With 97% of European companies having reported their Q2 earnings, Morgan Stanley strategists have shared their latest takeaways from the reporting season.
According to its Thursday report, MSCI Europe's earnings net beat ratio stands at 16%, slightly down from the 17% revealed a week ago.
The free float market cap-weighted earnings have exceeded consensus by 3.2% in the quarter, aligning closely with their prior expectations.
The median stock's earnings came in 2.1% above consensus. Banks, Semiconductors, Telecoms, and Aerospace & Defense have led the charge, posting strong earnings breadth and outperforming expectations. Sales also showed strength, with a net skew of beats at 17%, the highest since the first quarter of 2023.
Moreover, the strategists observe that Europe’s next twelve months (NTM) earnings revision ratio has improved over the past two weeks after dipping into negative territory before the earnings season began.
"The main driver of the rebound has been financials, while commodities appear on the downside,” analysts note. “We continue to expect the ERR to turn positive in the coming weeks."
They also point out that the price reaction skew remains significantly negative, though less extreme than at the season's start. The median 1-day price reaction to beats versus misses is still negatively skewed at +200 basis points versus -420 basis points, respectively. However, the price skew at the EPS level has improved to more normal historical levels.
Regarding earnings-related 'sustainable factors,' the strategists said Banks and Telecoms sectors have shown the most significant quarter-over-quarter (QoQ) in management sentiment scores, while Luxury and Travel & Leisure sectors have seen the largest declines.
“We find that the stocks showing the biggest improvement in sentiment QoQ tend to outperform the stocks showing the largest sentiment decline,” analysts wrote.