Swiss pharma giant Novartis made the list of European companies set to beat pre-Covid earnings in 2021.
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Since Barron’slast screened for European stocks whose earnings growth prospects may not be fully priced in, the Covid-19 situation has improved in the region with cases falling and the vaccine rollout continuing.
Despite this improvement, the pan-European Stoxx 600 index has been mostly flat over the past month even as earnings season has come and gone.
The U.K. has led the way in terms of inoculations, having already giving at least one dose to 18.7 million people–around a third of the adult population. As a result the U.K. has outlined its path out of lockdown with all restrictions potentially being lifted by June 21. Slowly but surely the economic data is pointing toward more positive sentiment, particularly among businesses and when it comes to consumer confidence.
However, slower vaccination rates in some of Europe’s largest economies, including Germany and France, have dampened hopes of a swift return to normal on the continent.
Barclays ’ European equity strategists devised a stock screen designed to find companies whose share price was lagging behind its earnings estimates. Their method screened for Stoxx 600 companies currently trading at least 5% below their levels at the end of 2019 and whose 2021 earnings per share (EPS) estimates were above their pre-Covid 2019 EPS.
“On this basis, consensus numbers suggest that the better earnings growth prospects of these stocks are not fully priced in, implying potentially attractive risk-reward ceteris paribus,” head of European equity strategy Emmanuel Cau said.
Using the basis of that screen, Barron’s screened the Stoxx 600 for stocks trading more than 10% below their levels at the end of 2019 and filtered for companies that trade for no more than 20 times forward earnings estimates. The screen used FactSet consensus estimates instead of Barclays consensus estimates. The companies must also have a market capitalization above $10 billion.
Stocks Lagging Estimates
Companies in the Stoxx 600 whose stock currently trades below end-2019 levels but with 2021 earnings estimates above those of 2019.
Data as of Feb. 25
Source: FactSet
Fourteen stocks have entered the screen while five–Italian infrastructure group Atlantia (ticker: ATL.Italy), German healthcare company Fresenius (FMS), U.K. bank Barclays (BCS) and insurers Swiss Life (SLHN.Switzerland) and Munich Reinsurance (MURGY)–have exited the screen.
The majority of the stocks entering the screen have done so because their share price has fallen to more than 10% lower than levels at the end of 2019. These include French pharma giant Sanofi (SNY), U.K. supermarket chain Tesco (TSCO.London), Swiss pharmaceutical company Novartis (NOVN.Switzerland), and U.K. utility National Grid (NG.London). Consumer goods giant Unilever (UL), telecommunications companies Telia (TELIA.Sweden) and Telenor (TEL.Norway), utilities Endesa (ELE.Spain) and Engie (ENGI.France), Portuguese retailer Jeronimo Martins (JMT.Portugal), and U.K. bank Lloyds (LYG) also come into this category.
Europe’s largest mall operator Unibail-Rodamco-Westfield (URW.Netherlands) has also entered the screen but for a different reason. Its 2021 earnings estimates have been increased in recent weeks, according to FactSet data, rising above its 2019 level.
The stock, which has been a favorite among short sellers, jumped 20% in a single day at the end of January as retail investors took aim at heavily shorted stocks. The shares fell 13% in a day in February after the mall operator suspended dividends for three years and said it would reduce its exposure to the U.S. The company said it was realistic about 2021 in its full-year earnings, expecting challenging conditions in the first quarters but a recovery toward the year-end.
Spanish pharmaceutical company Grifols ’ (GRFS) inclusion is due to its forward price-earnings ratio falling below 20.
