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1Q17 Earnings Primer Investor Sentiment Survey April 6, 2017 CORBINADVISORS.COM 1
Inside The Buy-sideÂŽ 1Q17 Earnings Primer
Issue Date: April 6, 2017
For over a decade, we have surveyed global investors and analysts on the equity markets, world economies and business climate. We share our research broadly with corporate executives, investor relations (IR) professionals and the financial community. Survey scope: 83 investors and analysts globally, comprising 64% buy side, which manage over $1.7 trillion in assets
Market Performance
DJIA NASDAQ S&P 500 Russell 2000 1
1Q171
1Q162
4.6% 9.8% 5.5% 2.1%
1.5% (2.8%) 0.8% (1.9%)
As of Mar. 31, 2017 31, 2015 – Mar. 31, 2016
2 Dec.
Survey timeframe: March 6 - 31, 2017 By Sector Generalist
By Region Core Growth
51% N. America
Multi Industrial
72%
19% 10% Europe
Financial
6%
Healthcare
5%
Cons. Disc.
4%
Asia Pacific IT
2%
Other
3%
17%
10%
1%
30%
GARP
16%
Core Value
16%
Hedge Fund
12%
Growth
6%
Inc. Value/Yield
6%
Deep Value Latin America
*64% buy side
By Style
Other
2% 12%
CORBIN ADVISORS 2
Word Cloud: Frequency Of Occurrence
CORBIN ADVISORS 3
Key Findings: Trump Continues To Dominate Mindshare And All Eyes Are On 1Q17 Earnings, Which Should Provide The Real Facts #1
Sentiment On Global Markets Heats Up While U.S. Loses Some Steam Amid Trump Policy Execution Concerns
▪ All non-U.S. regions see uptick in positive sentiment with global trade expected to improve ▪ Calls for U.S. economy and GDP growth weakened somewhat, with Trump pro-business agenda priced in but not yet
gaining traction; implies high risk of bearish reaction if actions don’t materialize ▪ Wunderbar! Eurozone shrugs off woes and sees most significant improvement in sentiment; 68% more positive toward
region, up from 40% last quarter and 21% three periods ago…will Le Pen rain on the parade? ▪ Sun rising: 34% more bullish toward Japan; country was most bearish less than one year ago
#2
Despite Healthy Expectations For 1Q Earnings, Anticipated Margin Contraction And An Overheating Market Give Some Pause
▪ More than 80% expect 4Q earnings to be in line or better than consensus, a continuation from last quarter; those expecting
beats registers the highest since 4Q13 ▪ Expectations for higher organic growth spike to 62% from 45% last quarter, marking the fourth consecutive period of
expected improvement ▪ According to investors, management tone is the most upbeat it's been in two years ▪ An overwhelming 97% consider U.S. equity markets fairly to overvalued and more than 40% expect multiples to contract ▪ Reality check: 7% of respondents describe their current investment activity as liquidating, up from 0%; additionally, net
buyers decline to 27% from 42% last quarter
#3
Sector Rotation Is Evident: Higher-beta Stocks Take Center Stage While Defensive Plays Take A Backseat
▪ Technology regains top spot and Industrials shift into high gear while nearly 40% report bearish sentiment toward
Consumer Discretionary ▪ Expected rate hikes continue to cast a cloud on yield-oriented sectors with REITs and Utilities taking it on the chin CORBIN ADVISORS 4
Investor Expectations For Improved Earnings Continue To Rise And Reach The Highest Level In Over Three Years Expectations Regarding 1Q17 Earnings Performance Relative To Consensus
Jun '16
Macro Top-line Growth
Sep '16 44% Dec '16 Mar '17
31%
Higher Costs Seasonality
Slow Growth Low Inflation
35%
47% 50% 40%
38%
22%
21%
Better Than
39%
In Line
15% 18%
Worse Than
46% Describe 4Q and FY 2016
61% Report 2017 outlooks were
results as better than expected
in line with expectations
Most bullish earnings sentiment registered since December 2013 when better than expectations peaked at 50%
CORBIN ADVISORS 5
On Earnings Expectations Vs. Consensus
Better Than
In Line
Worse Than
“Easy comp and improving rev. above expectations.” Buy Side, Generalist, N.A.
“Slow growth in most sectors, oil services slightly better, most retail & restaurants weaker.” Buy Side,
“No top line.” Buy Side, Generalist, N.A.
“Orders have begun to improve but generally Industrials are not short cycle (weeks or months) but rather quarters. As a result, earnings are likely to begin to materially reaccelerate in 2H17.” Sell Side, Industrials, N.A.
“Better top-line growth and operating leverage.” Buy Side, Generalist, Europe “Lowered bar, seasonal spike in payroll taxes, shorter calendar (leap year).” Sell Side, Healthcare, N.A.
“Higher consumer confidence translates into more spending.” Sell Side, Multi,
Financials, N.A.
REIT, N.A.
“Acceleration in domestic growth with business and consumer optimism increasing as European economy stabilizes and China grows again. Headwind will be dollar strength.” Buy
“Not seeing any real change in underlying trends (growth, profit). Consensus has gotten way ahead of itself on Trump trade.” Buy Side,
Side, Generalist, N.A.
Generalist, N.A.
“Short-term economic expectations and better interest rate outlook for banks.”
“Stats overstated by warm weather.”
Sell Side, Generalist, Europe
“Improving macro environment.” Sell Side, Generalist, N.A.
“GDP growth.” Buy Side, Financials, N.A.
N.A.
“Carryover effect from 2H16 and impacts of stronger global growth driven by Asia.” Sell Side, Generalist, Europe
“Earnings momentum is good but too much optimism in the market.” Buy Side,
“Low inflation.” Sell Side, Generalist, Asia
Buy Side, Generalist, N.A.
“Consumption is living a slowdown.” Buy Side, Multi, N.A.
“The honeymoon is over (actually I'm not sure we even made it out of the wedding).” Buy Side, Multi, N.A. “Cost increases.” Sell Side, Multi, N.A.
“Seasonal weakness is to be expected.” Sell Side, Generalist, N.A.
CORBIN ADVISORS 6
Heightened Expectations For Organic Growth And EPS Improvement; Margins Expected To Falter Due To Higher Input Costs Organic Growth
EPS Growth
62%
57%59% 46% 42% 35% 27%
45% 31%
45%
45% 33%33% 31% 28%
32% 23%
20%
35% 22% 15%
13%11%
Improving
Staying the Same
Worsening
Improving
Cash Flow
Staying the Same
46% 45%
50% 43% 37% 30%
37% 31%
Worsening
Operating Margins
55%
35%
10%
38% 35%
31%
37% 32%
36%
32% 23%
20%
20%
43%
17%
14% 13%
Improving
Staying the Same
Improving
Worsening
Jun '16
Sep '16
Dec '16
Staying the Same
Worsening
Mar '17
CORBIN ADVISORS 7
Investor Sentiment Tempers Slightly Despite Uptick In Upbeat Executive Tone
Investor Sentiment
22%
Management Tone 14%
17%
14%
Bullish 31% 34%
Neutral to Bullish
48%
Neutral
55%
Neutral to Bearish 25%
Bearish
27% 33%
23% 7% 1% Mar '17
23% 16% 1%
4%
5%
Dec '16
Mar '17
Dec '16
CORBIN ADVISORS 8
On Investor Sentiment Drivers
Bullish
Neutral to Bullish
“Business rolling along.” Buy Side, Healthcare, N.A.
“The six waves of structural change currently proposed or expected in the U.S. economy - tax reform, privately funded U.S. infrastructure modernization, U.S. manufacturing onshoring, stronger U.S. GDP growth in 2018, $1T in public/private U.S. infrastructure modernization and a global energy E&P recovery by late this decade.” Sell Side, Industrials, N.A.
“Better policy.” Buy Side, Generalist, N.A. “Trump tax cuts.” Buy Side, Generalist, N.A. “Global economic imbalances/market prices.” Sell Side, Generalist, Europe
“Bull run long in the tooth.” Sell Side, Healthcare, N.A.
Neutral “Political environment and monetary policy.” Sell Side,
“NOBODY is celebrating this market because commitment to it is not widespread. Strange that at alltime highs sentiment and positioning are as tepid as they are.” Buy Side, Multi, N.A. “Less regulation and higher interest rates supporting financial stocks.” Sell Side, Financials, N.A.
Consumer Discretionary, N.A.
“Investors seem to be very optimistic about growth prospects in the U.S. Thus, there is some danger of negative surprises.” Sell Side, Generalist, Europe “Fed headwinds and fiscal stimulus delayed.” Buy Side, Financials, N.A.
Bearish “Economic activity is solid; business expectations are not that positive to give traction for greenfield investment.” Sell Side, Generalist, Europe
CORBIN ADVISORS 9
April Showers Needed; Buying Activity Drying Up As Market Valuations Overheat
What Has Been Your Investment Trend QoQ?
How Would You Classify U.S. Equity Valuations?
97%
67% 54% 46%
44%
45%
42%
36% 30%
30% 29% 24% 23% 21%
26% 20% 13%11%
10% 10%
8%
7%
3% Under
1% 0% Fairly
Net Buyer
Over
Sep '16
Dec '16
Net Seller
Holding
Rotating
Liquidating
Mar '17
43% Expect equity valuations to
84% Predict the IPO market pace will remain
contract in 2017
the same or become more aggressive for the remainder of 2017 CORBIN ADVISORS 10
Trump Trade In Effect But Not The Reality Yet…Ahead Of Our Skis? How Impactful Will The Following Be On The U.S. Economy And What Is The Likelihood Of It Passing In 2017? Likelihood of Passing In 2017 U.S. Corporate Tax Cut
52%
42%
Repatriation
23%
55%
U.S. Personal Tax Cut
25%
52%
Infrastructure Expansion Program
25%
Immediate Depreciation of Capex
Large Defense Spend Increase
8%
Interest Non-deductibility
9%
Border Adjustment Tax
6%
Very Positive
19%
25%
43%
29%
37%
11%
11%
Positive
37%
32%
Neutral
6%
34%
24%
32%
Negative
87%
3%
69%
4%
63%
6% *
75%
7% *
68%
19%
43%
20%
5% *
12%
14%
27%
67% 36% 21%
Very Negative
Note: *1% CORBIN ADVISORS 11
Around The World: Downbeat Sentiment On Global Economies Thaws And Hope Springs Eternal…Mexico Enduring A Long Winter Global Economic Expectations Over The Next Six Months
Eurozone
63%
28%
9%
+23 pts
-15 pts
India
58%
34%
8%
+14 pts
-9 pts
U.S.
56%
35%
9%
-14 pts
+4 pts
Southeast Asia
54%
32%
14%
+14 pts
-2 pts
Brazil
51%
26%
23%
+14 pts
LatAm (ex-Brazil)
-7 pts
36%
44%
20%
+9 pts
Japan
-2 pts
32%
60%
8%
+1 pt
China
-4 pts
32%
43%
25%
+2 pts
Mexico
-12 pts
18%
33%
49%
+5 pts
+7 pts
Improving
Staying The Same
Worsening
CORBIN ADVISORS 12
Mixed Sentiment On Global Trade While Exuberance Around U.S. GDP Ebbs Do You See The Following Improving, Staying The Same Or Worsening? Global Trade
U.S. GDP
24% 38% 52%
Improving 70% 42%
21%
Staying The Same
Worsening 36% 34%
41%
26% 4%
Dec '16
Mar '17
Dec '16
12%
Mar '17
“U.S.-centric energy policy will enable 17% of our 2015 $0.5T trade deficit to swing to a 5%10% positive contributor to a favorable trade balance over the next couple years while U.S. exports surge and imports slow.” Sell Side, Industrials, N.A. “U.S. protectionism improves U.S. GDP a little but worsens global trade a lot.” Buy Side, Multi, Europe
“Things are looking better than they were at this time last year.” Sell Side, Generalist, N.A. CORBIN ADVISORS 13
Execution Of Pro-business Trump Policy The Swing Factor
1 1
Trump policy: Pro-business initiatives, tax reform, deregulation
2 Money flows – nowhere else to go Economic growth substantiated by 3 data Monetary Policy | Investor Euphoria | Earnings Strong Employment
Trump policy: Political risk and trade wars
2 Rising interest rates 3 Valuations War | Currency | Debt | China Inflation | Europe
Top Concerns
Top Market Drivers CORBIN ADVISORS 14
Continued Rate Hikes Priced Into Market; Two To Three More Bumps Likely
94%
Believe The Fed Will Continue To Raise Interest Rates in 2017
Where Will The Fed Funds Rate Be At Year-end? 38%
36%
15% 8%
1%
5% 1.25%
1.50%
1.75%
“If interest rates stay low, everything is cheap. On the other hand, from the historical point of view, things are on the high side of reasonable. The truth probably lies somewhere between the two, but where?” Buy Side, Multi, N.A.
≥ 2.0%
CORBIN ADVISORS 15
Time Warp: Can Trump Policies And Burgeoning Global Growth Extend The Cycle?‌Investors Seem To Think So
46%
Technology
59% 67%
Financials
57% 43% 50%
Industrials
47%
30% 29% Dec '16
26% 36% 22% 32% 25% 32% 18%
Energy
36%
Materials
51% 45%
*Telecom
40%
Energy
*Utilities
*Cons. Staples
23%
Biotechnology
46% 50%
Cons. Disc.
34% 40%
Building Products
*REITs
Financials
Mar '17
26% 10% 26% Dec '16
Biotechnology Experiences Largest Jump In Bullish Sentiment And Technology Reclaims Top Spot
Mar '17
Two Rate Hikes (In Three Months) Weigh On Highyield Sectors; Financials See Largest Increase In Bearish Sentiment *Interest rate-sensitive
CORBIN ADVISORS 16
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CORBIN ADVISORS 17