What to look out for as Europe’s earnings season begins, according to the pros

Europe’s corporate earnings season began in earnest last week, with analyst consensus projecting a 140% year-on-year increase in earnings per share for the second quarter. Earnings per share is an important metric used by traders to gauge the value of a stock or a wider index, and it grew by an annual 87% across the pan-European Stoxx 600 index in the first quarter. Over the past six months, sell-side analysts have raised their second-quarter EPS growth projections by more than 50 basis points, according to Factset data aggregated by Bank of America’s European equity quant strategy team.

Meanwhile, consensus EPS growth expectations for 2021 as a whole have risen from 35% in March to a new high of 48%. With the second quarter representing the peak, analysts expect EPS to tail off for the remainder of 2021, with 32% year-on-year growth in the third quarter and 21% in the fourth. Given the sharp decline in the second quarter of 2020 as the Covid-19 pandemic took hold, second-quarter earnings across the European blue chip index this year are still set to remain 2% below their pre-pandemic peak.

In terms of sectors, analyst consensus has autos, retail and resources showing the strongest earnings growth in the second quarter. Consumer discretionary, energy and financials are jointly seen contributing 29 percentage points to the 48% earnings growth projected for the Stoxx 600 this year, BofA analysts said.

During the pandemic, major lenders received significant boosts to their investment banking revenues amid heightened volatility and vastly increased trading volumes. However, investment banking activity is expected to cool in the upcoming reporting round. Stateside, Goldman Sachs has been unique in powering past earnings expectations on the back of strong investment banking contributions due to a robust IPO market. While others such as JPMorgan and Citigroup have also exceeded expectations, their windfalls have come in the form of reduced provisions for bad loans.

UBS kickstarts second-quarter reporting for European banks on Tuesday, and Barclays Co-Head of European Equity Research Amit Goel said the Swiss lender may benefit from risk reduction efforts from domestic rival Credit Suisse.

What to look out for as Europe’s earnings season begins, according to the pros, CNBC, Jul 20