Concerns about China Contagion and Oil and Gas Roil Industrial Sector as Investor Sentiment and Management Tone Have Deteriorated Significantly According to Corbin Advisors Research Report
- Industrial sentiment has significantly deteriorated amid intensified global growth concerns; negative views largely correlated with more bearish management tone
- Over 90% of survey contributors expect third quarter results in line or worse than expectations; greater than half describe their view as “more bearish”
- Investors are largely more cautious based on lower organic growth and earnings expectations in 2H15, and therefore are bracing for valuation stagnation as estimates begin to rollover to reset 2016 levels
- Industrial sector trends remain largely intact, with Building Products and Resi Construction at the top of the growth totem while Metals & Mining is seen as the most challenged; new bright spots emerge in Defense and Water as positive sentiment increases
- While investors have seemingly priced in an earnings recession, they are largely holding steady or rotating with only 17% reporting they are net sellers
HARTFORD, Conn. – October 1, 2015 – Corbin Advisors, a leading investor research and investor relations (IR) advisory firm, today launched its second installment of its Industrial Sector Sentiment Survey, within its Inside The Buy-side® research group, pulsing global investor and analyst views as the third quarter earnings season gets underway. Corbin's independent poll identifies several areas where buy and sell side opinions diverge, as well as emerging trends and sector themes that serve to assist both investors and corporates navigating the diverse industrial landscape.
The survey, comprising input from 52 investors and analysts globally who follow the industrial sector and manage $1.8 trillion in total assets, finds a significant reversal in sentiment from neutral to more bullish in June to categorically bearish in September as concerns about China contagion and the continued negative impact of oil and gas intensify.
Despite the magnitude of earnings revisions across the industrial sector in 1H15, expectations remain low for 3Q15 as the majority of buy-side and sell-side participants expect further risk of capitulation cuts in the back half of the year. It is unclear whether these anticipated guidance cuts are likely to be deep enough to reset the stage for valuations in 2H15 and 2016. As one North American investor commented, “With 4Q guidance probably coming in, 2016 guidance will probably be lower than investors currently believe and multiples are still not compelling or cheap. There doesn't seem to be many catalysts yet to bring investors’ money back to the industrial names near term.”
As reported in our June survey, contributors are even more concerned about China growth with 80% forecasting the world’s second largest economy will worsen over the next six months compared to 60% last quarter. Continued weakness in short-cycle indicators, such as U.S. industrial production, continued emerging market uncertainty and a more bearish management tone have served to dampen organic growth expectations for 2015 and degrade sector investor sentiment.
“While we will likely see more negative surprises than positive this earnings season, our survey indicates the majority of industrial specialists are holding on or rotating into more attractive sub-sectors and ‘self-help’ investment stories,” commented Rebecca Corbin, Founder and CEO of Corbin Advisors. "Investors acknowledge that companies that have planned conservatively and are focused on executing tight cost management and disciplined capital deployment plans, all else being equal, should weather the storm."
Finally, organic investment remains the preferred use of excess cash followed by M&A given the recent pullback in equity valuations. Underscoring credit concerns, Asia-based investors rate debt reduction as their first priority. As one European sell-side analyst noted, “We expect an increasing polarisation between the stocks with any top line momentum and those who are going backwards, particularly in Mining and Oil & Gas. In a no-growth environment, cash-rich companies will buy growth and synergies and we expect much more M&A.”
Since 2006, Corbin Advisors has tracked investor sentiment on a quarterly basis. Inside The Buy-side® and other research on real-time investor sentiment, IR best practices and case studies are available at CorbinAdvisors.com.