Corbin Advisors Releases Q2’22 Inside The Buy-Side® Earnings Primer®

Corbin Advisors Releases Q2’22 Inside the Buy-Side^® Earnings Primer^®

Survey Finds Bearish Investor Sentiment Continues to Climb Amid Expectations for Slowing Demand and an Imminent Recession

• • 55% of investors and analysts characterize their view as Neutral to Bearish or Bearish, up from 43% last quarter and the second-most downbeat level recorded in survey history, trailing only the onset of COVID-19
  • 47% expect earnings to be Lower sequentially, up from 30% last quarter, while 50% anticipate consensus misses
  • 72% are Significantly Concerned or Concerned about a recession, with 47% targeting 1H 2023
  • 50% favor debt reduction as a top use of cash, up from 41% last quarter; reinvestment falls to its lowest level recorded
  • Greater than 70% expect companies will lower annual guidance this quarter

FARMINGTON, CT – July 14, 2022 – Corbin Advisors, a strategic consultancy accelerating value realization globally, today released its quarterly Earnings Primer®, which captures trends in institutional investor sentiment. The survey, which marks the 51^st issue of Inside the Buy-Side®, was conducted from June 2 to July 8, 2022 and is based on responses from 80 institutional investors and sell side analysts globally, representing ~ $5.0 trillion in equity assets under management.

Following last quarter’s survey that found a reversal in sentiment given more pronounced inflation concerns as well as emerging growth uncertainty, this quarter our survey finds increasingly downbeat investor sentiment amid continued high inflation, rising interest rates, falling consumer confidence, and fears of an imminent recession.

More than half of surveyed investors, 55%, describe themselves as Neutral to Bearish or Bearish, up from 43% last quarter and trailing only March 2020 for the most downbeat levels recorded in survey history. Driving sentiment this quarter is 90% reporting more concern or a continued high level of concern (aided) over Fed policy, up from 57%, followed by inflation (89%) and stagflation (72%). Most investors expect the year-end Fed funds rate to be between 2.75 and 3.00%, as well U.S. 2022 GDP to grow 1.4%, down from last quarter’s expectation of 3.3%, on average.

To that end and for the second consecutive quarter, growth expectations have deteriorated, with just 14% believing strong demand levels will continue in 2H 2022, down from 45% heading into Q1 earnings season and 82% heading into Q4 earnings season. Expectations for Organic Growth, Margins, EPS and Free Cash Flow are all lower for the second quarter, with fewer than 15% expecting Improving performance across these KPIs. Notably, one-third describe executive tone as Neutral to Bullish or Bullish, largely in line with last quarter, underscoring the current dichotomy between increasingly bearish investor sentiment and corporate realities, with many companies continuing to experience record performance levels.

Continuing, 72% of investors express a high level of concern with a recession, with slightly more predicting landfall in the first half of 2023 than second half of 2022 (47% vs 35%). However, most investors believe a contraction will be “short” and “shallow” at this time.

Kim Forrest, Chief Investment Officer/Founder at Bokeh Capital Partners commented, “In regard to a recession, I do not think huge amounts of unemployment will happen. It would be a recession in GDP; people spending less.”

With recessionary concerns proliferating, debt reduction is the preferred leading use of cash at 50%, up from 41% last quarter. Debt tolerance is also retreating with 78% now preferring Net Debt-to-EBITDA levels of 2.0x or lower. In another sign of ultra-conservativeness, 40% encourage companies to hold dry powder. Reinvestment, which has dominated the top spot of cash uses 5 out of the last 6 surveys, falls to third place and sees the lowest level of support ever recorded in our survey.

“Investor angst continues to grow amid increasing occurrences of slowing demand across a number of end markets and regions, particularly Europe. At the same time, certain secular growth trends remain strong, and many companies will again print record results this quarter. With 2022 guides that did not anticipate a recession, a prolonged war, nor the level of U.S. interest rate hikes to date, uncertainty abounds and continued volatility is inevitable as these dynamics wend their way through global economies and corporate performances,” said Rebecca Corbin, Founder and CEO of Corbin Advisors. “More and more, investors are asking companies about recessionary actions and downturn playbooks. Questions on inflation and pricing power, demand and volume levels, and employee hiring activities will be prevalent on earnings calls this season. With 72% of investors currently prioritizing margin expansion over revenue growth, cost cutting initiatives will also be in focus.”

As for investing patterns, 69% report Holding or Rotating, up slightly from 66% last quarter, while Net Buyers remained at 19% and Net Sellers decreased slightly to 12% from 15%. Amid the doom-and-gloom mentality, Healthcare, Energy/Materials and other more recession-resistant sectors – Financials, Consumer Staples and Utilities – see the highest levels of bulls, while Consumer Discretionary, REITs and Building Products register the most bears.