European Stock Markets: Q4-June Earnings Preview

■ European corporate profit growth is mainly concentrated in a few sectors such as energy and finance.  
■ The stock market is expected to rise moderately along with corporate profit growth, but the situation in the Middle East needs to be closely monitored. 
 
According to statistics from financial information company LSEG as of the 22nd, among the 386 companies in the STOXX Europe 600 index that plan to report quarterly revenue, the revenue for the April-June quarter is expected to increase by 11.5% year-on-year, reversing the previous quarter (down 0.9% year-on-year) and marking the first recovery in growth after five consecutive quarters. Of the 10 industry sectors, the other 8 are expected to achieve revenue growth, with energy (up 44.2% year-on-year) and utilities (up 23.5% year-on-year) performing particularly well, while real estate (down 12.8% year-on-year) and consumer non-cyclicals (down 2.9% year-on-year) are expected to decline. Furthermore, among the 339 companies planning to release quarterly earnings per share (EPS), the EPS for the April-June quarter is expected to increase by 17.3% year-on-year, a further upward revision from the initial April forecast (approximately 12.7% year-on-year growth), continuing the profit growth trend from the previous quarter (11.8% year-on-year growth). By sector, all but healthcare (down 1.8% year-on-year) are expected to achieve EPS growth, with energy (122.6% year-on-year growth) and materials (49.4% year-on-year growth) showing the most significant increases. In terms of sector contribution, profit growth is mainly concentrated in energy (10.7 percentage points) and financials (2.7 percentage points), while the impact of information technology (1.3 percentage points), which saw significant global profit growth, is relatively limited in the European market. 
 
The market expects the STOXX Europe 600 index EPS to increase by 15.0% year-on-year in 2026, mainly benefiting from the low base effect of the previous year (down 0.7% year-on-year). In terms of industry contribution, the discretionary consumer goods sector (contributing 4.3 percentage points), which performed poorly due to the US tariffs imposed last year, is expected to achieve relatively high growth. However, its absolute EPS (59.7 points) is still significantly lower than the 67.1 points in 2024, indicating that it is still a rebound from the low base of the previous year. Meanwhile, high oil prices will continue to support the energy sector (contributing 2.4 percentage points); rising interest rates and increased market volatility are expected to boost the financial sector (contributing 1.9 percentage points); and market expectations of increased defense and infrastructure spending will drive the capital goods sector (contributing 1.4 percentage points), collectively constituting the main drivers of European corporate profit growth. If oil prices remain high, the above profit structure is expected to continue; however, at the same time, deteriorating trade conditions may drag down Eurozone economic growth and constrain corporate EPS. Therefore, continued attention needs to be paid to the development of the situation in the Middle East. 
 
The STOXX Europe 600 index's forward 12-month price-to-earnings ratio (PER) rose to 15.6 times in late February, but has since fallen back to 14.7 times due to tensions in the Middle East. This is still slightly higher than the historical average of 14.0 times since 2018, remaining in the relatively high valuation range of 14-16 times. Given continued market concerns about persistently high oil prices and the ongoing expectation of interest rate hikes by the European Central Bank (ECB), the likelihood of stock price increases driven solely by valuation increases is low. It is expected that European stock markets will primarily rely on corporate earnings growth to achieve a moderate rise. The year-end target for the STOXX Europe 600 index is projected at 660 points, with an upside potential of approximately 700 points within the year.