European EPS estimates for 2019 point to 4.4% increase

Sunrise

Alphavalue | With most of the results for the first half of 2019 already published, the annual estimates of earnings per share (EPS) for 2019 point to an increase of +4.4% yoy, downgraded from the +10% forecast at the beginning of 2019 (when the 2018 figures were still estimates).

The pattern in the fall in profit expectations differs from the revisions of EPS in 2018. While in 2018 the fall was slow until the summer, in 2019 there was a major adjustment immediately after and it has accelerated since then.

To be able to call 2020 a success, profits should be 10% yoy. We recall that the perspective in Q318 was equally positive.

We updated the 2019 profits per sector and their revisions at 6 months. Some interesting observations stand out. Profits of 26 Bn€ are needed in 2019 to reach 637 Bn€ total, less than what was lost in comparison with 6 months ago (-30.7 Bn€). It is fortunate that the growth in profits has been driven by defensive sectors (to certain point a tautology or iterative criterion), but the reduction of profits in cyclical sectors is pretty pronounced (see the reduction in the car sector of -4 Bn€ or almost 10% yoy). 6 of 20 sectors will contract in 2019. And 24 of 30 sectors have suffered downward revisions in the last six months. Short term perspectives, therefore, are not good.

The only important sector with an upward revision in its profits is Good & Beverages. It is not the main contributor to profits, but one of the three main ones in terms of market cap. This sector is where all the savings seem to have been accumulated.

It is also worth mentioning the fall in 2019 profit expectations for financial entities, with around -5 Bn€. Carmakers and oil companies lost territory even faster.

In short, nothing encouraging.