European earnings season preview: Profit prospects are underestimated, optimistic about semiconductors, banks and capital goods (Morgan Stanley)
Morgan Stanley is taking a positive stance on the upcoming European earnings season, arguing that the market has "misunderstood and underestimated" Europe's earnings prospects.
Morgan Stanley is taking a positive stance on the upcoming European earnings season, arguing that the market has "misunderstood and underestimated" Europe's earnings prospects. The report shows that MSCI Europe's 2026 earnings per share (EPS) growth consensus has risen to 16.9%, and it is still 13.4% after excluding energy. This is in sharp contrast to the general trend of downward revisions before the financial reporting season in previous years. Morgan Stanley's quantitative model predicts that semiconductors, capital goods, banks and utilities are expected to be the strongest performing sectors. Market pessimism about Europe (particularly concerns about geopolitical risks and lackluster growth) has been overly priced into valuations, ignoring improvements in its earnings. One-sentence conclusion: European stock markets have strong earnings growth momentum and are underestimated. The earnings season is expected to be a catalyst to break the market's pessimistic expectations, and sectors with the highest earnings elasticity should be actively deployed. Positive/negative: Positive for semiconductors (ASML, etc.), capital goods, and banking sectors. Market pessimism about Europe is widespread, which creates the conditions for a sharp rise when performance exceeds expectations. Catalysts: 1) European companies will release intensive 2Q26 financial reports in the next two weeks; 2) the width of earnings revisions continues to increase; 3) European macroeconomic data continues to be verified.