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Credit Suisse Joins JPMorgan in Calling Earnings Growth

Credit Suisse Group Inc. equity strategists joined JPMorgan Chase & Co. in switching to a forecast for European earnings growth this year.

A team led by Andrew Garthwaite at the Swiss bank increased its estimate for 2012 profit growth to 1 percent today. The brokerage had predicted a contraction of 5 percent. JPMorgan’s Mislav Matejka changed his prediction on March 12 to 5 percent earnings growth from a previous forecast of stagnation. Analysts’ earnings revisions in the region have turned positive, meaning upgrades outnumber downgrades, for the first time in almost a year, according to Citigroup Inc. data.

Improved earnings would give bulls more room to argue that stocks will extend gains. Valuations have climbed at the fastest pace since 2009 even though several European nations have entered a recession. The Stoxx Europe 600 Index has risen 11 percent this year as the European Central Bank lent $1.3 trillion to banks to keep credit markets open.

“Investors want to see a more fundamentally driven rally, rather than a low-quality technical rebound, and confirmation through the earnings revisions turning positive may drive the next leg,” Matejka, a London-based strategist at JPMorgan, said in a phone interview today. “We think earnings revisions bottoming out will allow investors to participate with more confidence.”

Positive Earnings Revisions

Data from Citigroup on Feb. 17 showed that positive revisions in analysts’ European earnings projections outnumbered negative changes on a weekly basis for the first time since May 2011 after economic reports in the U.S. exceeded estimates. Negative annual profit revisions on Stoxx 600 companies outnumbered upgrades by 7 percent last week, according to data from JPMorgan, their smallest majority since March 2011.

“If this trend is sustained, it will help support stock markets,” Citigroup strategists led by Robert Buckland wrote in a report on March 12.

The Stoxx 600 is trading at 11.34 times the estimated profits of its members, according to data compiled by Bloomberg, compared with 9.1 times in September. The jump in the ratio is the steepest for any six-month period since October 2009, the data show.

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