Morgan Stanley flagged a selection of European stocks expected to outperform or underperform as earnings season continues, including Aviva PLC (LSE:AV.) and Diageo PLC (LSE:DGE).
The analysis, which blends analyst preview data, expected accounting accruals, macroeconomic sensitivity (with a tilt toward resilient and idiosyncratic names), and key themes such as AI and forex swings.
On the top 20 list of stocks expected to deliver positive results, only a few UK-listed names feature: Aviva, Admiral Group Plc (LSE:ADM) and M&G PLC (LSE:MNG).
The bottom 20 list – those seen at risk of disappointing – features a heavier concentration of UK names, led by Diageo, JD Sports Fashion PLC (LSE:JD.) and BP PLC (LSE:BP.), with other FTSE 100 constituents on the list too: Antofagasta PLC (LSE:ANTO), Associated British Foods PLC (LSE:ABF), Intercontinental Hotels Group PLC (LSE:IHG) and Spirax Group PLC (LSE:SPX).
Diageo and BP report on Tuesday this week, IHG on Thursday. Aviva, Admiral, Antofagasta and Spirax next week, M&G in early September, with JD and AB Foods in mid-September.
Looking back, the screens have shown reasonable predictive power, with half of the original top 50 companies beating or raising guidance, while only three missed.
From the original bottom 63, 22 either missed or lowered guidance, with just 14 beating or raising.
The updated screen removes names that have already reported and incorporates more recent analyst expectations as companies prepare to post results in the coming weeks.
Reporting season so far
Around three-quarters of UK and European market cap has now reported results for the past quarter, Morgan Stanley noted, and while earnings beats are growing, the picture on guidance remains mixed.
A net 23% of companies have beat expectations on Q2 results, but the bank highlights that guidance remains cautious with only a +2% net skew to earnings over the next 12 months, far below the +26% seen in the US.
Bright spots include defence, telcos, banks, and real estate sectors, while downgrades and misses have been concentrated in tech hardware, semiconductors, materials, luxury and autos.
Price reaction from the market has been more negative than in prior quarters, with stocks facing post-results EPS downgrades seeing an 8.5% average drop on the day, compared to a 3.9% lift for those with upgrades. This is a sharp -4.6 percentage-point net skew, a reversal from the +3pp net skew seen in Q1.
While Europe’s earnings revision ratio is recovering from heavy downgrades earlier in the season, it remains negative at -9%, and lags the US by some margin, Morgan Stanley said, while reminding investors that FX effects are a major factor, with US earnings revisions now firmly in positive territory.
Analysts compare the current backdrop to the early 1990s Gulf War outset, pointing to lingering uncertainty from volatile oil prices and rising tariff tensions.
"Our playbook suggests uncertainty lingers, limiting the extent of recovery in business confidence, investment and, most of all, hiring and consumer confidence.
"For EU equities, this means sideways, choppy trading (with intermittent 5-10% drawdowns which ultimately get bought), low earnings growth, a sustained shift into resilient pockets of the market, and continued high stock level dispersion," they said, meaning the gap between winners and losers is wide.
The bank sees Europe trading sideways with intermittent 5–10% drawdowns and reiterates its below-consensus 2026 EPS growth forecast of just 2.2% versus the market’s 11.6%.