July 20, 2020

FIRST Q2 EARNINGS RESULTS SHOW POSITIVE SURPRISES. EXPECT LIMITED NEGATIVE REVISIONS

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In Short

Growth (yoy) is clearly negative but the magnitude should deteriorate further (to be in line with expectations) as more firms will report in the next few weeks: the next two weeks will see the bulk of reported results.
FIRST Q2 EARNINGS RESULTS SHOW POSITIVE SURPRISES. EXPECT LIMITED NEGATIVE REVISIONS
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Highlights:

  • As of today, almost 10% of companies have reported their earnings. Median sector surprises have so far been positive in the US and Europe (+14%) and flat in Japan.
  • Q2 numbers will be devastating but should represent the bottom in this cycle crisis, with annual earnings growth likely turning positive again in Q1 2021.
  • We cannot exclude further downside revisions to consensus but in our base scenario they should be limited: Q2 numbers are already deep in red while macro indicators have improved.
  • Resuming activity will trigger a rebound in Q3 macro data, sustaining earnings revisions. But sluggish demand amid the risk of a second Covid-19 wave will keep the recovery subdued.
  • Starting from the autumn the earnings momentum could lose traction. The Google mobility indices have recovered but the acceleration is already losing speed.
  • Having said this, fundamentally we can still afford a limited further negative revision from here (- 3 to -4%) without having to reduce our 12-month total return targets (currently near 5%).
  • We maintain a limited overweight in equities.

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FIRST Q2 EARNINGS RESULTS SHOW POSITIVE SURPRISES. EXPECT LIMITED NEGATIVE REVISIONS

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