STOXX 600 Q2 2020 Earnings Preview

Analyst revisions

As noted above, analysts began to aggressively downgrade STOXX 600 Q2 growth expectations in mid-March.  However, it is interesting to note that the severe pessimism amongst analysts has turned around over the last few months when looking at aggregate analyst revisions.

Exhibit 2 highlights the STOXX 600 revisions ratio, which is calculated weekly and aggregates the total number of earnings estimate revisions for the Fiscal Year 1 period for all companies in the index over the previous seven days. During the height of COVID-19, the down % ratio peaked at 90% on the week ending March 31, which is the highest level since this data has been tracked.

However, it appears that analyst pessimism bottomed out around this time and gradually began to revise estimates upwards since then. At the latest reading, the aggregate up/down ratio is at 40% and 60% respectively which is close to the prior 1-year average ratios of 37% and 63% respectively.

Exhibit 2: STOXX 600 Earnings Revision Ratio

Note: Up revisions represent the total number of estimates for Fiscal Year 1 submitted in the past seven days that are higher than the previous estimates for Fiscal Year 1. Down revisions represent the total number of estimates for Fiscal Year 1 submitted in the past seven days of that are lower than the previous estimates for Fiscal Year 1.

Aggregate analyst sentiment by industry

Using Refinitiv Eikon, we can use the Aggregates app to aggregate analyst sentiment by looking at StarMine analytics and models. Exhibit 3 highlights the aggregate Analyst  Revisions Model (ARM) and SmartHoldings Model (SH) for the STOXX 600, broken down by TRBC Business Sector.

Exhibit 3: ARM and SH Model scores for STOXX 600 by TRBC Business Sector

Source: Refinitiv Eikon

The ARM model is a stock ranking model that is designed to predict future changes in analyst sentiment by looking at changes in estimates across EPS, EBITDA, and revenue over multiple time periods. Mineral Resources has an ARM score of 79, since it has benefitted from strong price performance in gold, iron ore, and copper year-to-date. Rio Tinto, BHP Group, and Anglo American all have bullish model scores above 80.

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