The rise in the price of energy and raw materials is probably the only certainty that investors have at the current moment of maximum uncertainty. Even though growing concerns about Chinese growth and fears of a recession in Europe are favoring some easing in oil prices.

With the start of the presentations of results for the first quarter, the energy sector is by far the one that stands out for the upward revisions in the estimates of earnings per share for this year and next on the European Stock Exchange. The market has raised its estimate of EPS for that sector by 12.2% this year and 7.7% in the next, according to adjustments during the last month collected by Refinitiv and MacroYield.

This upward revision has moderated significantly compared to the strong upward adjustment almost three months ago, when the start of the war in Ukraine triggered the cost of all raw materials. So, the upward revision of the estimated EPS for 2023 was around 30% for European energy companies. Even so, the expectation of higher profits for the energy sector does not decline, showing how the market continues to adjust expectations to a horizon of more expensive raw materials.

The stock markets that are best reflecting the positive expectations of investors for raw materials are the British and the Brazilian, with an abundance of mining and oil companies. In fact, the Ftse 100 is being the great European exception to a year of widespread losses. A rise in 2022 of 2.17% is noted, while the Brazilian Bovespa advances close to 2%.

In last month’s earnings revisions, the market consensus points to earnings per share in the Ftse 100 4.42% higher this year, the sharpest upward adjustment among international indices, according to Refinitiv data. It is followed by the increase of 3.54% for the Brazilian stock market and in a not insignificant third place appears the Spanish stock market, with an increase of close to 2%. Thus, the Ibex has achieved a rise of 1.6% in April, favored by the almost zero exposure of the companies that comprise it to Russia and Ukraine and by its high exposure to Latin America, as explained by Link Securities, where they also highlight the positive balance of the British Ftse 100, “in which the relative weight of the values ​​related to mineral raw materials or oil is very high”.

Earnings per share downward adjustments are concentrated in retail and travel

“The FTSE 100 has a lot of exposure to energy and commodities, which are the sectors that continue to be revised higher in a context of strong price increases,” explains Patricia García, market strategy analyst at MacroYield.

In the rest of the sectors, inevitably affected to a greater or lesser extent by higher energy costs and by the increase in production costs, the downward adjustment in earnings per share estimates is being slow, according to García. “Companies continue to show great strength and ability to set final prices, in many cases absorbing the increase in costs they are suffering, but we think that these cuts could continue to deepen,” explains the Macroyield analyst. Not surprisingly, the impact of inflation and higher financing costs is added to the prolongation of the war in Ukraine, which predicts higher prices for raw materials for longer, and the slowdown in China.

For now, downward revisions to earnings per share in the European stock market are being contained in the middle of the first quarter earnings campaign and are concentrated in retail, technology and travel and leisure. In the retail sector, the estimates would have already been adjusted to the new economic environment. Thus, if with the outbreak of the war, the downward adjustment of benefits for this year was greater than 10%, now it is cut to a reduction of 0.7% this year and 0.6% in 2023. The same happens in the travel and leisure sector, where the most recent revisions point to an EPS cut this year of 1.5%, compared to almost 12% previously.

On Wall Street, of the 55% of S&P 500 companies that have released quarterly results so far, 80% have beaten consensus earnings-per-share estimates.

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