UBS Increases Confidence in Europe Ahead of Earnings Reporting

With the second-quarter earnings season upon us, UBS has raised its confidence in European equities, despite unspectacular headline growth projections. In its latest update on the European Equity Strategy, the firm highlights opportunities for company-specific gains driven largely by selective positioning and varying earnings potentials.

Q2 earnings for European corporations are anticipated to remain somewhat muted, shifting investors’ focus to individual company performance and future guidance.

Reasons Behind Europe’s Flat Earnings Growth

Muted Growth: A Structural Challenge

UBS notes that earnings forecasts for full-year 2025 have been adjusted down to just 2%, impacted by factors such as:

• Ongoing trade tariffs affecting the automotive, industrial, and energy sectors

• Currency challenges linked to a strong dollar and weak euro

• A stagnant earnings trajectory since 2010, with only modest gains from 2016-2022

This stagnation reflects inherent challenges across the region, including an aging population, sluggish productivity increases, and fragmented capital markets.

For detailed earnings trends within Europe’s leading public companies, investors can access decade-long earnings data for robust analysis.

UBS’s Optimistic Picks: What to Watch?

Despite unfavorable macro indicators, UBS sees a positive medium-term outlook, anticipating earnings recovery by 2026 due to:

• Cyclical sectors—industrial, construction, and discretionary retail—showing positive momentum

• Benefits from fiscal stimulus measures across the EU

• Revitalization in consumer spending, particularly in Northern Europe

In the short-term, UBS is wagering on company-specific earnings surprises to generate market alpha, identifying:

• 21 companies poised for potential earnings outperformance

• 10 companies that present caution signs for investors

These insights rely on a mix of sector-level performance predictions and UBS’s quantitative crowding analysis, determining investor positioning intensity and hidden opportunities.

Importance of Modest Beats This Season

The Pressure is Low, and That’s Beneficial

Given the already-muted consensus expectations, even slight earnings beats could trigger outsized market reactions. UBS indicates that valuation dispersion in Europe is currently high, which means:

• High-performing companies could see rapid re-rating

• Lagging performers may face steep corrections due to risky positioning

This underlines the critical nature of the upcoming earnings season for active managers, presenting tactical opportunities for both retail and institutional investors.

To monitor real-time analyst sentiments and company guidance shifts, comprehensive summaries of equity analyst updates are crucial.

Conclusion: While Earnings Look Weak, Stock Selection is Key

UBS’s bullish perspective on European equities is not rooted in broad earnings strength; rather, it’s derived from strong selective conviction. In a landscape characterized by overarching economic uncertainty, insightful data, position monitoring, and sector rotation drive potential investment returns.

With indicators suggesting a reset of corporate fundamentals by 2026, the coming months serve as a pivotal period to increase exposure to resilient names poised for upside surprises.

Looking to Navigate European Earnings Trends?

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