A Big Fat ‘Buy’ recommendation from Goldman Sachs’ Peter Oppenheimer.
From the strategist’s Strategy Matters note, dispatched to GS clients on Thursday:
We remain positive on the market and revise up our DJ Stoxx net income (pre-exceptionals) forecasts to a 19% fall in 2009, and a 34% rise in 2010 (-24% and 28% ex Financials, respectively). Better Financial earnings, enhanced operational leverage and stronger EM growth are key factors.
Let’s run through that a little more slowly.
Oppenheimer and his team were previously forecasting a pre-exceptional fall in income of 38 per cent for 2009 across major global corporates. That has now been revised to a less traumatic minus 19 per cent, compared with a market consensus of minus 21 per cent.
But the Goldman man has saved his more heroic numbers for 2010: a 34 per cent snap back in income is now projected, compared with consensus of 24 per cent.
And remember – these are ‘top down’ projections from the strategy team, not ‘bottom up’ agglomerations of individual sector specialists, who tend to get their ears bent by optimistic managements. Oppenheimer simply believes earnings are likely to surprise on the upside next year:
Our end-year target of 235 for DJ Stoxx remains unchanged, as we expected investors to ‘pre-pay’ for a large part of the early recovery that we are now seeing more evidence of in earnings; we expect a 20% return over the next 12 months.
Three factors are cited:
(1) Better Financials results than we previously expected: our banks analysts expect banks’ preprovision earnings to rise 13.7% in ’09 and 65.3% in ’10 (they previously expected -8% in ’09 and +53% in ’10);
(2) increased operational leverage as corporate costs have been cut dramatically; and
(3) stronger forecasts for emerging markets, to which Europe is increasingly exposed; Euroland exports to EM now account for 48% of total non-euro area exports.
And, on the European front, the real fall we have already seen in profitability seems key:
A good portion of that, of course, is down to the financials. But still…
Related links:
Bull-speed ahead – FT Alphaville