Corbin Advisors Research Finds Negative Sentiment Surrounding Industrials Still Prevalent but Pessimism Bottomed in December
- Bias toward bearishness has decreased from 61% to 43% but most do not view post-February stabilization in oil and the U.S. dollar as an inflection point for industrials
- Investors remain concerned about the macro backdrop, especially as it relates to growth and 56% believe we are still in an industrial recession; emerging markets and China predicted to continue to worsen over the next six months
- While expectations have stabilized, 35% still anticipate 1Q16 earnings misses
- Still, bright spots exist with majority expecting some acceleration in 2016 short-cycle orders; investors most bullish on Building Products and Commercial Aerospace
HARTFORD, Conn. – April 19, 2016 – Corbin Advisors, a leading investor research and investor relations (IR) advisory firm, today released its quarterly Industrial Sentiment Survey, which finds market sentiment hit a trough in December but cautious bearishness persists. The survey, part of Corbin’s Inside The Buy-side® research group, is based on responses from 52 investors and analysts globally who follow the industrial sector.
Sentiment toward industrials is moving toward bullishness with 77% now expecting valuations to remain the same or expand versus 67% in December. As well, net sellers of industrials plunged to 6% from 24% previously while net buyers nearly doubled after three quarters of decline.
“All channel checks indicate a softening of pessimistic investor sentiment that was prevalent at the beginning of the year, culminating in the mid-February market nadir. Expectations are at low levels following 2016 company guides and organic growth remains challenged,” said Rebecca Corbin, Founder and CEO of Corbin Advisors. “This earnings season is particularly important given improving sentiment in the face of a highly uncertain macro.”
“We are at an inflection where sales growth can get less bad. End markets are stable but not getting better. Growth rates will only look better mathematically year-over-year due to the prior year comparisons being very easy,” commented a buy side participant.
The majority maintain the sector remains in recession and expect key performance indicators, specifically revenue, EPS and operating margins, to have further worsened in the first quarter, albeit not as drastically compared to fourth quarter expectations. Furthermore, concern exists on the demand side with nearly 40% of those surveyed expecting slower growth rates relative to 2015 and global capex to worsen.
“There’s a weak overall global economy, earnings expectations are too high for 2016 and 2017,” commented a sell side analyst, adding that “the recent sector rally is unwarranted.”
China and other emerging market economies remain top concerns, with over one-third expecting them to weaken in the next six months. Meanwhile, constructive views on India continue to strengthen while perceived catalysts in the U.S. remain an empowered consumer and strength in residential and non-residential construction.
“The dollar has stabilized, oil appears to be reaching a bottom and ISM order rates suggest demand improvement ahead,” noted a buy side contributor.
“It seems like Groundhog Day for surveyed industrial investors and the groundhog is emerging from his burrow but it is not yet clear whether he has seen his shadow,” commented Corbin. “Negative industrial sentiment is abating but still prevalent; however, there is growing evidence of green shoots as the worst appears to be in the rearview mirror.”
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.