European stock market: European companies face triple pressure
2024-11-28
■ Major European companies have experienced six consecutive quarters of revenue decline, but it is expected that earnings per share (EPS) growth will accelerate
■ Against the backdrop of uncertain performance prospects, although the stock price is undervalued, the expected upward potential is limited
According to LSEG, a financial information company, as of the 26th, 339 out of 396 companies in the Stoxx Europe 600 Index that plan to announce their revenue from July to September have released their financial reports, resulting in a year-on-year decrease of 1.1% in overall revenue. Based on the market forecast of companies that have not yet released performance reports, the overall revenue is expected to decrease by 1.8% year-on-year, the sixth consecutive quarter of revenue decline.
Among all 10 industries, four, including energy (decreased by 8.8% year-on-year) and general consumer goods (decreased by 5.1% year-on-year), saw revenue declines, while six industries, including healthcare (increased by 6.6% year-on-year) and capital goods (increased by 4.8% year-on-year), are expected to achieve revenue growth.
Meanwhile, out of 326 companies planning to release earnings per share (EPS) from July to September, 283 have already released their financial reports, representing an overall year-on-year increase of 8.2%. Based on market forecasts from companies that have not yet released performance reports, EPS is expected to grow by 6.6% year-on-year, further accelerating from the previous quarter's 3.0% growth (the first growth in five quarters).
Among the 10 industries, four saw a decline in earnings per share, including energy (a year-on-year decrease of 22.8%) and real estate (a year-on-year decrease of 11.4%). In contrast, six, including utilities (a year-on-year increase of 46.1%) and finance (a year-on-year increase of 25.5%), are expected to achieve earnings per share growth.
The market expects the EPS of the Stoxx Europe 600 Index to grow by 1.8% in 2024 and 8.1% in 2025, but both show a continuous downward trend.
Based on the EPS forecast for the next year, the revised index (RI) calculated by the ratio difference between analysts' upward and downward forecasts over the past month shows that as of the 22nd, the index was -22% and has remained negative since late June, indicating that analysts' downward adjustments to profit expectations dominate.
European companies face three pressures: (1) Against the backdrop of sluggish sales of electric vehicles (EVs) leading to accelerated layoffs; (2) The new US government may raise tariffs, which could have an impact on export companies; (3) The trade friction between China and the United States has led to a further decline in Chinese demand, affecting the performance of luxury brand giants.
As of the July-September period, the information technology (IT) industry accounted for 8.0% of the overall EPS in the Stoxx Europe 600 Index; thus, the expectation of benefiting from the expansion of demand for artificial intelligence (AI) is limited. On the contrary, industries such as finance (36.9%), healthcare (13.9%), energy (10.8%), and capital goods (10.5%), which are greatly affected by interest rates and economic trends, have a relatively high proportion.
Unlike the energy industry in 2022 and the financial industry in 2023, it is currently difficult to find a core industry that can drive the index's overall EPS growth.
The expected price-to-earnings ratio (PER) is 13.0 times, which is lower than the average since 2018 (14.1 times). Although it is not overvalued, the PER has limited room for further improvement. Given this, upward pressure on stock prices is expected to continue in the short term.
■ Against the backdrop of uncertain performance prospects, although the stock price is undervalued, the expected upward potential is limited
According to LSEG, a financial information company, as of the 26th, 339 out of 396 companies in the Stoxx Europe 600 Index that plan to announce their revenue from July to September have released their financial reports, resulting in a year-on-year decrease of 1.1% in overall revenue. Based on the market forecast of companies that have not yet released performance reports, the overall revenue is expected to decrease by 1.8% year-on-year, the sixth consecutive quarter of revenue decline.
Among all 10 industries, four, including energy (decreased by 8.8% year-on-year) and general consumer goods (decreased by 5.1% year-on-year), saw revenue declines, while six industries, including healthcare (increased by 6.6% year-on-year) and capital goods (increased by 4.8% year-on-year), are expected to achieve revenue growth.
Meanwhile, out of 326 companies planning to release earnings per share (EPS) from July to September, 283 have already released their financial reports, representing an overall year-on-year increase of 8.2%. Based on market forecasts from companies that have not yet released performance reports, EPS is expected to grow by 6.6% year-on-year, further accelerating from the previous quarter's 3.0% growth (the first growth in five quarters).
Among the 10 industries, four saw a decline in earnings per share, including energy (a year-on-year decrease of 22.8%) and real estate (a year-on-year decrease of 11.4%). In contrast, six, including utilities (a year-on-year increase of 46.1%) and finance (a year-on-year increase of 25.5%), are expected to achieve earnings per share growth.
The market expects the EPS of the Stoxx Europe 600 Index to grow by 1.8% in 2024 and 8.1% in 2025, but both show a continuous downward trend.
Based on the EPS forecast for the next year, the revised index (RI) calculated by the ratio difference between analysts' upward and downward forecasts over the past month shows that as of the 22nd, the index was -22% and has remained negative since late June, indicating that analysts' downward adjustments to profit expectations dominate.
European companies face three pressures: (1) Against the backdrop of sluggish sales of electric vehicles (EVs) leading to accelerated layoffs; (2) The new US government may raise tariffs, which could have an impact on export companies; (3) The trade friction between China and the United States has led to a further decline in Chinese demand, affecting the performance of luxury brand giants.
As of the July-September period, the information technology (IT) industry accounted for 8.0% of the overall EPS in the Stoxx Europe 600 Index; thus, the expectation of benefiting from the expansion of demand for artificial intelligence (AI) is limited. On the contrary, industries such as finance (36.9%), healthcare (13.9%), energy (10.8%), and capital goods (10.5%), which are greatly affected by interest rates and economic trends, have a relatively high proportion.
Unlike the energy industry in 2022 and the financial industry in 2023, it is currently difficult to find a core industry that can drive the index's overall EPS growth.
The expected price-to-earnings ratio (PER) is 13.0 times, which is lower than the average since 2018 (14.1 times). Although it is not overvalued, the PER has limited room for further improvement. Given this, upward pressure on stock prices is expected to continue in the short term.