Europe Poised for Third Beat Versus U.S. Peers in Profit Growth

Europe 3, U.S.A. 0.

That’s the score predicted for the global earnings derby after the second-quarter season gets under way. Analysts expect European companies to report stronger profit growth than U.S. peers for a third consecutive quarter, thanks to a brisk recovery in the euro area after years of sluggish growth.

Companies listed on the Stoxx Europe 600 Index are seen reporting an annual 12 percent increase in earnings per share, according to data from JPMorgan Chase & Co. equity strategists including Emmanuel Cau and Mislav Matejka. This is nearly twice the 7 percent gain estimated for counterparts in the S&P 500 index.

After years of disappointments, European companies are finally living up to market expectations, owing mostly to a rebound in economic growth. Data for May signaled that euro-area manufacturing and services expanded at the fastest pace in six years, with the region’s composite Purchasing Managers’ Index (PMI) at 56.8 for the month, well above a score of 53.6 for the U.S. economy over the same period. A level below 50 indicates contraction.

With such a robust economic recovery in Europe, analysts keep upgrading their 2017 estimates for the region’s corporate earnings, an unusual trend. Over the past few years, they repeatedly trimmed their forecasts as the year advanced and company results missed estimates.

The stronger earnings trend is among the main factors that should help revive the rally in European stocks, Peter Oppenheimer, Goldman Sachs’s global head of equity strategy, wrote in a note on Wednesday. After outperforming Wall Street in March and April, the Old Continent stalled last month, amid renewed investor concern over Italian and Spanish banks.

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