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* Analysts see 0.6% drop in fourth-quarter profits
* Region poised for fourth straight quarter of EPS decline
* Energy and mining companies are top drags
(Adds details, comments from analysts)
LONDON, Feb 12 (Reuters) - Driven by ultra-loose monetary
policy and a thriving tech sector, European stocks were set for
another record on Wednesday, despite expectations for a fourth
straight quarter of declines in profits, the longest such streak
in six years.
Following the lead from Wall Street, where the S&P 500 has
reached record highs, investors have been chasing the rally and
ignoring lacklustre profits, rising valuations, a tentative
economic recovery in the euro zone and the threat of the
coronavirus outbreak.
European companies have so far reported a 6.1% drop in
profits for the fourth quarter, according to I/B/E/S Refinitiv,
dragged down by a 36% slump for mining companies as they suffer
from last year's U.S.-China trade war.
Constituents of the pan-European STOXX 600 index
are now seen reporting a 0.6% year-on-year decline in earnings
per share, the data showed, down from the 5.5% increase seen in
early November.
Early estimates showed Europe trumping U.S. companies, but
those trends have reversed recently. S&P 500 companies are
expected to report a 2.3% rise in earnings.
The setback in earnings and the coronavirus outbreak in
China have not slowed the European bull run, which has taken the
STOXX 600 to a record high of 430.29 points on Wednesday.
The index is trading at a 12-month-forward price-to-earnings
ratio of 15 versus its long-term average of 14, according to
Refinitiv data.
"Equity markets seem not to be taking much of the
coronavirus risk into account and there’s a general feeling that
central banks are ready to intervene should there be a need to,"
said Philippe Waechter, chief economist at Ostrum Asset
Management
"Share buybacks in the U.S. are also playing a big role on
the markets and that’s spreading to European markets."
ENERGY, MINING TOP DRAGS
"Though it's too early to draw conclusions on sector
drivers, it is so far clear that earnings weakness in Energy and
Materials has been the main sector level disappointment...,"
Morgan Stanley equity strategists wrote in a note.
ArcelorMittal and BP, for example, reported
steep declines in profits. But investors focused on their
beating estimates, limiting damage to their shares.
The overall decline for the region is under control, helped
by blow-out results from financials, such as Santander
and BNP Paribas, and technology companies.
Profits at technology companies are expected to climb 30%
for the fourth quarter and improve another third in the first
quarter.
"The general picture is actually not that bad. The energy
and raw-material sectors have dragged down the overall figure,
but there’s a positive trend," said Emmanuel Cau, managing
director at Barclays Investment Bank.
"Excluding these two sectors, we still see earnings growth
of 2% or 3% for the fourth quarter and an improvement over
2020", Cau said. For the time being, markets were still pricing
a rebound in earnings in 2020 and some economic recovery in the
euro zone, he said.
(Reporting by Joice Alves, Julien Ponthus and Thyagaraju
Adinarayan; editing by Larry King)
