It might be scary, but Mario Draghi is here to help. Yes, you’ve climbed a long way, European stocks are up 160 per cent from their 2009 lows, including 7 per cent or so this year. Now is not the time for faint hearts, however.
So says the still optimistic Jonathan Stubbs at Citi, at least. Halfway through the year and the strategy team budge not from their forecast: 20 per cent total return from European equities this year.
Shares are no longer cheap in absolute terms, but we stay bullish due to: 1) progressive global economic recovery in 2014-15, 2) return to double-digit earnings growth in 2014-16E, 3) super-cheap relative valuations, eg vs credit, 4) rising risk appetite, eg M&A, demand for equity. ECB QE later this year should also be supportive.
About that European bull market. Enthusiasm is there, but the earnings not so much yet.
With little support from earnings, European equities continue to be re-rated in P/E and price/book terms. From 10x in late 2011 to 17x now, European equities trade above both post-1980 and post-1990 average P/Es.
Citi strategist Jonathan Stubbs finds that it’s not just the average, value stocks no longer offer great value either. So, look for places where corporate earnings are actually, y’know, growing. Read more
There are no Googles and Apples in Europe. So Societe Generale’s global quantitative research team pointed out on Monday morning. They are not the first to say so, but the analysts use it to help explain why Europe’s share of MSCI World earnings has slumped to its lowest point since 1986.
Good old self-help: saviour of earnings, wellspring of hope. After a while, however, it really would be useful if economic growth would lend a hand.
Case in point, Volvo, where the analysts at Deutsche Bank have decided that five sets of disappointing earnings is enough. On to the sell list it goes. Read more
Goldman Sachs have found a new way to show us that the European stock market is not cheap at all any more — although we’re not sure that was entirely their intention.
Indeed, their European strategists would have you buy the GSSTDMGR. That sounds like the plea for one last merger from a dying banker, but it means Goldman like companies which will grow as the European economy recovers. Read more
We are beasts of the calendar. January nurtures dreams and good intentions, while October is the month that slaps you round the face and demands you get a grip before the year is out.
US stock analysts are no exception, as can be seen by this chart from Morgan Stanley that is startling in how completely it fits our preconception about the cycle of hope and experience: Read more
Here it is Goldman’s big call: the S&P 500 will reach 1,750 by the end of this year; 1,900 in 2014; and 2,100 in 2015.
H/T Josh Brown, who points out this isn’t about earnings but a re-rating of equities (and dividends). Read more
As the festive season draws nearer, Albert Edwards brings us good cheer:
Expect the New Year to bring nothing but disappointment.
Yes, our favourite bear argues that even though we’re getting relatively decent US economic data, it’s falling corporate profits to come we should be concerned about. In short, he argues the US is already entering another recession. Read more
Bad news for just about every British pension holder on Tuesday morning as Vodafone shares fell 4.5 per cent following a set of disappointing first half results. Although the interim dividend was raised by seven per cent year-on-year, so shareholders are getting a bit of a sweetener but it’s not enough.
The company also said it would use $1.5bn of its $3.8bn cash dividend from its 45 per cent stake in Verizon Wireless on a share buy-back programme. Read more
With the US earnings season drawing to a close, it seems a good time to examine the aggregate picture. In a note published on Monday, equity and quant strategists at Bank of America Merrill Lynch have done just that, for S&P 500 companies. Report card in the form of a pie chart (thank goodness this wasn’t how class results were presented at school): Read more
We suppose any number of things could be driving recent price swings, with the macro backdrop still playing a dominant role — QE3, heightened expectations of stability in Europe, better economic indicators in the US. And although third quarter earnings are expected to contract, analysts are expecting a decent rebound in the fourth quarter. Global growth is slowing, but the US recovery appears to be on sounder footing than was widely understood even at the start of the summer, when there was sporadic talk of possibly falling back into recession. Companies may have been too dire in their earlier guidance, and investors/algos realised it. Read more
Back in February, Generation Investment Management LLP, a firm co-founded by Al Gore and David Blood in 2004, issued a report entitled “Sustainable Capitalism”. It came with various actionable suggestions for how such a form of capitalism could be achieved, inclusive of this idea (emphasis ours):
3. END THE DEFAULT PRACTICE OF ISSUING QUARTERLY EARNINGS GUIDANCE Read more
Google shocked Wall Street on Thursday with a big shortfall in its latest earnings, as an unexpected slump in pricing in its core search advertising business combined with slowing international growth and another jump in costs to dent recent optimism about the company’s prospects, the FT reports. The internet search giant also blamed the rising value of the dollar, foreign currency hedging costs and a writedown on its investment in wireless broadband carrier Clearwire for the disappointing numbers. The news led to an immediate 10 per cent drop in its share price in after-hours trading.
Société Générale, France’s second largest bank by market cap, reported a 31 per cent slump in third-quarter net profit on Tuesday, as higher provisions against Greek sovereign bonds and testy financial conditions blighted its corporate and investment banking division, the Wall Street Journal reported. Net profit for the quarter that ended September 30 came in at €622m ($856.93m), below market expectations, as it wrote down its Greek sovereign debt exposure by 60 per cent, higher than the 50 per cent haircut outlined by the EU. The bank’s Tier 1 ratio was 9.5 per cent at the end of the third quarter. SocGen said it would not propose a dividend for 2011 in order to bloster the group’s capital position.
US networking company Cisco Systems could cut as many as 10,000 jobs, Bloomberg says, citing two people familiar with the matter. The cuts would include 7,000 jobs eliminated by the end of August and another 3,000 staff taking early retirement as Cisco seeks to compete with lower priced competitors such as Juniper Networks. The job cuts, which would equate to 14 per cent of the company’s headcount, would save $1bn in the 2012 financial year.
After a flurry of first-quarter US corporate results figures, analysts have been pronouncing the Q1 earnings-per-share season “solid”.
But, as Morgan Stanley says in a recent note, margin expectations may be too high. It begins: Read more
Wall Street’s fourth-quarter results are likely to suffer from sluggish trading activity as Europe’s sovereign debt crisis and rising competition deprived banks such as Goldman Sachs and Morgan Stanley of a key source of profits, reports the FT, citing the views of executives and analysts. Lacklustre earnings in fixed income trading in the past two quarters of 2010 after a robust first half will put pressure on banks to pay smaller bonuses to traders after last year’s big rewards for star traders in the bond, forex and commodities markets. Concern over earnings in fixed income, currency and commodity (FICC) trading has led several analysts to cut their fourth-quarter profit forecasts for Goldman and Morgan Stanley, both set to report results shortly.
Corporate America is leaving the flagging US economy behind, the WSJ says. Companies in the S&P 500 saw second-quarter profits increase 38 per cent compared to a year earlier, while all US companies saw a 26.5 per cent rise in post-tax profit over the same period — historic figures for postwar markets, if they aren’t adjusted for inflation. It’s the result of a massive and permanent restructuring wave across the corporate sector, the Journal adds — with the boards of many big companies wary of spending, costs have been cut and refocused, with thousands of jobs laid off or outsourced. The corporate bond boom continues in the meantime, the NYT reports, adding that companies are indeed using the cash to save rather than spend.
Here it is — the one you’ve been waiting for.
On Thursday Goldman Sachs reported diluted earnings per share of $8.20, on revenue of $9.62bn, for Q4 2009. Analysts had expected the bank to report an EPS of $5.20 on sales of about $9.71bn. Read more
Wells Fargo announced record full-year earnings on Wednesday on revenues of $22.7bn in the fourth quarter.
Net income for the group came in at $2.8bn or $0.08 per share versus analyst expectations the bank would lose one penny per share on revenue of $21.97bn. Read more
Another bank result, this time from Morgan Stanley, now the second major US bank to report a(n albeit lower-than-expected) profit so far this fourth-quarter earnings season.
Analysts expected the Morgan Stanley to post earnings of 36 cents a share on revenue of about $7.8bn, which means the company has missed expectations with that diluted EPS from continuing operations of 14 cents, and net revenue of $6.8bn. Read more
Third on the list of big US banks to report fourth-quarter earnings is Bank of America.
The bank had been expected to lose 52 cents a share on revenue of $26.84bn, but looks to have missed those expectations, reporting diluted EPS of 60 cents a share on revenue (net of interest expenses) of $25bn. Read more
Terminally-troubled Citigroup is the second of the big US banks to report this fourth-quarter earnings season.
And on Tuesday, the company’s shares were down slightly in pre-market trade after posting a Q4 net loss of ‘just’ $7.6bn, or $0.33 a share — in keeping with analysts’ expectations. Read more
JP Morgan kicked off the fourth-quarter US investment bank earnings season (well, excluding the Federal Reserve) on Friday, with a sound beat of analysts’ expectations. Though, we should note, JP Morgan CEO Jamie Dimon was himself not impressed with the bank’s numbers.
Analysts had expected the bank to report Q4 earnings of 60 cents a share, up from the 6 cents reported in Q4 2008, and net income of about $2.57bn. Attention, however, was focused on whether the bank would increase its dividend — seen as an indicator of management expectations’ of future income. Read more
Now here’s a sentence we never expected to write: the US Federal Reserve posted full-year earnings for 2009 that beat expectations on Tuesday.
Here’s the full Fed news release. Read more
America’s beleaguered investment banks will have fourth-quarter earnings competition from an unlikely source: The Federal Reserve.
An analysis by the Washington Post has the central bank earning a whopping $45bn last year — about 42 per cent more than in 2008. Read more
Reporting season is underway — look sharp.
The next couple of days will likely set the tone, with sentiment-shaping numbers coming from JP Morgan on Wednesday ahead of third-quarter results from Goldman Sachs and Citi the next day. Bank of America Merrill Lynch will report on Friday. Read more
Talk of green shoots is most definitely premature. The recession has barely begun. The two below graphs from SocGen’s Andrew Lapthorne:
Corporate earnings have barely yet begun to suffer. Not that they won’t of course. Lapthorne: Read more