Corbin Advisors Releases Inside The Buy-side®: Q3'20 Earnings Primer

October 8, 2020

Survey Findings Reveal Investor Sentiment Continues to Climb and Valuations Expected to Expand in the Final Quarter of 2020 amid “TINA”

  • 54% of surveyed investors and analysts expect Better Than sequential earnings
  • More investors expect key metrics – EPS, Organic Growth, FCF and Margins – to Improve QoQ; those forecasting these to Worsen are fewer than one-quarter vs. between 65% and 87% in the prior survey
  • 40% describe themselves as Neutral to Bullish or Bullish, up from 26% last quarter; 37% also describe executive tone as more upbeat, an increase from 26% in Q2
  • Despite 68% classifying U.S. equities as Overvalued, 41% believe equity valuations will Expand for the remainder of 2020, up from 18% last quarter
  • 71% believe we are in an economic recovery, most bullish on China and the U.S., respectively
  • 46% report Net Buying, the highest percentage ever recorded in our survey, while only 11% are Net Selling, a decrease from 16% last quarter
  • 64% believe Former Vice President Joe Biden will win the U.S. Presidential election compared to 36% predicting President Trump

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HARTFORD, CT – October 8, 2020 – Corbin Advisors, a research and advisory firm specializing in investor relations (IR), today released its quarterly Earnings Primer, which captures trends in institutional investor sentiment. The survey, which marks the 44th issue of Inside The Buy-side®, was conducted from September 10 to October 1, 2020 and is based on responses from 83 institutional investors and sell side analysts globally, representing more than $3.4 trillion in equity assets under management.

Building on notably less downbeat investor sentiment and perceived management tone last quarter, our survey this quarter finds investor confidence continues to climb as more than 70% believe we are in an economic recovery, though views on the type of recovery diverge meaningfully. With more than 60% of surveyed investors and analysts noting that last quarter’s earnings results were Better Than their expectations, 54% anticipate earnings in the third quarter will improve sequentially, indicating the worst is believed to be behind us. Further, following a record number of S&P 500 earnings beats last quarter, more investors, 49%, believe results will be In Line with consensus, suggesting a higher hurdle to eke out a beat.

Mark Mandziara, Senior Managing Director at BTC Capital Management commented, “Even in the face of upward revisions by analysts, which began in June, final earnings exceeded the revamp in estimates. This was more so evidenced by the breadth of the spread between the number of companies beating versus those companies that missed estimates.”

Continuing, more than 50% believe EPS, Organic Growth and FCF will Improve quarter-over-quarter, while nearly half expect Margin expansion. This comes on the heels of last quarter’s findings in which 67% expected organic growth to Worsen, while north of 80% of respondents predicted the same for all other key metrics. Supporting optimism, 71% believe we are in an economic recovery and greater than 60% believe the China and U.S. economies will Improve over the next six months, as global capex and PMI are expected to Stay the Same or Improve.

In parallel to more upbeat economic views and despite 68% of surveyed investors classifying U.S. equities are Overvalued, 41% believe valuations will Expand for the remainder of 2020, compared to fewer than 20% last quarter – this is despite the best two-quarter performance for the S&P 500 and NASDAQ since 2009. As a result, 46% report Net Buying, a high watermark for our survey, while only 11% are Net Selling, a decrease from 16% last quarter.

“Heading into the second quarter earnings season, we predicted that low-bar investor expectations would set the stage for handy beats and we saw a record number of companies exceed EPS estimates, driven by aggressive cost-cutting actions and agile execution. Fast forward to today, improving demand trends for many industries and more bullish executive tone has led to meaningfully stronger investor sentiment and, with it, higher expectations. We estimate organic growth will see green shoots and free cash flow will be off the charts. To that end, the number one question on the minds of investors this survey is what companies will do with the excess capital,” said Rebecca Corbin, Founder and CEO of Corbin Advisors. “One of the more interesting findings this quarter is the inherent tension between investor views that Biden is poised to win the Presidential election and the notion that equity valuations will expand through year-end juxtaposed against the prospect of a prolonged pandemic, severe unemployment and the likelihood of less supportive economic policy, especially in the areas of taxation and regulation. Given this seeming contradiction, conservatively managing expectations will be critical this earnings season amid the extreme level of uncertainty.”

Turning to capital deployment preferences, debt reduction remains the leading preferred use for the second consecutive quarter, followed by reinvestment. Still, ideal Net Debt-to-EBITDA levels have moderated somewhat as only 38% prefer 1.5x or less, down from 47% last quarter, while nearly 70% believe organic growth stories are the most compelling investment themes relative to capital returns, cost take-out and consolidation. While not viewed as a top preference for cash relative to other uses, more than 60% are in favor of bolt-on acquisitions, compared to slightly more than 20% for transformational deals.

Not surprisingly, most sectors are seeing more bulls than bears, a stark reversal from last quarter, with technology, biotechnology, healthcare and clean energy experiencing the most bullish sentiment. Views on energy and REITs remain downbeat.

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.

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