Sentiment contracts to March 2020 levels amid anxiousness over compounding headwinds and growth sustainability

• 76% expect U.S. consumer confidence to Worsen over the next six months, up 20% sequentially and registering at the highest level since March 2020
• 67% identify inflation as a key topic for executives to address on upcoming earnings calls, followed by demand trends (61%) and supply chain disruption (55%)
• 52% of surveyed investors and analysts describe their sentiment as Neutral to Bearish or Bearish, up from 12% last quarter and the highest level since March 2020
• Now expect 4.0% 2022 industrial organic growth rate, on average, down from 6.0% last quarter
• 59% expect Q1’22 margins to Worsen, more than double the level last quarter; 22% expect profitability to Stay the Same, down from 44%
• 54% favor debt paydown as a top use of cash, up from 22%; reinvestment remains the highest priority while M&A falls out of favor
• 30% identify recession (unaided) as a newly recognized top concern, surpassing energy costs (25%), monetary policy (23%) and geopolitical risks (19%)
• The most compelling investment themes include Cost-cutting Initiatives, Small Caps and North America

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Corbin Advisors, a strategic consultancy accelerating value realization globally, today released its quarterly Industrial Sentiment Survey. The survey, part of Corbin Advisors’ Inside The Buy-side^® publication, is based on responses from 32 institutional investors and sell side analysts globally who actively cover the industrial sector. Buy side firms manage more than $1.7 trillion in assets and have ~$163 billion invested in industrials.

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(Graphic: Business Wire)

Following six consecutive quarters of improving industrial sentiment amid sustained record demand, our survey this quarter finds sentiment has contracted meaningfully to levels not seen since the onset of COVID-19. Investors describing their sentiment as Neutral to Bearish or Bearish registers at 52%, up from 12% last quarter, while management tone is characterized as Neutral to Bearish or Bearish by 25%, up from 0% due to outsized concerns over inflation, as well as exacerbated supply chain challenges amid China lockdowns, and emerging apprehension about a recession.

As Q1’22 industrial earnings season gets underway, 58% anticipate revenue growth to have improved sequentially but optimism registers at the lowest level in seven quarters and most believe top-lines will be challenged in the second half of 2022. Weighing on sentiment, ~75% are bracing for U.S. consumer confidence and global PMI to Worsen over the next six months, the highest levels recorded since March 2020.

Continuing, Q1’22 margins, free cash flow and EPS are expected to inflect downward sequentially, but most surveyed investors and analysts anticipate strengthening in the back half of 2022.

Reinvestment remains the leading capital deployment preference with debt reduction a close second. To that end, tolerance for leverage levels tightens with most investors zeroing in on an ideal Net Debt to EBITDA ratio of 1.5x to 2.0x, on average. Notably, despite registering at a record level last quarter, investor preference for M&A cratered, with support going from 89% to just 12% QoQ.

“Following a period of mass capital spending and expansion coming out of the Q2 2020 earnings cycle, we identified the first signs of investor concern about inflation in the fourth quarter of that year. Headwinds have continued to mount and the added stressors of war and higher rates has resulted in a meaningful contraction in investor sentiment, with 30% of surveyed participants raising the specter of a recession,” said Rebecca Corbin, Founder and CEO of Corbin Advisors. “We are hearing about weakness in Europe, China and pockets of the consumer and while we expect first quarter company performance to remain relatively strong sequentially for most companies, management outlooks will take on a more cautious tone as the uncertainty of the sustainability of growth is great. This earnings season, investor and analyst questions will continue to focus on inflation and price/cost, the supply chain impacts of China’s zero-COVID policy and recent lockdowns, as well as demand and order trends, capital deployment and profit margin risk. In the coming quarters, we will be watching for economic transition red flags such as tighter expense management and cost-cutting initiatives, specifically headcount reductions.”

Industrials are largely considered fairly valued, and 21% of surveyed investors report Selling. While seemingly small, it’s the largest proportion recorded since March 2020. Net Buyers receded 12% from yearly highs last quarter, and the majority, 37%, report Holding steady amid increased uncertainty.

Defense, Commercial Aerospace and Water see the largest swing in bulls while bears pound on Automotive and Building Products.

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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