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4Q16 Earnings Primer January 13, 2017
CORBINADVISORS.COM 1
Issue Date: January 13, 2017
Inside The Buy-side® 4Q Earnings Primer
We survey institutional investors and sell-side analysts
Market Performance1
quarterly to gauge and track sentiment on topics pertaining to the earnings season, global economy and market drivers We share our research broadly with corporate executives,
investor relations (IR) professionals and investors Survey scope: 101 investors globally managing over $719
billion in assets Survey timeframe: Dec. 9, 2016 to Jan. 6, 2017
4Q16
One-Year
DJIA
7.9%
15.2%
NASDAQ
1.3%
9.8%
S&P 500
3.3%
11.2%
Russell 2000
8.4%
22.4%
1
By Region
By Sector Generalist
48%
Multi Industrial IT
6%
Financial
5%
Other
N. America
14%
Europe
23%
Asia Pacific Latin America
By Style 56%
16% 11%
As of Dec. 31, 2016
17% 4%
Core Value Growth Hedge Fund GARP Income Value VC/PE Aggr. Growth Sector Specific Momentum Deep Value
24% 24% 12% 10% 10% 6% 6% 4% 2% 2%
CORBIN ADVISORS 2
Word Cloud: Frequency Of Occurrence
CORBIN ADVISORS 3
Key Findings
Optimism Abounds As 2017 Gets Underway #1
Sentiment Turns The Corner; Bullishness Makes A Comeback And Earnings Expectations Track Higher…Are We Ahead Of Ourselves?
85% expect 4Q earnings to be in line or better than consensus, up from 78% last quarter; those expecting worse than consensus results drops to lowest level in 12 months
All key metrics are expected to improve with views on organic growth performance garnering the highest level of confidence in more than a year
Management tone is described as more positive and greater than 60% expect 2017 annual guidance to be higher than last year
90% consider equity markets fairly to overvalued with more in the latter camp
#2
USA! USA! Sentiment Improves Following The Election Amid Promises Of Business Friendly Political Environment And Stimulus Spending
67% report they are feeling better about the economy post election while 70% expect the U.S. economy to improve over the next six months
Similarly, participants are most bullish on the U.S. but downbeat on Mexico and China citing protectionism and trade war concerns
U.S. recession fears off the table for 2017
#3
Sector Views Driven By Trump Rhetoric And December Rate Hike With More Expected In 2017
Financials experience biggest spike in bullish sentiment; Utilities and REITs witness biggest declines
Healthcare sees a major shift in bearish views, moving from #2 bull spot to #4 bear spot this quarter, while Industrials are back in favor and Materials receives the highest confidence level in three years CORBIN ADVISORS 4
Expectations
Earnings Expectations Continue To Rise; Highest Level In A Year Expectations Regarding 4Q Earnings Performance Relative To Consensus
Mar '16
43%
Jun '16 Sep '16
31%
27%
Dec '16
47%
50%
40%
39%
35% 30%
22%
21%
15%
Better Than
In Line
Worse Than
85% predict 4Q earnings will be in line or better than consensus with 60% expecting a sequential improvement Along those lines, 62% anticipate 2017 annual guides to be higher than last year In December 2015, worse than expectations peaked at 57%; at that point, it was the highest level of bearish
sentiment in 13 quarters
CORBIN ADVISORS 5
Expectations
On Earnings Expectations Vs. Consensus Better Than
In Line
Worse Than
“Better growth, slow rate hikes and low inflation.” Buy Side, Generalist,
“Improving economy, increased optimism and spending.” Buy Side,
“Reality.” Sell Side, Generalist, N.A.
N.A.
Multi, N.A.
“Caution in stampeding market.” Sell Side, Generalist, Europe
“Cycling off a fairly weak 4Q15.” Sell Side, Financials, N.A.
“Business is good almost everywhere, companies are investing a lot in automation and digitalisation.” Buy Side, Multi,
“Industrials not showing any inflection. Weather comp difficult vs. 4Q15.” Sell Side, Industrials, N.A.
“Fewer selling days.” Sell Side, Healthcare, N.A.
Europe
“Commodity prices have bottomed and the production is growing.” Sell Side, Energy, Asia
“All the bad news seems to be out there.” Sell Side, Industrials, N.A.
“Commodity price rally.” Sell Side,
“Improvements in commodity prices and potential for rising bank margins.” Buy Side, Generalist,
Materials, Asia
Asia
“PMI figures for October and November.” Buy Side, PE, LatAm
CORBIN ADVISORS 6
Expectations
Improvement Expected Across The Board For Key Metrics Organic Growth
57% 45%
51% 45% 31%
EPS Growth
46% 42% 35%
45%
36% 30%32%
27%
34%35%
33%33% 28%
22%
23%
22%20%
15%
13%
Improving
Staying the Same
Worsening
Improving
Cash Flow
Staying the Same
Operating Margins
55% 43% 35%35%
46% 45% 38%
41%
37% 31% 30%
35% 24%
Improving
Staying the Same
Worsening
28%
17%
Improving
Jun '16
Sep '16
43% 40%
23%
20%
20% 14%
Worsening
Mar '16
31%
37% 32%
Staying the Same
Worsening
Dec '16
CORBIN ADVISORS 7
Sentiment
Investor Sentiment And Executive Tone More Optimistic Investor Sentiment
Management Tone 4%
4%
14% 22% 31%
35%
34%
Bullish
48%
Neutral to Bullish 28% Neutral
37%
Neutral to Bearish 27%
Bearish
30%
33% 22% 16%
7% Sep' 16
1%
2%
5%
Dec' 16
Sep' 16
Dec' 16
CORBIN ADVISORS 8
Sentiment
On Investor Sentiment Drivers Bullish
Neutral to Bullish
“Trump policies such as tax reform, less regulation, etc.” Buy Side, Multi, N.A.
“Political changes, interest rates.” Buy Side, Multi, N.A. “Higher oil prices.” Buy Side, Generalist, N.A.
“Upward grind and positive impact of election sweep.” Buy Side, Generalist, N.A.
“Improving economic data and general positive sentiment.” Sell Side, Financials, N.A.
“OPEC cuts and U.S. banks are likely to be allowed to grow lending without more capital.” Sell Side, Multi, Europe
“Corporate tax cuts.” Sell Side, Generalist, Europe “New U.S. President.” Buy Side, Generalist, Asia
“Chinese industrial production.” Sell Side, Materials, Asia “Reflation is coming and nobody believes it.” Buy Side, Generalist, N.A.
Neutral to Bearish “Fundamentals have not improved enough to justify valuation increases.” Buy Side, Multi, N.A.
Neutral “Many risks still remain and the market has moved aggressively.” Buy Side, Generalist, N.A. “Lots of uncertainty.” Sell Side, Multi, LatAm
“Market valuation is not being driven by fundamentals but by fund flows out of bonds and inflows from other countries.” Sell Side, Industrials, N.A. “Brexit uncertainty, economic growth in the U.S. but in inflationary environment; therefore, circumspect consumer.” Sell Side, Consumer Staples, Europe
CORBIN ADVISORS 9
Sentiment
Things That Make You Go Hmmmm‌ More See Market Overvalued But Buying Anyway
How Would You Classify Equity Valuations?
What Has Been Your Investment Trend QoQ?
Top Concerns (Unaided) 1. Europe, specifically EU
54%
2. Geopolitical Issues 46%
3. China
44%
45%
4. Trade
42% 36%
5. Aggressive Rate Hikes
23% 20%
24% 21%
14% 11%
10% 10%
Under
Fairly
Over
Net Buyer
Sep '16
Dec '16
Net Seller
Holding
Rotating
CORBIN ADVISORS 10
Going Forward
Views On Global Economies Over The Next Six Months: Trump Bump Catapults U.S. To #1 And Weighs On Mexico
U.S.
5%
25%
70%
+36 pts
-19 pts
India
17%
39%
44%
+2 pts
+10 pts
Southeast Asia
16%
44%
40%
-12pts
+8 pts
Eurozone
24%
36%
40%
+6 pts
+3 pts
Brazil
22%
41%
37%
-4 pts
+1 pt
Japan
12%
57%
31%
+17 pts China
-28 pts 37%
33%
30%
-4 pts LatAm (ex-Brazil)
+2 pts 22%
51%
27%
-7 pts Mexico
13%
+2 pts 42%
45%
-15 pts
+16 pts Improving
Staying The Same
Worsening
CORBIN ADVISORS 11
Going Forward
The Aftermath Of The Election: A Collective Sigh Of Relief Are You Feeling Better About The Economy Post Election?
Yes: 67%
No: 33%
“Trump seems to have backed off the outlandish rhetoric and is generally making prudent appointments.” Buy Side, Generalist, N.A. “Change and a shakeup in the status quo are good.” Buy Side, REIT, N.A. “Less regulation, stimulated by more fiscal spending, and lower taxes all sounds good.” Buy Side, Multi, N.A. “Tax reform, health care reform, less regulation and a unified Congress. People are focused on productive uses of time and efforts, unlike under Obama.” Buy Side, Multi, N.A.
“We have the ECB turning off QE, probably too early and we have a strong dollar.” Sell Side, Industrials, N.A. “The economy does not rely on elections.” Buy Side, Multi, Europe “More or less the same. Additional stimulus only provides marginal benefits because of full employment.” Sell Side, Generalist, Europe “Inflation and increased nationalism lead to the potential for protectionism.” Sell Side, Consumer Staples, Europe “Rates going up, growth not proven.” Buy Side, Generalist, Asia
CORBIN ADVISORS 12
Going Forward
Recession Concerns Pushed Out; Rate Hikes Now A Question Of “When” And “How Many”, Not “If”
98% Surveyed Investors Who Believe The Fed Will Continue To Raise Interest Rates In 2017
When Do You Think The U.S. Will Have Its Next Recession? 40% 34%
32%
32% 29%
24%
23%
22% 17%
24%
16%
Most Participants Expect Two Hikes
“I believe the Fed will raise rates but it will coincide with next slump in economy. They have waited too long.” Sell Side, Industrials, N.A. “Improving economy will lead to two 25bps raises.” Sell Side, Multi, LatAm
4%
2017 Mar '16
2018 Jun '16
3+ Years Sep '16
Dec '16
34% do not think the U.S. is heading into a recession in the next three years
CORBIN ADVISORS 13
Going Forward
Protectionism In Effect; U.S. GDP Expected To Improve Despite Pessimism/Fears Surrounding Global Trade Improving Looking Out Over The Next 6 Months, Do You See The Following Improving, Staying the Same or Worsening?
“Both are likely to grow, even if there is a fear of major backlash.” Sell Side, Multi, Europe “Housing is robust.” Sell Side, Multi, Asia
70%
Staying The Same 42%
Global Trade U.S. GDP
“New administration will not be able to enact new policy as quickly as people believe.” Buy Side, REIT, N.A.
34% 24%
26%
“Age of globalization is over.” Sell Side, Generalist, Asia 4%
Improving
Staying the Same
Worsening
Worsening “Uncertainty at its epic high.” Sell Side, Healthcare, Asia
CORBIN ADVISORS 14
Outlook
Rate Hike Improves Outlook For Financials At The Expense Of High-yield Sectors; Mixed Views On Energy And Cons. Disc.
38%
Financials
36%
Energy
51% 46% 29%
Industrials
43%
Materials
25% 26%
Healthcare
23% 26% 29% 25% 23% 22%
*Cons. Staples
34% 14%
32%
Energy
30%
Sep' 16
46%
*Telecom
21%
Building Products
33%
Cons. Disc.
31% 38%
Cons. Disc.
51%
*REITs
47%
Technology
34%
*Utilities
67%
Dec' 16
18%
Sep '16
Big Shifts In Bullishness Driven By Rate Hike, Anticipated Infrastructure Spending; Technology Slips
Dec '16
Long Anticipated December Rate Hike Beats Down High-yield Sectors; Healthcare Sees Biggest Reversal
CORBIN ADVISORS 15
About Corbin Advisors
Our passion is creating value for public companies. From research-based insights to actionable strategies that differentiate our clients, Corbin unlocks thoughtful, positive change. We start by asking the right questions and end with providing actionable counsel that drives results.
Our proven methodology, proprietary analytics database, trusted reputation and in-depth experience generate unique insights. This marriage of research and rigor delivers comprehensive, actionable recommendations for internal and external value creation. We tailor strategies that enable high-impact decision making, secure maximum investor mindshare and ultimately, create longterm shareholder value.
If it’s Corbin, it’s Actionable.
“
Professional, analytical, creative
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We are a catalyst – an investor relations (IR) advisory firm that partners with IR and C-suite executives to drive longterm shareholder value. We bring third-party objectivity as well as a best practice knowledge and collaborate with our clients to execute a sound, effective IR communications and engagement strategy.
and decisive…Corbin is everything I needed in a consulting partner.
- SVP, Investor & Corporate Communications, Small-cap Healthcare IT
CORBIN ADVISORS 16