Investor Sentiment on Industrials Tightens and Is Increasingly Cautious; 92% Assert Valuations Are Fair or Overvalued, According to Corbin Research
- 58% expect this quarter’s earnings to be in line with consensus while fewer are expecting misses
- Trends in executive tone have warmed somewhat with nearly half of investors and analysts now describing management as neutral and fewer as bearish
- Conversely, investor sentiment has tightened and is increasingly cautious; those asserting they are neutral or neutral to bearish have nearly doubled quarter-over-quarter
- Views on certain emerging market economies have improved, with India seen as most promising while opinions on China are decidedly mixed; Mexico saw the biggest shift in negative sentiment
- Sentiment on Industrial subsectors Non-resi Construction and Ag saw sharp increases in bearish sentiment while previously persistent downbeat views on Metals & Mining improved somewhat
HARTFORD, Conn. – October 13, 2016 – Corbin Advisors, a leading investor research and investor relations (IR) advisory firm, today released its quarterly Industrial Sentiment Survey, which finds investor sentiment growing more cautious despite expectations for stable 3Q16 performance. The survey, part of Corbin’s Inside The Buy-side® research group, is based on responses from 30 investors and analysts globally who follow the Industrial sector.
As 3Q16 earnings season begins, the majority, or 58%, expect results to meet consensus, an improvement from the prior two quarters. Still, 92% of industrial investors and analysts assert valuations are either fair or overvalued, adding that they have been resigned to “holding” investment positions at these levels.
“Leading into 3Q earnings season, trends seem in line with 2Q’s results across most end markets, with the exception of Oil & Gas capex, seemingly the only outlier which has continued to decelerate,” commented a buy side participant.
Continuing, investors largely describe their overall sentiment as neutral to neutral to bearish at the expense of cautiously optimistic stances, which receded to 38% from 58% quarter over quarter.
“This quarter’s survey revealed a divergence between investor sentiment and executive tone. While management is described as having a more neutral to less bearish stance, investors report more caution. The economic landscape remains challenging, growth is elusive and concern around China is increasing,” said Rebecca Corbin, Founder and CEO of Corbin Advisors. “With valuations at elevated levels given a dearth of alternative investment opportunities, we could be in for a slight correction amid downward guidance revisions and muted management outlooks for the remainder of 2016.”
Commenting on the apparent bifurcation between valuations and fundamentals, a sell side analyst noted, “I fear the pressure for performance from investors who understand the numbers, but not the business.”
More signs that investors are shaking off the calm of the summer months, 48% believe Industrials are in a recession, up slightly from last survey, while an even larger number, or 84%, reveal they are placing greater emphasis on balance sheet strength. Moreover, fewer than 10% believe that global capex will improve in the next six months while expectations that Oil & Gas markets will rebound are faltering.
“We are in the late innings of a recession. The question is, how pronounced will the recovery be? Past Industrial upcycles often corresponded to monetary policy easing. What is strange about the latest rally in Industrials is that rates are poised to rise,” commented a buy side analyst.
Notably, views on China are mixed; while the number of investors that believe the country’s economy will improve over the next six months increased, a similar number say it will worsen and, furthermore, China topped the list of concerns (unaided). Meanwhile, constructive views on India remain prevalent but have deteriorated somewhat.
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.
About Corbin Advisors
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Bronwyn Swanson, 203-283-7997