Findings Reveal the Most Bullish Industrial Investor Sentiment since September 2018
85% of surveyed investors and analysts believe earnings will Improve sequentially
All key metrics - Revenue Growth, Operating Margins, EPS and Free Cash Flow - are expected to Improve QoQ; fewer than 20% forecast Worsening results vs. ~75% or more in the prior survey
Nearly 60% describe themselves as Neutral to Bullish or Bullish, up from 39% last quarter and the highest level registered since September 2018, while only 20% are Neutral to Bearish or Bearish
More than 50% consider industrials Undervalued, in stark contrast to last quarter when nearly half believed industrials were Overvalued; close to 60% report being Net Buyers, a record for the second consecutive quarter
81% believe we are in an economic recovery; 2020 industrial organic growth expectations average 2.9% contraction, compared to a forecast of ~8% contraction registered in our April and July surveys
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 38 institutional investors and sell side analysts globally who actively follow the Industrial sector. Buy side firms manage more than $3.4 trillion in assets and have ~$269 billion invested in industrials.
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Following a prolific shift in industrial sentiment in the June survey with the fewest bears in over two years, our survey this quarter finds industrial investors are even more upbeat with the highest level of bullish investor sentiment identified since September 2018, twice as bullish as the low point in April, the initial peak of COVID-19. This continued momentum comes as just over 80% of the study group believe we are in an economic recovery. With nearly 65% affirming last quarter’s earnings were Better Than expectations, the highest percentage ever recorded, more than 80% now believe earnings will Improve sequentially.
Anders Roslund, Analyst at Pareto Securities, commented, "Q3 earnings should come in better than consensus, as there has been better demand and cost savings."
Furthermore, 85% believe revenue growth will Improve, as full-year 2020 industrial organic growth expectations are for 2.9% contraction, on average, a marked improvement from forecasts of approximately 8% declines in our April and July surveys. As well, Operating Margins, EPS and FCF are also expected to Improve quarter-over-quarter by a majority of respondents, while broad-based expectations are for developed economies to improve over the next six months despite rising COVID-19 cases.
Following last quarter’s findings in which nearly 50% classified industrial equities as Overvalued, more than half now consider equities Undervalued. Commensurate with that view, nearly 60% report being Net Buyers, a record for the second consecutive quarter, while fewer than 10% are a Net Seller. Cost-cutting initiatives, aftermarket and digitalization are identified as the most compelling investment themes.
Regarding capital deployment, nearly two-thirds favor reinvestment as the leading preference for cash by nearly two-thirds of investors, followed by debt reduction and M&A. To that end, more than 60% are open to bolt-ons and nearly one-third to transformational acquisitions.
"Last quarter, we noted consensus estimates were still anchored in worst-case scenarios given the significant uncertainty that continued despite a number of pre-announcements to the upside and sequentially improving trends. Fast-forward to our findings this survey, a record number of investors noted industrial performance was better than expected. Industrial investor sentiment has now registered at the most bullish level in two years and we expect very strong sequential results, especially margin and free cash flow performances," said Rebecca Corbin, Founder and CEO of Corbin Advisors. "Demonstrating conviction in the sector, S&P 500 industrials outperformed the broader benchmark in Q3, as seasoned industrial investors took advantage of the valuation dislocation. Despite continued momentum in order rates and other KPIs, executive outlooks for Q4 are likely to strike a cautious tone amid the rise of COVID cases and uncertainty around the U.S. election. Still, we expect continued strength as companies maintain strong cost controls and reinvest to capitalize on demand. One of the big questions coming out of earnings season this quarter, we believe, will be whether margin rates are sustainable at these levels."
In terms of sector bets, Materials, Industrial Equipment & Components and Automotive saw the biggest swings in positive sentiment, while Commercial Aero and Non-Resi Construction remain out-of-favor. Notably, Defense registered its lowest number of bulls in five years, while Resi. Construction and Building Products continue to heat up.
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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