Morgan Stanley has outlined a group of U.S. and European stocks it considers most likely to outperform consensus earnings estimates as the next reporting season approaches. The bank built an "Earnings Surprise Composite" by combining signals from several quantitative measures with traditional analyst perspectives.
The composite integrates elements of the firm’s Earnings Forecast Landscape, an Earnings Quality assessment, and broader forecast dynamics to generate a ranking intended to identify names with the highest probability of reporting results above expectations. Morgan Stanley says the approach is designed to surface firms whose forward-looking metrics and analyst sentiment align in a way that historically has been associated with upside surprises.
Performance figures supplied by the bank indicate the strategy has produced notable risk-adjusted returns on a pre-cost basis. Since 2024, the composite has generated a pre-cost Sharpe ratio of 1.06 in the U.S. and 0.92 in Europe. Including five years of history prior to the strategy’s launch, Morgan Stanley reports pre-cost Sharpe ratios of 0.69 for the U.S. and 0.71 for Europe.
In the U.S., the firm’s highest-conviction names on the earnings-surprise ranking include Western Digital, Citigroup, and RTX, each carrying an overweight rating from the bank. The broader U.S. group highlighted by Morgan Stanley also lists Apple, eBay, ConocoPhillips, and Roblox.
On the European side, ArcelorMittal is singled out as scoring in the top percentile on the composite. Other European names the bank flags and rates overweight include Barclays, ASML, Nokia, Santander, ASM International, and UPM-Kymmene.
The note from Morgan Stanley underscores the potential value of pairing quantitative indicators with on-the-ground analyst judgment, especially in a period the bank characterizes as having elevated dispersion in company results. The firm suggests that this combined approach can help investors position for earnings-driven volatility, though the note frames this as a method to better position rather than a guaranteed outcome.
Methodology and disclosure points cited by Morgan Stanley:
- The Earnings Surprise Composite is built from the Earnings Forecast Landscape, Earnings Quality metrics, and broader forecast dynamics.
- Performance metrics reported are pre-cost Sharpe ratios: U.S. 1.06 since 2024 and 0.69 including five previous years; Europe 0.92 since 2024 and 0.71 on the longer view.
The bank’s communication highlights specific names and emphasizes a quantitative overlay to help identify where earnings results may diverge materially from expectations as the reporting season unfolds.