The interior of Lloyd’s of London, the centuries-old insurance market. Insurers feature heavily in a stock screen of European stocks set to beat pre-Covid earnings in 2021.
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European stocks have recovered impressively from the lows of March 2020. Still, the pan-European Stoxx 600 index sits below its level at the end of 2019.
Despite the accelerating rollout of vaccines, the Covid-19 pandemic is far from over in Europe with many countries, including the U.K. and Germany, in lockdowns. The threat posed by a number of new variants has kept stocks somewhat subdued in recent days. That may change with Europe’s earnings season around the corner.
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 are currently trading below their end-2019 level but with 2021 earnings estimates above those of 2019.
Data as of Jan.21
Source: FactSet
Insurance companies are featured heavily in the screen, including Axa (AXA.Germany), Hannover Rueck (HNR1.Germany), Swiss Life (SLHN.Switzerland), Swiss Re (SREN.Switzerland), CNP Assurances (CNP.France) and Munich Reinsurance (MURGY.ADR). The industry, like many others, had a difficult 2020 but Barclays equity analyst Claudia Gaspari expected uncertainty around Covid losses and dividends to “essentially subside” with the fourth quarter results season. “Commercial (re)insurers should emerge as relative winners as the year progresses given positive pricing dynamics, which we expect to result in a two-year earnings tailwind,” she said.
French car manufacturer Renault (RNO.France) is another notable inclusion. The stock sits 16% lower than its end of 2019 price after a tough year for the sector. The industry had a much improved second half of the year. Renault also more than doubled sales of its electric vehicles in 2020 and is set to launch more models in the coming year—its ZOE model remains the bestselling EV in Europe. It has also shifted focus toward profitability in 2021 rather than sales volume.
Email: Callum Keown at [email protected]
