Corbin Advisors Releases Q4’23 Inside The Buy-Side® Earnings Primer®

Survey Finds Investor Sentiment More Optimistic Amid Expectations for Lower Rates and Views that the Macro Will Improve in 2024; Geopolitics and Slowing Growth Remain Top of Mind

• 50% report current sentiment as Bullish or Neutral to Bullish, up nearly 20% QoQ and the highest level registered since Q4’21
• Executive tone is perceived as more optimistic than last quarter, increasing from 36% Neutral to Bullish or Bullish to 46%
• 42% and 62% expect results to be In Line with prior quarter performances and consensus, respectively; both figures represent survey records
• 55% are now prioritizing growth over margins, all else equal, an increase from 29% last quarter
• The number of respondents expecting a recession has waned significantly in just 12 months, from 88% in the beginning of 2023 to 48% presently
• Over 50% cite Geopolitics as the leading risk, topping concerns for the second consecutive quarter amid U.S.-China tensions and the war in the Middle East
• 79% assign a High or Very High level of risk to companies with exposure to China, and more investors are in outright favor of U.S. companies de-risking exposure versus those who believe executives should follow through on “In China for China” strategies
• Debt paydown remains the top preferred use of cash, followed by reinvestment, which sees significantly more support QoQ

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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 57^th issue of Inside The Buy-Side^® Earnings Primer^® was conducted from November 22, 2023 to January 2, 2024, and is based on responses from 86 institutional investors and sell-side analysts globally, representing ~$6 trillion in equity assets under management.

Following last quarter’s survey that found sentiment increasingly trending neutral, but with investors reflecting continued caution amid persistent recessionary and geopolitical concerns, the Voice of Investor^® captured in this quarter’s survey registers a more optimistic tone overall. Buttressing this notable shift in mindset is the view that the macro will improve in 2024 amid expectations for a lower interest rate environment. Still, concerns around geopolitics and slowing growth remain.

Rebecca Corbin, Founder and CEO of Corbin Advisors, commented, “With recent Fed commentary easing interest rate tensions and investor expectations of a recession moderating, the New Year has brought with it a spoonful of optimism from the investment community — the extent of which we haven’t seen since December 2021. Indeed, the potential for rate cuts in 2024, coupled with better-than-expected consumer resiliency and steady job reports thus far, have catapulted equity and bond markets higher off October lows. But to be clear, we are not out of the woods yet. Perhaps the medicine that is needed is what are likely to be conservative guides crossing the airwaves this quarter, as executives hedge The Street’s optimism against the potential risks of the current operating environment we find ourselves in — namely, slowing growth, global macro uncertainty, particularly in China, and geopolitical risk contagion, which seems to be manifesting weekly. With notably fewer investors expecting a broad-based recession and the majority anticipating that annual guides will be higher than 2023 actuals, focus will be on 2024 outlooks and company positioning. Have we bottomed is the question and it’s critical that executives embrace candor and conservativeness amid continued heightened uncertainty, while also setting the stage for continued growth execution. Capital markets are opening up and deals, specifically megamergers and divestitures, are popping — 2024 is shaping up to be a business transformation-oriented year.”

In addition to 2024 outlooks, leading topics for executives to address on upcoming earnings calls include capital allocation, demand and growth, and expense management. Notably, more than half of investment professionals report prioritizing growth over margins at this time, a material shift from just 29% last quarter.

Notably, more are expecting KPIs to Improve than Worsen for the first time since Q2’21, with 45%+ modeling Improving Revenue, EPS, and FCF growth this quarter, while 36% say the same of Operating Margins. In terms of 2024 guidance, investors mirror this perspective, anticipating Revenue, EPS, and FCF annual guides to be higher than 2023 actuals, while a slight majority expect Operating Margin forecasts to be In Line with prior year results.

Further evidence of the shifting investor mindset is a growing appetite for reinvestment, which sees more support at 53% versus 36% QoQ, while those asserting companies should Increase growth capex more than doubles, from just 18% to 39%. Still, a reflection of continued conservativeness, debt paydown remains the preferred use of cash at 62%, albeit lower than the record 72% recorded last quarter.

Mark Mandziara, Senior Managing Director for BTC Capital Management, commented, “My sentiment is neutral to bullish. Management teams appear to be setting a low bar, yet optimism pervades most comments. The macro environment coupled with modest margin expansion should bode well for Q4’23 earnings. I am not expecting a recession. It appears to have been a rolling recession within specific industries through the last 18 months post-pandemic.”

Indeed, the number of respondents expecting a recession has waned significantly over the past four quarters, decreasing from 88% in Q1’23 to just 48% in our latest survey.

Topping the list of concerns for the second consecutive quarter is geopolitical risk, identified by over half of all participants, with nearly 20% specifically citing war. As such, global macro uncertainty continued to remain a prominent focus area with several pointing to the “slowing” Chinese economy as a leading area of concern.

To that end, 79% assign a High or Very High level of risk to companies with business/operational exposure to China, and 43% anticipate the Chinese economy to worsen over the next six months. More investors, 49%, are in outright favor of U.S. companies de-risking exposure than those who believe executives should follow through on “In China for China” strategies.

Regarding broader views on global economies, ‘Global South’ markets are expected to Improve over the next six months, led by India and Southeast Asia, and more anticipate the UK Improving than Worsening for the first time post Brexit. Views on the U.S. economy see a slight improvement QoQ with 56% anticipating 2024 U.S. GDP to be higher than 2023.

Turning to sector sentiment, Tech continues to reign supreme as the top bullish bet for the fourth consecutive quarter, while REITs garner the same distinction from bears. Consumer Discretionary, while registering as the second-largest downbeat sector, saw the biggest swing in bullish sentiment.

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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