Europe profit upgrade unchecked by Greece as Draghi matters more


When it comes to corporate earnings, European investors are more interested in what happens in Frankfurt than Athens.

Even as Greece dominated investor sentiment for months, estimates for European profit growth in 2015 have managed to rise — to 12 percent now from 10 percent in April, according to analyst projections compiled by Bloomberg.

They’re being boosted by optimism about the European Central Bank’s quantitative-easing program and its consequences, according to Bank J Safra Sarasin AG’s Gabriel Bartholdi.

“Central-bank liquidity measures are much more important for earnings than what happens in Greece,” Bartholdi, a strategist in Zurich, said by phone. “Most indicators are still improving and create a good base for the economy and the recovery. A lower euro should boost exports. The environment looks very attractive.”

The Euro Stoxx 50 Index has rebounded 12 percent from a five-month low as concern eased that Greece would leave the currency region. That’s led to a record 43 percent slump in a gauge tracking equity-price swings in the past eight days, signaling calmer markets for investors who turn their focus toward earnings.

ASML Holding NV kicked off the reporting season among Euro Stoxx 50 companies on a positive note. Europe’s largest semiconductor-equipment maker rallied 4.3 percent after it reported second-quarter revenue that beat projections and forecast a gain in the next three months.

Earnings Season

More than 70 companies on the broader Stoxx Europe 600 Index release results this week, including SAP SE, Novartis AG and Daimler AG. Lenders Banco Santander SA, Deutsche Bank AG and BNP Paribas SA will post earnings next week.

Euro Stoxx 50 auto companies will lead the profit increase in 2015, with analysts projecting a 54 percent jump. European car-sales growth rose in June at the fastest pace in 5 1/2 years, data showed this month.

Analysts have also raised their estimates on bank earnings this year, now seeing a 20 percent increase, compared with 15 percent in April. They have tempered predictions for a slump in energy producers’ profit, calling for a 21 percent drop, from a 30 percent slide forecast three months ago.

The ECB’s bond buying weakened the euro as much as 14 percent against the dollar this year. That helped push up exports in the first quarter, leading to a 0.4 percent growth in the region’s gross domestic product. The economy will increase 1.5 percent this year, according to forecasts.

Not Cheap

Some are skeptical that European stocks can go higher after a 17 percent rally in 2015.

“The momentum is positive, but there remains a question on sustainability,” said Michael Ingram, a market strategist at BGC Partners in London. “The euro zone needs more job creation and higher productivity growth, which would push it into a virtuous circle and a sustainably steeper growth path. And it’s not as if European stocks are outright cheap.”

The Euro Stoxx 50 trades at 15.8 times estimated earnings of its members, up from 12.6 in January.

That’s still cheaper than U.S. equities, with the multiple for the Standard & Poor’s 500 Index at 18. Societe Generale SA says central-bank stimulus will push European equities even higher.

“Improved competitiveness thanks to a much weaker euro should provide a boost to the corporate earnings season,” Roland Kaloyan and Kevin Redureau, strategists at the French bank, wrote in a note on July 20. “Euro-area equities should outperform.”