Corbin Advisors Releases Inside The Buy-side®: 1Q19 Earnings Primer

April 12, 2019
Institutional Investor Sentiment Improves to a More Neutral Stance After 4Q18 Freefall as Fears of Imminent Recession Recede; Still, a Gradual Deceleration in Growth Expected in 2019  

Investors are largely in a holding pattern, awaiting clarity as the upcoming earnings season progresses. Topics of interest for earnings calls include margin trends, capital deployment strategies and 2H19 outlooks

  • Overall investor attitudes improve as one-third of respondents now describe their sentiment as Neutral, an increase from just 14% last quarter, while management tone is perceived as Neutral or Neutral to Bullish
  • Those expressing Continued or More Concern with a recession fell to 43% from 59% last quarter
  • Rising interest rates, which were identified as a top concern in 4Q18, are no longer a worry for nearly 80% of respondents; more than half Do Not Believe the Fed will hike rates in 2019
  • 50% expect earnings to Decrease sequentially, up from 41% last quarter and significantly higher than in Sep. 2018, when only 17% called for deceleration
  • Organic Growth, EPS and Margins are expected to Stay the Same or Worsen following the most pessimistic levels registered last quarter since Dec. 2015; general views are for “positive, albeit slowing” performance

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HARTFORD, CT – April 12, 2019 – Corbin Advisors, a research and advisory firm specializing in investor relations (IR), today released its quarterly Inside The Buy-side® Earnings Primer report, which captures trends in institutional investor sentiment. The survey was conducted March 13 to April 3, 2019 and is based on responses from 76 institutional investors and sell-side analysts globally, representing more than $768 billion in equity assets under management.

Following the freefall in investor sentiment during 4Q18 earnings season, analysts and investors have landed on slightly firmer ground. Neutral to Bearish or Bearish sentiment, which climbed to 49% last quarter, dropped to 33% in 1Q19. Accompanying the improvement in sentiment was a slightly more optimistic perceived management tone, as 45% describe executives as Neutral to Bullish or Bullish, up from 37% last quarter.

This reflects fewer concerns with market pressures that peaked last quarter.  Rising interest rates, which were identified as a top concern in our last survey, are no longer a worry for nearly 80% of respondents, as 54% Do Not Believe the Fed will raise rates in 2019.  As well, those expressing Continued or More Concern with a recession fell to 43% from 59% last quarter.

“I am less concerned about a recession versus last quarter due to the resiliency of the U.S. economy and the nimbleness of U.S. corporations in their ability to innovate and capture market share outside of the U.S.,” noted Mark Mandziara, Senior Managing Director at BTC Capital Management.

Still, growth is expected to slow, with 82% anticipating 2019 U.S. GDP at or below 2.5%, compared with 77% the previous quarter.  Nearly 60% also report that 2019 outlooks were In Line with expectations, which were for more conservative guides relative to 2018.

“After the first quarter rally nearly erased December’s selloff, investors are bracing for what is expected to be the first in a sequence of contracting corporate earnings announcements,” said Rebecca Corbin, Founder and CEO of Corbin Advisors. “Economic softening is priced into expectations and any deviation from that, positively or negatively, will be a catalyst for market performance this quarter.  Amid the strong start to 2019, our survey finds that U.S. equities are considered Fairly Valued and the majority of respondents expect flat performance in the first half of 2019.”

Executive Tone Will Be a Key Focus in the Upcoming Earnings Season

Concerns over tariffs, rising input costs, interest rates, a recession and the December stock swoon have receded and given way to a more stable investing environment.  Investors generally report taking a wait-and-see approach and are looking at broad trends across industries to see how companies fare in a slowing growth environment.

“Amid anticipation of gradually decelerating growth, margin preservation is a key focus for investors this earnings season,” said Ms. Corbin. “It’s important that executives proactively address capital deployment strategies, including balance sheet strength or continued plans to delever, and be prepared for questions on the second half. To that end, guidance strategies, specifically managing investor expectations amid still heightened uncertainty, will be key. As we move into a new market phase, the stakes are higher and competition for investor capital will be fiercer.”

Reflecting the changing times, 70% of survey respondents note they are placing More Emphasis on balance sheet strength versus a year ago; ideal Net Debt-to-EBITDA targets for nearly all sectors (ex. REITs) is 2.0x, down from 2.5x in 2016.

Among sectors, Technology and Industrials registered the most significant increases in bullish sentiment, while Building Products, Financials and Consumer Discretionary remain the most out-of-favor.  REITs warded off bears for the second consecutive quarter, receiving the least negative sentiment in three years.

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 shareholder 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.

Contact

Corbin Advisors
Bronwyn Swanson, 203-283-7997
bronwyn.swanson@corbinadvisors.com