European Corporate Earnings Show Broader Strength Than US, Barclays Says

European companies are entering the second-quarter earnings season with a more resilient and broad-based profit recovery than their U.S. counterparts, according to a new research note from Barclays. The bank suggests that headline growth figures are masking underlying strength in a wider range of European sectors.

Growth Forecasts Tell Two Stories

Barclays projects that European firms will report 13% earnings per share (EPS) growth for the second quarter, compared to a forecast of 26% for the United States. However, the bank notes that this gap is heavily influenced by a few key industries.

When the high-growth energy and technology sectors are excluded, the consensus forecast for both regions drops to approximately 5%. This suggests that U.S. headline growth is being "flattered by a handful of industries," while Europe is experiencing a more widespread improvement, Barclays stated.

Drivers of European Resilience

The positive outlook for Europe is supported by several macroeconomic factors, according to the bank's analysis. It also noted that corporate pre-announcements in the region have been positive for two consecutive quarters, a trend not seen since 2021.

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Key drivers cited by Barclays include:

• Resilient economic activity across the continent.
• Stabilizing prices for oil.
• Easing headwinds from foreign exchange rates.

Market Outlook and Valuations

Barclays noted that European equities have lagged the region's earnings growth this year, leaving valuations looking "relatively attractive" and providing potential support against risks from higher interest rates. While the bank's forecast for Europe's full-year 2026 EPS growth of 12% is more conservative than the 17% consensus estimate, Barclays recently raised its own outlook due to improving revisions.

The bank identified several sectors with strong earnings profiles, including semiconductors, capital goods, banks, aerospace and defence, mining, and energy. Barclays also suggested that energy stocks could serve as an "attractive tactical hedge" against geopolitical tensions.