European Stocks: Q1-March Earnings Preview

■ The negative impact of rising crude oil prices on EPS growth has not yet been fully priced in.  

■ The same trend is expected throughout 2026, with persistently high crude oil prices potentially dragging down EPS growth. 
 
According to statistics from financial information company LSEG (as of the 9th), among the 348 companies in the Stoxx Europe 600 index that plan to report quarterly revenue, their revenue for the January-March quarter is expected to increase by 1.6% year-on-year, reversing four consecutive quarters of revenue decline (a 4.6% year-on-year decrease in the previous quarter). Of the 10 sectors, five sectors, including Consumer Non-Cyclicals (down 12.9% year-on-year) and Real Estate (down 11.8% year-on-year), are expected to see revenue declines, while five sectors, including Energy (up 12.3% year-on-year) and Healthcare (up 8.8% year-on-year), are expected to achieve growth. In addition, among the 295 companies scheduled to report quarterly earnings per share (EPS), the EPS for the January-March quarter is expected to increase by 4.2% year-on-year, a significant upward revision from late February (approximately 0.7% increase), and a turnaround from a 2.0% year-on-year decline in the previous quarter. While three sectors, including energy (23.6% year-on-year growth) and information technology (IT, 8.9% year-on-year growth), are expected to achieve profit growth, consumer staples are essentially flat, while six sectors, including real estate (13.6% year-on-year decline) and utilities (12.2% year-on-year decline), are expected to experience profit declines. In terms of industry contribution, growth is mainly concentrated in financials (2.7%) and energy (2.5%), while the relatively significant growth in information technology (0.7%) in the US market is less important. 

 
The market expects the index to have an EPS growth rate of 13.0% in 2026, close to the S&P 500 (13.9%). From an industry contribution perspective, discretionary consumption (4.5%), which declined sharply due to US tariffs last year, is expected to grow strongly, but the absolute level of EPS has not yet recovered to the 2024 level, and the overall rebound remains due to the base effect. In addition, financials (1.6%), energy (2.4%), amid persistently high oil prices, and capital goods (1.4%), driven by expectations of increased defense and infrastructure spending, will be the main drivers of overall growth. However, persistently high oil prices may compress profit margins, and coupled with weak regional economic growth, this could constrain EPS growth, requiring vigilance. 

 
The forward price-to-earnings ratio (PER) of the Stoxx Europe 600 index rose to 15.6 times in late February, but has now fallen back to 14.0 times due to tensions in the Middle East, close to the average level since 2018, indicating that the overall valuation is not significantly high. Given the continued uncertainty surrounding persistently high oil prices, market expectations for an ECB interest rate hike have increased, making it difficult to rely on valuation expansion to drive stock price increases, and the market may show a weak upward trend in the short term. It is then expected that the index will gradually shift to a moderate upward trend that matches EPS growth. We maintain our year-end target of 660 points and our expectation of a potential upside of 700 points within the year.