Preview of quarterly earnings for European stocks from January to March
2023-04-20
■ The profit forecasts of major European companies are being lowered, making it difficult to assume that stock prices will rise in the near future
■ The stock price is in an undervalued range, and if the speculation of suspending interest rate hikes intensifies, it may open up a path for the stock price to rise
The first quarter financial reports of major European companies will gradually be released. According to financial information company Refinitiv (as of April 11), the 342 companies in the Stoxx Europe 600 Index that plan to release quarterly financial reports are expected to see a year-on-year sales growth of 1.7% in the first quarter, but the growth rate has slowed significantly, with a year-on-year growth rate of 12.2% in the previous quarter. Among all 10 industries, four are expected to experience revenue declines, including utilities (a year-on-year decrease of 67.6%) and real estate (a year-on-year decrease of 12.0%), while six are expected to experience growth, including technology (a year-on-year increase of 24.4%) and finance (a year-on-year increase of 6.8%). In addition, among 307 companies, earnings per share (EPS) gradually decreased from early April (a year-on-year increase of 5.5%) and is expected to decline significantly compared to the same period last year (a year-on-year increase of 17.9%). It is expected that four industries, including finance (a year-on-year increase of 36.5%) and technology (a year-on-year increase of 13.8%), will gain, while six industries, including materials (a year-on-year decrease of 52.7%) and general consumer goods (a year-on-year decrease of 33.2%), are expected to decline.
As of April 7th, the expected growth rate of earnings per share (EPS) for European 600 index companies in the next year is 2.7%, rebounding from the bottom in December last year (1.3%), but the improvement trend has stagnated since February (3.0%). It is expected that the avoidance of economic recession and the expected recovery of the Chinese economy have subsided. The expected price-to-earnings ratio (PER) of the same index has dropped to 12.6 times in the next year, which is at an undervalued level in the central range (12-15 times) from 2014 to 2019. Despite the lack of hope for EPS growth, there is still an expectation that the European Central Bank (ECB) will continue to raise interest rates, making it difficult to expect European stock markets to rise in the short term. However, if the expectation of stopping interest rate hikes strengthens, there is still a possibility of correcting the sense of undervaluation. On the other hand, the full-year forecast EPS growth rate of the same index is expected to decline by 0.4% in 2023, and then rebound significantly to 8.0% in 2024. If the expected economic recovery is slower than expected, there is a risk that the stock price will decline to an appropriate level. When the stock price falls, it is expected that the first support level will be around 430 points, at a level of 12 times the expected PER.