructive oil price
ConocoPhillips (COP) environment

Occidental Petroleum Goldman Sachs Majors and Refining analyst Neil Mehta sees 17% upside to Buy rated
(OXY)
COP over the next 12 months. His EPS estimate for the quarter is 9% above consensus,
Pioneer Natural (PXD) as he believes the stock is well positioned trade higher in the near term. 1) Strong free
cash flow generation driving capital returns – the company continues to deleverage,
while raising its share repurchase authorization in 2018 and raising its dividend to the
highest level relative to peers. 2) Strong leverage to a constructive oil price environment
- with over 75% of COP’s portfolio correlated to the Brent price, every $1/bbl change in
Brent leads to 2018 cash flow increases of roughly $220 mn, or over 2%. 3) An
underappreciated asset portfolio, including in Alaska and the Eagle Ford, driving higher
production growth relative to US majors.

Occidental Petroleum (OXY): Uniquely positioned to benefit from wider Permian

crude spreads

Goldman Sachs E&P analyst Brian Singer sees 40% upside to Buy rated OXY (on the
Conviction List) over the next 12 months. He sees 20% upside to 1Q consensus
EBITDA estimates, driven by OXY’s unique positioning in the midstream business,
where profits benefit if the differential between Midland and Houston (Gulf Coast)
expands. OXY indicated that each $0.25 per bbl expansion of the differential results in
incremental cash flow of $30-$45 mn (the upper end if the spread expands via Gulf
Coast prices rising vs. the lower end if the spread expands while Gulf Coast prices are
flat). Current differentials are wider by about $4/bbl vs. 4Q17 average, which on an

11 April 2018 12
 Goldman Sachs

annualized basis would result in $0.5-$0.7 bn of extra cash flow all else equal (+8%-12%
vs. 4Q17 annualized levels).

Pioneer Natural Resources (PXD): Expect favorable execution in 2018

Goldman Sachs E&P analyst Brian Singer sees 32% upside to Buy rated PXD shares
over the next 12 months. He sees 19% upside to 1Q consensus EBITDA estimates. He
believes PXD will likely be less impacted vs. other Permian pure-plays from widening
differentials because of its firm transportation contracts on pipelines to move gas to the
Gulf Coast (the bulk of which gets exported). PXD moved 115K bpd of oil volumes to the
Gulf Coast in 4Q17 (PXD’s total net Permian oil volumes were 166K bpd), and
management indicated it is currently delivering more than 160K bpd to the Gulf Coast
(we expect FY18 Permian oil production of 183K bpd). PXD’s strategy of ensuring export
and pipeline takeaway capacity for a strong majority of Permian oil volumes is part of the
company’s larger multi-year strategy of mitigating business risk through select vertical
integration in oil services, water infrastructure buildout and long-term pipeline contracts.
As such, our analyst expects favorable execution in 2018.
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Financials: AMTD, BAC, STT

Financials: TD Ameritrade (AMTD): Strong retail activity to drive earnings upside
TD Ameritrade (AMTD)
Goldman Sachs Brokers analyst Conor Fitzgerald is 12% above consensus for calendar
Bank of America (BAC) 1Q as strong retail activity should help drive earnings. Longer-term, uplift in IDA yields
State Street (STT) (he estimates reinvestment rates of 1.75%+) should be more important and drive
positive revisions to 2018/2019 estimates. Operating leverage could drive additional
upside, as he models expenses at the high end of AMTD’s guidance; any additional
expense discipline could signal AMTD can earn $4+ EPS in 2019, all else equal.
Buybacks could also resume next quarter given added flexibility following the Scottrade
integration. His EPS estimate is 9% above consensus for the current quarter, and 10%
above over the year.

Bank of America Corp (BAC): Best positioned to exceed consensus expectations

Goldman Sachs Banks analyst Richard Ramsden sees 18% upside to Buy rated BAC (on
the Conviction List) over the next 12 months. He expects BAC to report better than
expected earnings owing to: 1) further net interest margin expansion on strong asset
sensitivity; 2) continuing operating leverage; 3) robust capital markets (in particular,
trading) results driven by vol intra-quarter; and 4) benign credit losses. His EPS estimate
for the upcoming report is 3% above consensus.

State Street Corp (STT): Positive EPS revision backdrop

State Street is a $38bn financial services company, with nearly $2.8 trillion of AUM.
Goldman Sachs Financial Services analyst Alex Blostein sees 25% upside to Buy rated
STT (on the Conviction List) over the next 12 months. He expects a solid quarter from
the company, driven by a constructive macro backdrop for rates, sec lending and FX
trading. Further, while equity markets were choppy in the quarter, beta was still a
tailwind on a daily/month end average basis. Alex expects these trends to benefit STT

11 April 2018 13
 Goldman Sachs

the most and he models servicing/management fees ~+2.5%/+2.0% q/q (adjusting

mgmt fees for new reporting standards).

Healthcare: EW
Healthcare: Edwards Life (EW): Position for stronger sales growth, robust pipeline
Edwards Life (EW)
Edwards Lifesciences is a $29bn manufacturer of medical equipment, with a specialty in
transcatheter heart valves. Goldman Sachs Medical Technology analyst Isaac Ro sees
5% upside to Buy rated EW (on the Conviction List) over the next 12 month. Isaac
believes the company is well positioned to grow in the structural heart market, with
several new products on the horizon. Despite the company raising guidance to reflect
stronger sales growth, Isaac believes the guidance is conservative, especially as the
TAVR product cycle remains robust and the market appears to be missing the potential
for products in the pipeline. The company recently announced it received the CE mark
for CENTERA, a self-expanding transcatheter aortic hearth valve, which Isaac views
positively for EW’s strategy in Europe. Management plans a European launch shortly,
with a US pivotal trial this year. For the upcoming quarter, Isaac’s EPS estimate is 6%
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above consensus with an EPS estimate of $1.18.

Industrials: ETN, NOC

Industrials: Eaton Corp (ETN): Strong short cycle growth will drive a better than expected
Eaton (ETN) topline

Northrop Grumman Goldman Sachs Multi-Industry analyst Joe Ritchie sees 13% upside to Buy rated ETN
(NOC)
shares over the next 12 months. His 1Q EPS estimate is 4% above consensus, as he
believes strong short cycle growth will drive a better than expected topline. Longer
term, he also sees upside to 2018/2019 EPS (+3%/+4% above the Street). Joe expects
the sharp acceleration in ESS order growth as of C4Q (+12%) and continued strong
quoting activity to help drive HSD organic growth in 2H. This, coupled with continued
strength in Hydraulics and better than expected performance in Vehicle, should drive
accelerating organic growth in 2018. In addition to strong incrementals, supported by
ETN’s restructuring actions and price actions to offset cost inflation, he expects upward
revisions in guidance/consensus estimates.

Northrop Grumman (NOC): Best positioned relative to budget

Goldman Sachs Defense analyst Noah Poponak sees 11% upside to Buy rated NOC over
the next 12 months. His bullish view is driven by the company’s exceptional operational
track record, superior portfolio of growth companies within Defense and consistent free
cash flow generation. He believes it is early in the DoD budget upturn, with recent
budget numbers surprising to the upside, and believes NOC can grow top-line faster
than most companies because of its superior program positioning relative to the budget.
Noah notes that the company has beaten consensus estimates for 20 straight quarters,
including double digit beats for more than half of them. For the upcoming quarter, he
expects the management to beat EPS expectations by 6%.

11 April 2018 14
 Goldman Sachs

Materials: DWDP, WRK

Materials: DowDuPont (DWDP): Strong 4Q17 exit path can continue well into 2018
DowDuPont (DWDP)
DowDuPont is a $147bn chemicals company, created by the merger of Dow Chemicals
Westrock (WRK) and DuPont in 2017. The company focusses on manufacturing of agriculture, plastics,
chemicals and specialty products. Medium term, the company is expected to spin off its
agriculture, chemicals and specialty products businesses into 3 separate companies.
Goldman Sachs Chemicals analyst Robert Koort sees 53% upside to Buy rated DWDP
over the next 12 months. He believes the company guided conservatively, leading to the
potential for beat-and-raise earnings this year; he views last quarter’s results, the first for
the combined company, as strong, with sentiment offset by a seemingly less inspired
guidance. However, Bob expects the earnings momentum from 4Q2017 to continue into
2018, driven by global growth, incremental volume growth, tighter global markets and
solid underlying volume trends. He expects the company to beat consensus EPS
estimates by 8% for the quarter, with EBITDA growing 21% (vs. consensus 16%).

WestRock (WRK): Consistent trends, position for upside

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Goldman Sachs Materials analyst Brian Maguire sees 19% upside to Buy rated WRK (on
the Conviction List) over the next 12 months. WestRock is a $16bn corrugated packaging
company, formed after MeadWestvaco and RockTenn merged in 2015. Brian believes
WRK is among the least expensive stocks in this space, therefore offers a great way to
gain exposure to the tight containerboard market. Management has recently stated that
box demand remained strong in February, despite minimal benefit from acquisitions and
little spill-over of demand from January due to weather. The company pointed to greater
influence from eCommerce for the acceleration in box growth to GDP growth levels –
they estimate eCommerce volumes now make up ~12% of the business, and continues
to grow double-digits. Management remains confident in FY’18 guidance, and Brian
expects the company will beat CY’18 consensus EPS estimates by 5%. Further, he
notes the proposed KapStone acquisition is likely to close in C3Q18, and is likely to be
$0.59-$0.67 accretive to FY’20 EPS.

Staples: EL, WMT

Staples: Estee Lauder Co (EL): Beat-and-raise cycle has more room to run
Estee Lauder (EL)
Goldman Sachs Staples analyst Jason English sees 3% upside to 1Q consensus EPS
Walmart (WMT) estimates and is 4% above consensus for the next year. EL provides a strong relative
position in prestige beauty, with positive expectations for strong organic growth and
compounding earnings growth in the coming years. While the stock has performed well
YTD (EL +18.1% vs SPX -2.3%), our analyst sees EL as a high-quality name
best-positioned within HPC. While Estee Lauder’s relatively outsized US exposure
remains a drag on growth, its leadership position among Chinese consumers is proving
an enviable strength today.

Walmart (WMT): Ecommerce worries overdone, buy the weakness

Goldman Sachs Hardlines analyst Matt Fassler sees 24% upside to Buy rated WMT (on
the Conviction List) over the next 12 months. He believes the company’s overall sales

11 April 2018 15
 Goldman Sachs

remain strong, despite the recent weakness in the stock. Investors are likely paying up
for outsized ecommerce growth, despite the fact that ecommerce deceleration last
quarter was only a small fraction of the overall top line. Matt believes the slowdown was
partly due to the influx of holiday goods during the year-end rush, which pressured
distribution capacity and undermined fulfillment of basic goods. He believes this to be
reasonable, and not unexpected in a growing ecommerce business. With solid working
capital management, Matt sees US sales growth continuing to outpace US inventory
growth, with robust international sales. He remains confident in the WMT story, and
expects management to beat consensus 1Q18 EPS estimates by 6%.

TMT: AVGO, CSCO, DXC, TER, TWTR

TMT: Broadcom Ltd (AVGO): EPS beat and raise to drive upside
Broadcom (AVGO)
Broadcom is a $105bn semiconductor company with products supporting wired
Cisco (CSCO) infrastructure, wireless communications and enterprise storage. Goldman Sachs
DXC Tech (DXC) Semiconductors analyst Toshiya Hari sees 40% upside to Buy rated AVGO stock over the
next 12 months, and is 7% above consensus EPS estimates for the year. He is bullish
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Teradyne (TER)
on the stock owing to 1) an above-average margin profile, 2) best-in-class FCF profile, 3)
Twitter (TWTR)
top-quartile shareholder return profile with M&A optionality, 4) discounted valuation, and
5) upside to Street estimates. He sees EPS beats and raises driving estimates and the
stock higher, as investors become more comfortable with the company’s organic growth
rate. In his view, the continued growth of the company’s dividend is also likely to attract
more income/dividend focused investors, particularly given the company’s already
robust dividend yield. Longer term, he sees 8%/9% upside to consensus (FactSet) EPS
estimates for FY19/20, respectively.

Cisco Systems Inc (CSCO): Attractive cash generation/return profile

Goldman Sachs Technology analyst Rod Hall sees 27% upside to Buy rated CSCO (on
the Conviction List) over the next 12 months. Rod’s EPS estimate is 4% above
consensus for the year, as the company’s end markets remain healthy and improving.
He notes that US top 4 carrier capex is growing at 13% and hyperscale capex is growing
29% in 2018. This, coupled with his CIO survey from December 2017, implies 3.4%
growth in enterprise networking spending in 2018. In addition, Rod believes the current
campus switching refresh provides better than normal support for Cisco’s enterprise
business. The company is expected to deliver significant returns to shareholders from
recently enacted tax laws, and has already announced a $25bn increase to share
repurchase authorization, and hiked its dividend payout ratio to nearly 50%.

DXC Technology (DXC): Margin beats plus multiple expansion to drive upside

Goldman Sachs IT Services analyst Jim Schneider sees 22% upside to Buy rated DXC
shares (on the Conviction List) over the next 12 months. DXC was formed by the merger
of Computer Sciences Corp and the Enterprise Services business of Hewlett Packard
Enterprise. Jim views DXC as one of the best names in IT Services and his top value
pick for 2018. His EPS estimate is 7% above consensus for the quarter and 12% above
for the year. He continues to see upside to Street EPS estimates as DXC accelerates
the timing of cost synergies and begins to stabilize its revenue trajectory. While

11 April 2018 16
 Goldman Sachs

estimates have moved higher over the past year, Jim believes the Street is
underestimating the company’s cost synergy potential and margin expansion
opportunity from the 2017 merger of DXC’s parent companies. Additional, Jim believes
the announced spin-off of the company’s U.S. Public Sector business (expected May
2018) could drive additional EPS accretion and multiple expansion.

Teradyne (TER): Semi Test segment likely to grow for an unprecedented third
straight year

Teradyne is $9bn semiconductor company which develops and supplies automatic test
equipment. Goldman Sachs Semiconductor analyst Toshiya Hari sees 29% upside to
Buy rated TER over the next 12 months, driven by management’s strong execution, and
confirmation that the company is investing effectively in the collaborating robot business
to maintain/extend its competitive lead. Management has spoken about an improved
2018 Semi Test market outlook, and raised its SoC test market forecast. Toshiya sees
potential upside to management’s outlook given recent customer announcements.
Coupled with share gains, he believes the Semi Test segment at TER can grow for the
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third consecutive year, a dynamic not seen in at least the past 15 years. He expects the
company to beat consensus EPS estimates by 12% for the quarter and 9% for the year.

Twitter Inc (TWTR): Well-positioned to grow share of incremental ad dollars

Goldman Sachs Internet analyst Heath Terry sees 35% upside to Buy rated TWTR shares
over the next 12 months. His EPS estimate is 9% above consensus for 1Q, and 2%
above consensus for the year. His bullish view is driven by the growing value of the
platform and the multiple opportunities (data, monetization, M&A) for that value to be
realized. With revenues inflecting, double-digit engagement growth and improvement in
product, management expects further investment in the user and advertiser experience
to drive continued strength in Twitter as a platform in 2018. Heath believes Twitter is
well-positioned to grow share of incremental ad dollars moving online with an attractive
margin profile, and that risk/reward skews positive at current valuations.

11 April 2018 17
 Goldman Sachs

Downside to consensus: Fundamental ideas in brief

Below are brief summaries of the drivers of our analysts’ out-of-consensus

earnings views for the companies highlighted with “downside to estimates”.
Please refer to each analyst’s recent research for more details.

Discretionary: CAKE
Discretionary: Cheesecake Factory (CAKE): Position for weakness; fundamentally challenged
Cheesecake Factory story
(CAKE)
Goldman Sachs Restaurants analyst Karen Holthouse sees 27% downside to Sell rated
CAKE over the next 12 months. CAKE is a restaurant company operating a chain of
restaurants across the US, the majority of which fall under the Cheesecake Factory
brand. Karen believes the FY18 guidance raise following tax reform was low quality, with
underlying operating profit coming down; CAKE is an outsized beneficiary of lower
effective tax rates. However, the fundamental story remains challenged; off-premise is
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helping support comps suggesting weakness in the core business. Her EPS estimate is
3% below consensus for the quarter, and 4% below for the year.

Healthcare: UTHR
Healthcare: United Therapeutics (UTHR): Risks to top-line growth from generic competition
United Therapeutics
United Therapeutics is a $5bn biotechnology company with a focus on developing
(UTHR)
products to treat pulmonary arterial hypertension. Goldman Sachs Biotech analyst
Terence Flynn sees 12% downside to the Sell rated stock over the next 12 months. He
believes the company’s top-line growth is likely to decelerate, given competitive
headwinds and the upcoming entry of generic competition to its products. Terence
believes the company needs to invest in its pipeline beyond PAH, and also consider
business development to augment its pipeline. While the company did not provide 2018
guidance, he sees risks to consensus numbers, as his EPS estimate for the year is 17%
below consensus.

Industrials: ESL, GM, JCI

Industrials: Esterline (ESL): Position for operational challenges, margin pressures
Esterline (ESL)
Goldman Sachs Aerospace analyst Noah Poponak sees 11% downside to Sell rated ESL
General Motors (GM) over the next 12 months. Esterline is a $2bn manufacturer of specialty products for the
Johnson Controls (JCI) aerospace and defense industry. Its product lines primarily include Avionics & Controls,
Sensors & Systems, and Advanced Materials. Noah believes the company faces margin
pressures, driven by a tough product mix, possible share loss and difficult pricing.
Management noted that pricing has been worse than anticipated over the past few
years, and expects overall pricing to be flat to down. The company does not expect
major benefits from tax reform, given only 30% of its total income is US based. Noah
believes the market is overly optimistic on the company, and expects and operation
drive margin turnaround. His EPS estimate for the quarter is 6% below consensus.

11 April 2018 18
 Goldman Sachs

General Motors (GM): Position for increased competitive pressures

Goldman Sachs Autos analyst David Tamberrino sees 21% downside to Sell rated
General Motors over the next 12 months. His EPS estimate for the current quarter is
13% below consensus, as he believes cycle pressures and intensified competition in
the US market will weigh on the company’s ability to maintain flat yoy profitability. David
notes that crossover competition intensified over the past year, where GM’s variable
profit per unit declined nearly 25%. About one-third of the new vehicle launches in 2018
are in the crossover segment, implying growing competition in the space. Coupled with
vehicle affordability headwinds, David sees continue pressure on pricing, with
potentially worse than guided earnings for the company. His EPS estimate for the year
is 10% below consensus.

Johnson Controls (JCI): Expect a weak quarter as Power growth got off to a slow
start

Johnson Controls is a $32bn manufacturer of automotive parts such as batteries, and

electronics and HVAC equipment for buildings. Goldman Sachs Multi-Industry analyst
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Joe Ritchie sees 5% downside to Sell-rated JCI over the next 12 months. He expects
the company to miss consensus EPS estimates by 6% this quarter. He believes stock
performance will be muted, given cash generation is likely to remain challenged while
organic growth/returns remain below average. Despite the recent weakness, Joe
believes F2Q will be a weak quarter, as Power growth got off to a slow start, putting
JCI’s expectations of breakeven YTD FCF at risk. He also sees risks to management’s
guide for flat yoy Buildings EBIT margins, given price/cost headwinds and lower-margin
backlog flowing through. For FY18, his FCF estimate of $1.9bn remains well below the
implied FY guide ($2.1-$2.2bn).

TMT: GLW, TRIP

TMT: Corning (GLW): Margins likely to remain pressured, shareholder returns dissipating
Corning (GLW)
Goldman Sachs Hardware & CommTech analyst Doug Clark is Sell rated on GLW, a
TripAdvisor (TRIP) $27bn technology company with a specialty in glass and ceramics. His EPS estimate for
the year is 6% below consensus, as he continues to see downside risks to current
valuation premium. He continues to see fundamental risk from the TV and panel supply
chain, where profit levels are falling, inventories remain modestly above average, and
other companies have guided more conservative demand vs. Corning. He also see
several sources of margin pressure, including 1) mix shift away from high-margin Display
business and towards lower margin growth areas, and 2) company investment in
expanding capacity and production output. He notes, operating margins and FCF are set
to decline for the fourth straight year, while capex levels have nearly doubled since
2013-14. Doug expects shareholder returns to decline significantly, with less than half as
much share repurchases in 2018-19 as 2015-17.

TripAdvisor Inc (TRIP): Core hotel business remains pressured

Goldman Sachs Internet analyst Heath Terry sees 27% downside to Sell-rated TRIP over
the next 12 months. He sees the potential for TRIP to miss consensus EPS estimates by

11 April 2018 19
 Goldman Sachs

12% this quarter, and is 13% below consensus for the year. Heath sees challenges to
monetization (e.g., competition, partner profitability targets, mobile), uncertainty around
growth as the company cuts performance ad spend, slowing hotel shopper growth, and
a significant multiple premium on a growth-relative basis. He notes that
TripAdvisor-branded (TA) click / transaction growth decelerated -5% and -11% in 3Q17
and 4Q17, respectively. Monthly unique hotel shoppers growth decelerated to +7% and
+3% over the prior quarter, while revenue per hotel shopper growth also declined -11%
and -14%. Heath expects continued headwinds within the core hotel business as higher
profitability targets from advertisers, lowered performance spend, and competition
negatively impact monetization.
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11 April 2018 20
 Goldman Sachs

Our studies of options trading around events

“Trading Events: Earnings Volatility (Part 1)”, July 14, 2011.

“Trading Events: Earnings Volatility (Part 2); Options Sticker Shock”, July 19, 2011.

“Trading Events: Earnings (Part 3); Conditional on VIX”, October 5, 2011.

“Trading Events: Earnings Volatility (Part 4); Consistent Winners”, October 12, 2011.

“The case for owning stocks on earnings day,” May 23, 2012.

“Trading Events: Analyst Days”, May 2, 2013.

“The Anatomy of Preannouncements,” July 7, 2014.

“Trading Events: Analyst Days 2002-2015”, June 9, 2015.

“Trading Events: European Earnings: 14 Year Study”, September 9, 2016.

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“Trading Events: Asia Earnings and Preannouncements, a 15 year study”, January 16,
2018.

“Trading Events: European Analyst Days, a 10-year study of 3,000+ events”, March 5,
2018.

11 April 2018 21
 Goldman Sachs

Appendix: Methodology

We find that many sectors and strategies have strong correlations to macro assets. We
aim to control for these macro exposures to estimate whether the sector or strategy
has outperformed (positive alpha) or underperformed (negative alpha) over a given
period. We view this relative performance through the lens of the exogenous
fundamental developments over the same period to assess whether this performance is
justified. In the absence of compelling fundamental developments we see the relative
performance as driven by shifts in sentiment or “crowding”.

We monitor the total return of ETFs or indexes as investable proxies for underlying
sectors or strategies. We create macro model portfolios for each ETF or index
using the following three step process:

1. We identify a list of 12-20 investable macro assets we feel may have fundamental
ties to the sector or strategy.
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2. We solve for the 5 variable portfolios that best explain the daily returns of the
sector or strategy over the past 3 years. In the current case, we are using the 3 years
ending October 31, 2016.

3. We compare the cumulative total return of the sector or strategy with the macro
model portfolio to assess the relative performance. In this report, the outperformance is
shown “out-of-sample” from November 7, 2016 to present to avoid over-fitting the
post-election volatile period.

Financials (XLF) model R-Squared = 84% over 3 years ending Oct-2016

Technology (XLK) model R-Squared = 86% over 3 years ending Oct-2016

Staples (XLP) model R-Squared = 66% over 3 years ending Oct-2016

Energy (XLE) model R-Squared = 77% over 3 years ending Oct-2016

Options risks

Buying straddles: Investors who hold straddles to expiry risk losing their entire
premium paid.

Selling straddles: Straddle sellers risk losing the distance between the strike price and
the stock price less the premium collected at expiration.

General disclosure
Based on filings made under Section 13(d) and Section 13(g) of the Exchange Act, as of
March 5, 2018, this company is known by Goldman Sachs to be a beneficial owner of
more than 5% of the common stock of The Goldman Sachs Group, Inc.: State Street
Corporation .

11 April 2018 22
 Goldman Sachs

Disclosure Appendix
Reg AC
We, John Marshall, Katherine Fogertey, Vishal Vivek and Arun Prakash, CFA, hereby certify that all of the views expressed in this report accurately
reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is
or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division.

Disclosures
Option Specific Disclosures
Price target methodology: Please refer to the analyst’s previously published research for methodology and risks associated with equity price targets.
Pricing Disclosure: Option prices and volatility levels in this note are indicative only, and are based on our estimates of recent mid-market
levels(unless otherwise noted). All prices and levels exclude transaction costs unless otherwise stated.
General Options Risks – The risks below and any other options risks mentioned in this research report pertain both to specific derivative trade
recommendations mentioned and to discussion of general opportunities and advantages of derivative strategies. Unless otherwise noted, options
strategies mentioned in this report may be a combination of the strategies below and therefore carry with them the risks of those strategies.
Buying Options - Investors who buy call (put) options risk loss of the entire premium paid if the underlying security finishes below (above) the strike
price at expiration. Investors who buy call or put spreads also risk a maximum loss of the premium paid. The maximum gain on a long call or put spread
is the difference between the strike prices, less the premium paid.
Selling Options - Investors who sell calls on securities they do not own risk unlimited loss of the security price less the strike price. Investors who
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sell covered calls (sell calls while owning the underlying security) risk having to deliver the underlying security or pay the difference between the
security price and the strike price, depending on whether the option is settled by physical delivery or cash-settled. Investors who sell puts risk loss of
the strike price less the premium received for selling the put. Investors who sell put or call spreads risk a maximum loss of the difference between the
strikes less the premium received, while their maximum gain is the premium received.
For options settled by physical delivery, the above risks assume the options buyer or seller, buys or sells the resulting securities at the settlement
price on expiry.

Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global Equity coverage universe

Rating Distribution Investment Banking Relationships

Buy Hold Sell Buy Hold Sell
Global 33% 54% 13% 63% 57% 52%

As of January 1, 2018, Goldman Sachs Global Investment Research had investment ratings on 2,867 equity securities. Goldman Sachs assigns stocks
as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for
the purposes of the above disclosure required by the FINRA Rules. See ‘Ratings, Coverage groups and views and related definitions’ below. The
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 Goldman Sachs

Goldman Sachs Canada Inc. has approved of, and agreed to take responsibility for, this research report in Canada if and to the extent that Goldman
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Ratings, coverage groups and views and related definitions

Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or
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Total return potential represents the upside or downside differential between the current share price and the price target, including all paid or
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Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an
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 Goldman Sachs

General disclosures
This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we
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