Findings Reveal More Upbeat Industrial Investor Sentiment as Companies Are Expected to “Reset at the Bottom”
- 77% of surveyed investors and analysts expect Worse Than sequential earnings
- Marking record lows, more than 90% expect EPS, Revenue Growth and Operating Margins to have Worsened sequentially
- Nearly 40% describe themselves as Neutral to Bullish or Bullish, up from 23% last quarter, while fewer than one-quarter are Neutral to Bearish or Bearish, marking the least bearish investor sentiment captured in over two years
- After increasing to a record high of 54% last quarter, fewer than 30% now prefer cash conservation; reinvestment and debt paydown are cited as top preferences for cash by nearly half of investors
- Despite nearly 50% classifying industrial equities as Overvalued, almost half report being Net Buyers and another 35% Rotating; none report being a Net Seller
HARTFORD, CT – July 21, 2020 – Corbin Advisors, a research and advisory firm specializing in investor relations (IR), today released its quarterly Industrial Sentiment Survey. The survey, part of Corbin Advisors’ Inside The Buy-side® publication, is based on responses from 43 institutional investors and sell side analysts globally who actively follow the industrial sector. Buy side firms manage more than $1.5 trillion in assets and have ~$130 billion invested in industrials.
Following last quarter’s survey which identified record downbeat sentiment as the COVID-19 pandemic escalated globally, our survey this quarter identifies a prolific shift in industrial sentiment with the fewest bears in over two years. Nearly 40% describe themselves as Neutral to Bullish or Bullish, up from 23% last quarter, while fewer than one-quarter are Neutral to Bearish or Bearish. This comes on the heels of better-than-expected prints for May and June industrial economic indicators, including the most widely followed measures by investors: Manufacturing ISM® Report on Business, U.S. unemployment rate and Consumer Confidence.
Tobias Basse, Analyst at NORD/LB Norddeutsche Landesbank Girozentrale commented, “Markets are pricing in a fast economic recovery in the U.S. and this is a very realistic point of view. U.S. economic data (e.g., the retail sales numbers for May) are clearly signaling a strong increase to economic activity in North America.”
To that end, the worst is believed to be behind us as the second quarter is expected to be the trough. While nearly 80% of surveyed investors and analysts predict Worse Than sequential earnings and more than 90% expect EPS, Revenue Growth and Operating Margins to have Worsened, approximately 60% expect the U.S., China and Eurozone economies will Improve over the next six months. Furthermore, more than 50% expect a hockey stick or U-shaped recovery. The one area receiving pessimistic outlooks is global capex, which nearly 50% predict will Worsen through the balance of 2020.
Continuing, despite nearly 50% classifying industrial equities as Overvalued, nearly 50% report being Net Buyers. Notably, not one survey respondent reports being a Net Seller for only the third time in our survey’s history – the other two times being March 2017 and September 2018. Growth investments, digitalization and cost-cutting initiatives are identified as the most compelling investment themes.
Regarding capital deployment, reinvestment is cited as the leading preference for cash by nearly 50% of investors, and the percentage of investors favoring M&A increased nearly four-fold this quarter to 46% from 13%. Debt reduction remains a top priority.
“Following the April low, monthly performance has steadily improved through June and continues to show signs of recovery in July. With industrial executives quickly mobilizing around COVID-19 impacts, aggressively cutting costs and recalibrating investments coupled with consensus estimates still anchored in worst-case scenarios, we believe the industrial earnings season will have a healthy dose of beats,” said Rebecca Corbin, Founder and CEO of Corbin Advisors. “Still, while the landscape is better than expected, there remain significant economic headwinds as we continue to see more and more companies announcing second-wave cost initiatives, including permanent headcount reductions, which will add to the unemployment level and diminish consumer confidence. We are likely to hear conviction from management in terms of their ability to execute the challenging landscape but the industrial outlook remains uncertain. In general, industrial companies perform well in challenging times given the cyclical nature of their businesses and that is why we are seeing diehard industrial investors take advantage of the valuation dislocation.”
In terms of sector bets, Defense is no longer the top pick among industries for the first time in 10 quarters, with Residential Construction and Building Products seeing the highest number of bulls. Notably, Transportation and Auto experienced a significant increase in bulls and waning bears. While nearly all sectors bears recede this quarter, Commercial Aerospace and Non-Residential Construction unsurprisingly received the most downbeat 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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