Investing.com — IBES earnings per share (EPS) progress estimates for This autumn 2024 have been sharply decreased to simply 2% for Europe, in comparison with a extra modest minimize to eight% in america, in response to Barclays (LON:).
The lowered bar comes after widespread steering cuts and muted financial exercise, however there are indicators that restoration could possibly be on the horizon.
“Traders will search for clues in regards to the 2025 outlook, as earnings barely grew final 12 months, which has capped the efficiency of EU equities since H2,” strategists led by Emmanuel Cau stated.
They spotlight that regardless of the challenges, expansionary world PMIs and favorable year-over-year base results might nonetheless assist gentle constructive EPS progress for Europe.
Improved financial information surprises within the fourth quarter and a weaker and in opposition to the US greenback are additionally seen as potential tailwinds for European earnings, notably for exporters.
“The a lot weaker EUR and GBP vs. USD must be a tailwind for European earnings, and don’t appear mirrored in estimates, but,” the word states.
Looking forward to 2025, Barclays forecasts a 4% enhance in European earnings, barely beneath the IBES consensus of seven%. This outlook is underpinned by assumptions of worldwide nominal GDP progress holding near its 5% development, which Barclays believes will assist stabilize margins and assist mid-single-digit earnings progress.
Nevertheless, the strategists warn that weak home demand and ongoing uncertainty associated to commerce and Chinese language exercise could proceed to weigh on efficiency. These dangers, mixed with the “higher-for-longer” rate of interest setting, place further stress on earnings to drive market good points.
Nonetheless, Barclays notes that a lot of those challenges look like already priced into European equities, leaving room for modest re-rating if circumstances enhance.
“Though European valuations usually are not demanding, the return of the higher-for-longer charges narrative means there’s a higher want for earnings to drive market upside this 12 months,” strategists defined.
Cyclicals are anticipated to outpace defensives in earnings progress for 2025, though the latest re-rating of cyclicals has left valuations stretched. “The latest re-rating of Cyclicals certainly leaves much less margin for error, so earnings supply must justify the lofty valuations vs. Defensives,” the report says.
Barclays stays selective in its suggestions, favoring greenback earners, luxurious, know-how, and short-cycle performs like chemical compounds and capital items. Furthermore, gradual implementation of commerce tariffs and potential financial stimulus from China might supply additional assist.
The agency additionally highlights alternatives in utilities, vitality companies, financials, and actual property, sectors the place earnings progress is anticipated to stay strong. Nevertheless, the outlook for areas like know-how {hardware} and autos stays extra cautious, reflecting sector-specific challenges.