Demand for goods and services has shuttered across many industries. Executive teams and equity research analysts say shelter in place orders, border closures, and economic slowdowns are contributing factors in the buildup of pent-up demand–a rapid increase in demand after a period of decreased spending. Now, corporate transcripts and equity research reports that mention “pent-up demand” are at an all-time high.
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Comparing mentions of pent-up demand in transcripts from 2008 to now, we see the count of mentions now far exceed those from similar recessionary periods in the late 2000s, indicating that this period of uncertainty is significantly different from the past.
In the last 90 days, 482 companies have talked about pent up demand. Though, the breakdown of industries focused on it varies greatly. Healthcare equipment & supplies and providers & services companies account for 35% of mentions, as many of them expect a sharp increase in elective procedures and utilization once shelter in place orders are lifted, however, capacity constraints will limit the pace at which that demand can return (see below).
Q1 2020 Molina Healthcare Earnings call (5/01)
“I remind everyone, when we’re talking about the rebound factor is there’s a capacity limitation on how fast things can rebound. There are only so many beds. There are only so many doctors, and there’s only so many hours in a day. And when you have 3, 4, 5 or even 6 months of pent-up demand, it cannot race through the pipe that quickly. There’s a capacity limitation on how fast it rebounds, which adds another variable into forecasting how quickly this could rebound. So I hope that helps, but that’s sort of a view of what March and April look like from an elective and discretionary procedure outlook.”
The same phenomenon is captured in equity research. Mentions of pent up demand are at an all-time high for the past two years. However, the industries attributed to it vary greatly from what we see in corporate transcripts.
For the last 90 days, machinery has become the most frequently mentioned industry related to pent-up demand in equity research, with analysts attributing it to backlogs of orders, OEMs reopening in China, and increased interest in consumer machinery tools. Moreover, hotels restaurants & leisure comes close to machinery in the percentage of mentions. Analysts predict that as travel restrictions are lifted and consumers reacclimate to traveling, we should expect to see a significant release of pent-up demand within the industry. In fact, Disney is already experiencing this; Shanghai Disneyland put tickets on sale for this week and they sold out within hours.