Corbin Advisors Releases Q1'24 Inside The Buy-Side® Earnings Primer®

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 58^th 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.

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.