September 22, 2021

UBS lifts forecasts for European earnings, with stocks in the grips of the longest winning streak since June


The Stoxx Europe 600 was set to match its longest winning streak since June on Wednesday, and log another record close, as a major investment bank lifted its forecasts for the region’s earnings.

Up nearly 19% so far this year, the Stoxx Europe 600 index
SXXP,
+0.39%

has just edged past the S&P 500’s 18.4% gain.

Wednesday’s rise saw the Stoxx 600 rise near 0.4% to 474.45, which would mark a fresh record close to beat Tuesday’s if those gains continue. Among regional indexes, the German DAX
DAX,
+0.42%

was up 0.5%, the French CAC 40
PX1,
+0.48%

was up 0.5%, and the FTSE 100
UKX,
+0.70%

climbed 0.7%. Gains were extended as U.S. inflation data showed consumer prices rising as expected in July, and U.S. stocks climbed.

Some of the best revenue beats in more than a decade and a fifth straight quarter of earnings surprises from European companies have lifted consensus 2021 earnings growth estimates to 55% from 36% in March, said UBS strategist Matthew Gilman. He raised his own forecast to 60% from 50%, but trimmed his 2022 outlook to 8% from 12%.

Given the “exceptional recovery in profit margins to date, further margin expansion is likely to be more limited as operating costs return as business reopens, labor support schemes come to an end, and input costs rise,” Gilman told clients in a note that published on Tuesday.

UBS’ sector preferences are unchanged and supported by the quarter’s results, with energy, materials and financials well-positioned to benefit from higher-for-longer prices, strong growth and increasing cash returns, respectively.

Financials were in focus for Wednesday, with ABN Amro
ABN,
+7.12%

shares soaring 5%, after the Dutch bank said it swung to a net profit for the second quarter of 2021 and that its capital position was strong.

A string of other earnings rolled in, including from German utility E.ON
EOAN,
+0.24%
,
which reported profit more than doubled in the second quarter and boosted its full-year outlook. Those shares rose modestly. German specialty chemicals maker Lanxess
LXS,
-2.97%

lifted its outlook for adjusted earnings this year, but reported a higher sales and lower profit in the second quarter, leaving its shares down 3%.

Ahold Delhaize shares
AD,
+2.96%

climbed 2.6%, after the Dutch grocer reported declines in second-quarter net profit and revenue, although both beat analysts’ forecasts, and lifted full-year guidance.

Thyssenkrupp
TKA,
-6.49%

was the worst-performing company on the Stoxx Europe 600, with shares sliding over 6% after the German industrial conglomerate said it swung to a net profit, but it signaled a potential negative cash flow of 1.5 billion euros ($1.76 billion). It also said it would take time for higher steel prices to feed into results.

German consumer prices climbed 3.8% in July annually, confirming preliminary data, the German statistics office Destatis said Wednesday.



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