March 25, 2020 / 10:36 AM / 3 days ago

Coronavirus lockdowns look set to batter earnings in Europe

LONDON (Reuters) - Europe Inc’s profit expectations for the first and second quarters have deteriorated sharply, Refinitiv’s data showed, as countries such as Britain, Italy, France and Spain went into a lockdown to fight the coronavirus outbreak.

Companies listed on the pan-European STOXX 600 are now expected to report a 14.9% decline in earnings in the second quarter, down from an 8.2% drop forecast a week earlier.

Prior to the virus outbreak, analysts were expecting Europe to put an end to its 2019 corporate recession. Those hopes have now been dashed.

As Europe stares at a deep recession, UBS said it now expected European companies to report a 33% drop in 2020 earnings per share.

“Clearly now we are living in a very different macro backdrop than even 10 days ago,” strategists at the Swiss bank said.

On the bright side, UBS expects a stronger bounce back than after the global financial crisis, with earnings jumping 25% in 2021.

In the meantime, the prospects for European blue chips could deteriorate further.

“The macro and earnings newsflow will indeed likely worsen before getting better,” Barclays’ European equity strategy team argued in a research note sent to clients.

Business activity collapsed from Australia, Japan and Western Europe to the United States at a record pace in March as measures to contain the coronavirus pandemic hammer the world economy, cementing economists’ views of a deep global recession.

The slowdown triggered by the measures implemented to stem the spread of the virus, such city lockdowns, travel bans and factory production halts, has left research houses at big investment banks struggling to adjust their ratings and target prices on individual stocks.

To add to the complexity of pricing the fair value of a stock, many firms have cut, suspended or simply cancelled share buybacks and dividend payments to try to hold on to their cash.

The pan-European STOXX 600 has lost about 30% from its February highs after the coronavirus crisis triggered a crash on world markets.

Strategists believe the catalyst for any lasting rebound on stock markets would be a swift implementation of the U.S. stimulus package - expected to be worth $2 trillion - and a slowdown in the number of daily cases outside China.

“A stabilisation of new COVID-19 cases in Italy would be a ray of hope,” Barclays analysts wrote.

(GRAPHIC: qsdf - here)

Reporting by Joice Alves; Editing by Julien Ponthus and Alison Williams

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