European stocks: January-March quarter earnings preview
2025-05-01
■ Revenue growth is expected to continue in the January-March quarter, but profits may decline after four quarters.
■ As the low valuation has been corrected, increasing expectations for performance expansion are difficult, and the upside of stock prices this year may be limited.
According to statistics from financial information company LSEG as of April 22, among the components of the Stoxx 600 Index, the 369 companies that plan to announce quarterly revenue are expected to increase their revenue in the January-March quarter by 1.4% year-on-year, continuing to achieve revenue growth after the previous quarter (1.0% year-on-year growth). Among the 10 industries, 4 industries are expected to experience revenue declines, including real estate (down 15.7% year-on-year) and energy (down 6.3% year-on-year); the remaining 6 sectors are expected to achieve revenue growth, such as utilities (up 9.0%) and capital goods (up 7.9%).
In addition, among the 301 companies that plan to announce quarterly earnings per share (EPS), EPS for the January-March quarter is expected to fall by 3.5% year-on-year, which is a downward revision from the estimate in early April (a year-on-year decline of 1.5%), and will also end the profit growth trend for three consecutive quarters (an increase of 8.0% year-on-year in the previous quarter). Although five industries, such as real estate (up 24.0%) and information technology (IT, up 12.0%), are expected to achieve profit growth, profits in five industries, such as energy (down 25.7%) and utilities (down 8.1%), are expected to decline.
In the market, the EPS growth rate of the Stoxx 600 Index for the full year of 2025 is expected to be 2.8%, which has been significantly reduced from 5.8% in early April. While all sectors saw downward revisions, energy (down 5.6% from 0.3% growth) was hit hardest due to expectations of worsening crude oil supply and demand, and other sectors vulnerable to the economic cycle, such as raw materials (down 1.0% from 7.8%), capital goods (down 0.1% from 5.5%), and consumer discretionary (down 4.3% from 9.3%), also saw significant downward revisions. The overall growth outlook was further suppressed by the increasing uncertainty of the US government's tariff policy and the absence of sectors that previously dominated EPS growth, such as energy in 2022 and financials in 2023. In addition, the continued sluggish personal consumption in China has put pressure on the performance of high-end brand companies, and low growth in the region may also drag down EPS performance in the short term. In terms of EPS forecasts for the next year, the "Revision Index (RI)" formed by the proportion of companies that analysts have raised their forecasts in the past month minus the proportion of companies that have lowered their forecasts is -42.6%, indicating a significant deterioration in market earnings expectations.
The Stoxx 600 Index has risen 3.4% since the beginning of the year, outperforming the United States (the S&P 500 fell 5.5%) and Japan (the Nikkei average fell 10.2%). The index's one-year forecast price-to-earnings ratio (PER) has risen to around 14 times in late March, close to the average level since 2018. The low valuation of European stocks has been repaired, and the expected interest rate cuts by the European Central Bank (ECB) or the return of US funds are expected to have limited driving effects on pushing up valuations. The expected performance improvement of defense and infrastructure-related industries by fiscal expansion led by Germany has been partially reflected in stock prices, and it will take some time for such policies to take effect, so the index is expected to have limited room for growth this year.
■ As the low valuation has been corrected, increasing expectations for performance expansion are difficult, and the upside of stock prices this year may be limited.
According to statistics from financial information company LSEG as of April 22, among the components of the Stoxx 600 Index, the 369 companies that plan to announce quarterly revenue are expected to increase their revenue in the January-March quarter by 1.4% year-on-year, continuing to achieve revenue growth after the previous quarter (1.0% year-on-year growth). Among the 10 industries, 4 industries are expected to experience revenue declines, including real estate (down 15.7% year-on-year) and energy (down 6.3% year-on-year); the remaining 6 sectors are expected to achieve revenue growth, such as utilities (up 9.0%) and capital goods (up 7.9%).
In addition, among the 301 companies that plan to announce quarterly earnings per share (EPS), EPS for the January-March quarter is expected to fall by 3.5% year-on-year, which is a downward revision from the estimate in early April (a year-on-year decline of 1.5%), and will also end the profit growth trend for three consecutive quarters (an increase of 8.0% year-on-year in the previous quarter). Although five industries, such as real estate (up 24.0%) and information technology (IT, up 12.0%), are expected to achieve profit growth, profits in five industries, such as energy (down 25.7%) and utilities (down 8.1%), are expected to decline.
In the market, the EPS growth rate of the Stoxx 600 Index for the full year of 2025 is expected to be 2.8%, which has been significantly reduced from 5.8% in early April. While all sectors saw downward revisions, energy (down 5.6% from 0.3% growth) was hit hardest due to expectations of worsening crude oil supply and demand, and other sectors vulnerable to the economic cycle, such as raw materials (down 1.0% from 7.8%), capital goods (down 0.1% from 5.5%), and consumer discretionary (down 4.3% from 9.3%), also saw significant downward revisions. The overall growth outlook was further suppressed by the increasing uncertainty of the US government's tariff policy and the absence of sectors that previously dominated EPS growth, such as energy in 2022 and financials in 2023. In addition, the continued sluggish personal consumption in China has put pressure on the performance of high-end brand companies, and low growth in the region may also drag down EPS performance in the short term. In terms of EPS forecasts for the next year, the "Revision Index (RI)" formed by the proportion of companies that analysts have raised their forecasts in the past month minus the proportion of companies that have lowered their forecasts is -42.6%, indicating a significant deterioration in market earnings expectations.
The Stoxx 600 Index has risen 3.4% since the beginning of the year, outperforming the United States (the S&P 500 fell 5.5%) and Japan (the Nikkei average fell 10.2%). The index's one-year forecast price-to-earnings ratio (PER) has risen to around 14 times in late March, close to the average level since 2018. The low valuation of European stocks has been repaired, and the expected interest rate cuts by the European Central Bank (ECB) or the return of US funds are expected to have limited driving effects on pushing up valuations. The expected performance improvement of defense and infrastructure-related industries by fiscal expansion led by Germany has been partially reflected in stock prices, and it will take some time for such policies to take effect, so the index is expected to have limited room for growth this year.