FINDINGS REVEAL DOWNBEAT INDUSTRIAL INVESTOR SENTIMENT WITH WIDELY VARYING VIEWS ON THE EXTENT OF ORGANIC GROWTH DECELERATION
- 76% of surveyed investors and analysts predict sequential earnings deceleration and 79% expect results to be Below consensus, both the highest survey percentages ever recorded
- More than 90% expect EPS, Revenue Growth and Operating Margins to register Worse Than expectations, all record lows
- 58% describe themselves as Bearish or Neutral to Bearish, the highest level registered since December 2015, while 39% categorize themselves as outright Bearish, up from just 3% last quarter
- 2020 U.S. industrial organic growth predictions average an 8.1% contraction
- Despite more than 50% classifying industrial equities as Undervalued, 35% report Net Selling, compared to 13% Net Buying
HARTFORD, CT – April 23, 2020 – Corbin Advisors, a research and advisory firm specializing in investor relations (IR), today released its Voice of Investor® Industrial Sentiment Survey. The survey, part of Corbin Advisors’ Inside The Buy-side® publication, is based on responses from 30 institutional investors and sell side analysts globally who actively follow the industrial sector. Buy side firms manage more than $750 billion in assets and have ~$101 billion invested in industrials.
Following an improvement in industrial investor sentiment last quarter after three consecutive quarters of increasingly downbeat views captured in 2019, COVID-19 has cast a pall over outlooks. A majority, 58%, describe themselves as Bearish or Neutral to Bearish, while 39% as outright Bearish, up from 3% last quarter and more than double that of the previous record of 18% in December 2015. Similarly,55% describe executive tone as Neutral to Bearish or Bearish, up from 32% last quarter.
More than three-quarters of surveyed investors and analysts predict sequential earnings deceleration and a similar percentage expect results to be Below consensus, both the highest percentages ever recorded. More than 90% expect EPS, revenue growth and operating margins to register Worse Than expectations, while 75% believe free cash flow will also deteriorate.
Following last quarter’s survey in which investors anticipated 1.1% 2020 industrial organic growth, on average, expectations have been reset for an 8.1% contraction. Still, our survey reveals a dichotomy in views, with 31% expecting more than 10% contraction and the same number believing growth will be essentially flat this year.
Globally, approximately 80% expect capex levels and PMI will Worsen over the next six months, with more than 90% believing the U.S. and Eurozone economies will also Worsen over the same period, followed by Latin America, Mexico and Brazil. China is the only region expected to Improve, a view held by nearly 50% of surveyed respondents.
Continuing, 52% report industrial stocks are Undervalued, more than six-fold last quarter. However, 35% report Net Selling, compared to 13% Net Buying and 17% Rotating. Cost-cutting initiatives and aftermarket components remain the most compelling investment themes, while balance sheet strength continues to be a priority, with 50% preferring Net Debt-to-EBITDA levels less than 2.0x, in line with last quarter. Importantly, fewer than 20% are in favor of buybacks or M&A.
“Heading into 2020, industrial investor sentiment was marked by improving views for the first time in a year despite slowing growth and tariff-induced shocks, but the COVID-19 Pandemic has swung the pendulum. While investor views are for an 8% organic growth contraction in 2020, on average, the true extent of the fallout remains a question mark. Cycle-tested management teams have snapped into action with extensive capital preservation and liquidity strengthening measures and are developing worst-case scenarios to control what they can during this uncertain and challenging period,” said Rebecca Corbin, Founder and CEO of Corbin Advisors. “This upcoming earnings season will set the stage for early reads on the late-March freefall, and institutional investors and analysts will be acutely focused on recent demand trends and next-quarter outlooks. While we have seen the majority of industrials withdraw 2020 outlooks to date and expect this trend to continue, providing an appropriate level of transparency on what is known, including order patterns and backlog, as well as scenario analyses, will provide the necessary guardrails to baseline investors in reality and manage expectations. We have identified a positive correlation between transparent communication and perceived management credibility and recommend companies provide a meaningful level of disclosure that frames the discussion on real and potential impact, as well as the risks and opportunities ahead.”
In terms of sector bets, Defense remains the top pick among industries for the 10th consecutive quarter despite a meaningful pullback in bulls, while Ag and Water were the only other industries to see more bulls than bears. All industries saw an increase in bears, with the exception of Ag, and Commercial Aerospace saw record universal bearish sentiment.
Since 2006, Corbin Advisors has tracked investor sentiment on a quarterly basis. Access Inside The Buy-side® and other research on real-time investor sentiment, IR best practices and case studies at CorbinAdvisors.com.
About Corbin Advisors
Corbin Advisors is a specialized investor relations (IR) advisory firm that partners with C-suite and IR executives to drive long-term stakeholder value. We bring third-party objectivity as well as deep best practice knowledge and collaborate with our clients to execute sound, effective investor communication and engagement strategies. Our comprehensive services include perception studies, investor targeting and marketing, investor presentations, investor days, specialized research, and retainer and event-driven consulting.
Inside The Buy-side®, our industry-leading research publication, is covered by news affiliates globally and regularly featured on CNBC.
To learn more about us and our impact, visit CorbinAdvisors.com.
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