Survey Finds Optimism Tracking Higher Heading
into Earnings Season as Investors Cast Off Recessionary Concerns,
Adapt to Higher-for-Longer, and Embrace AI...Margin Focus Gets a
Shot in the Arm
- Investors expecting a recession has waned significantly over
the prior 12-month period from 88% at the start of 2023 to 36%
currently
- Executive tone perceived as more optimistic than last quarter,
increasing from 46% Neutral to Bullish or Bullish to 64%
- Amid corporate confidence, investors largely maintain their
Neutral to Bullish or Bullish stance QoQ
- 58% anticipate Q1’24 results will be better than the same
period last year with 60%+ expecting companies to Maintain annual
guides
- While focus on margins surges amid sticky inflation and a
higher-for-longer interest rate environment, investor support for
growth investment remains intact
- Debt paydown and reinvestment remain the preferred uses of
cash; notably, M&A sees an uptick in interest for the second
consecutive quarter while debt austerity softens
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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 58th issue of Inside The Buy-Side®
Earnings Primer® was conducted from March 1 to April 4, 2024, and
is based on responses from 87 institutional investors and sell-side
analysts globally, representing ~$8.1 trillion in equity assets
under management.
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Following last quarter’s survey that found sentiment
increasingly optimistic amid expectations for a lower interest rate
environment and an improving macro in 2024, the Voice of Investor®
captured in this quarter’s survey registers continued improving
sentiment despite dashed hopes on near-term rate cuts. Supporting
this uptrend is the view that a majority of investors expect the
U.S. to dodge a recession and for companies to deliver better
year-over-year earnings results. While views have shifted from
neutral to more positive territory, investor exuberance remains in
check amid continued macro uncertainty and monetary policy,
including concerns around persistent inflation.
Rebecca Corbin, Founder and CEO of Corbin
Advisors, commented, “With earnings season about to commence,
our survey finds increasing optimism amongst the investment
community amid the growing belief that we bottomed in 2023 and
that, despite sticky inflation and a higher-for-longer interest
rate environment, 2024 will offer year-over-year improvement.
Supporting expanding positive sentiment is increased executive
confidence, a U.S. election year, and durable secular growth
trends, including continued government spending and the
proliferation of AI. While uncertainty remains, it, along with
recessionary concerns continue to moderate. Still, dialogue around
the prospect of reaccelerating inflation, prolonged geopolitical
conflict, and a dynamic macro environment is keeping exuberance in
check. While those expecting worsening economic conditions in the
U.S. has pulled back to its lowest level in over two years, 2024
GDP expectations moderated QoQ. As the market recalibrates from the
hotter-than-expected CPI prints and an elusive rate cut schedule in
2024, leading topics for executives to address on upcoming earnings
calls include profitability and expense management, demand, and,
new this quarter, artificial intelligence.”
Perceived executive tone registers more optimistic than last
quarter, increasing from 46% Neutral to Bullish or Bullish to 64% —
the largest QoQ surge since Q4’20 when promising news of COVID-19
vaccine developments hit the airwaves. Mirroring this confidence,
investors largely maintain their Neutral to Bullish or Bullish
stance QoQ, with outright bears registering the lowest level since
Q2’21.
Indeed, the number of respondents expecting a recession has
waned significantly over the past year, decreasing precipitously
from 88% in Q1’23 to just 36% this survey.
However, the change in atmosphere related to a higher-for-longer
interest rate environment is erasing some of the growth exuberance
we identified last quarter. More investors, 39%, now expect 2024
U.S. GDP to be In Line with 2023, up from 21% QoQ, while those
expecting annual GDP to come in Higher than 2023 declined from 56%
to 33%. Given dashed hopes for interest rate cuts to have commenced
in March, 62% are prioritizing margins over growth, a reversal from
last quarter where growth dominated.
Leading concerns this quarter include macro uncertainty,
monetary policy, and inflation, the latter of which experienced the
largest QoQ increase of all risks heading into earnings over fears
of sticky costs and the waning ability for companies to continue to
pass those on.
"I am cautious about the market primarily because we see this
dichotomy of enthusiasm around the implications of artificial
intelligence, which has driven some stratospheric valuations for
businesses that might be beneficiaries, and which end up being part
of the S&P multiple. However, we are constructive because we
can find opportunities to invest in a number of new businesses in
the world with visible and predictable growth and very healthy free
cash flow characteristics that are much better than their values
reflect. You have to go industry by industry, but in the main
market, there is a constructive tone about the days ahead across a
broad set of industries." commented a portfolio manager whose
firm manages $128 billion in EAUM.
Across the board, more are universally expecting KPIs to Improve
for the second consecutive quarter with greater than half modeling
better sequential Revenue and EPS performances and 40%+
anticipating the same for Operating Margins and FCF. Leading topics
for executives to address on upcoming earnings calls include
margins and expense management, along with demand, growth, and, new
this quarter, artificial intelligence.
While debt paydown remains the top preferred cash usage for the
eighth consecutive quarter, our survey finds a notable softening in
debt level austerity. Those favoring a 2.0x or lower net
debt-to-EBITDA ratio declines to 57% from the 74% level registered
over the past two surveys, while appetite for 2.5x to greater than
3.0x expands from 26% to 43% QoQ.
Regarding broader views on global economies, optimism over
economic growth in India and Japan set new survey highs, while
those expecting Worsening U.S. conditions falls to its lowest level
in 9 quarters.
Turning to sector sentiment, Tech and Healthcare continue to
remain the top bullish bets for the fifth consecutive quarter,
while Utilities and REITs remain pressured by high interest rates.
Mixed sentiment is most evident in Basic Materials, which saw
increases in both bulls and bears, while Industrials register the
fewest bears on a relative basis.
Since 2007, 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 is a strategic consultancy accelerating value realization
globally. We engage deeply with our clients to assess, architect,
activate, and accelerate value realization, delivering
research-based insights and execution excellence through a
cultivated and caring team of experts with deep sector and
situational experience, a best practice approach, and an
outperformance mindset.
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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version on businesswire.com: https://www.businesswire.com/news/home/20240418747386/en/
Devin Davis, Head of Marketing & Communications (609)
577-9006 devin.davis@corbinadvisors.com