Is consensus getting too optimistic about the potential of earnings upside in Europe ? That’s what Deutsche Bank’s strategist believe. In a note dated April 28, they currently expect 10% EPS growth this year, based on their current expectations regarding global growth (3.3%), Bund yields (0.75% by year-end), weaker euro and commodities prices. To get to 15% EPS growth, global GDP growth should accelerate to 3.5%, bund yield should reach 2.25% and euro should be 9% lower than currently is.
What makes the consensus more optimistic than DB ? Mainly the contribution from specific sectors (Basic resources), higher oil prices (70$/bbl priced in the 15% forecast) vs 50$ currently.
« Consensus expectations for 2017 European earnings growth are above our own forecasts mainly because of optimism on resources earnings, which seems questionable, given the recent correction in the price of the underlying commodities » write Deutsche Bank in its note.