Morgan Stanley is reporting a meaningful shift in the outlook for Europe’s Q4 corporate reporting season, with its systematic tracking of analyst previews now displaying a distinctly more positive bias than in recent quarters. The bank’s framework shows a 9% expected skew toward earnings beats on focus KPIs for Europe - a stronger tilt than the 5% skew seen for the U.S. - and early pre-releases are also registering a more positive pattern than usual.
In a note, strategists led by Marina Zavolock highlighted that the combined set of analyst previews has moved from a persistently negative impact on near-term consensus earnings in earlier quarters to a more balanced, and now modestly positive, outlook heading into the current season.
Sector-level signals
Morgan Stanley’s combined earnings preview framework points to the most pronounced upside skew in a cluster of sectors: banks, semiconductors, defence, utilities, and metals and mining. These sectors emerged from the quantitative mix that incorporates analyst expectations, accruals, stock momentum factors, and macro sensitivities.
Conversely, several sectors show weaker prospects as companies prepare to release results: luxury, autos, chemicals, and energy rank at the lower end of the bank’s preview-based ranking.
Index target revision and rationale
Reflecting the brighter tone, Morgan Stanley raised its year-end 2026 MSCI Europe target to 2,600 from 2,430 previously. That new target implies roughly 8% upside from current levels - or about 12% when buybacks and dividends are included. Strategists attributed the revision to a combination of factors they see as supportive: Europe’s narrowing valuation gap with the U.S., modestly higher expected earnings growth for 2026 and 2027, and mounting evidence that AI adoption is starting to deliver returns for some European companies.
At the same time, the strategists cautioned that bottom-up consensus earnings forecasts remain elevated, particularly for 2026, where growth expectations lie well above Morgan Stanley’s own projections. They observed that consensus forecasts for European earnings tend to begin the year too high and are often revised downward over subsequent months. The bank also noted that historical headline revisions have not shown a tight relationship with equity market performance.
Interestingly, the breadth of European price target revisions is skewing more positively than earnings revisions, which the strategists interpret as investors pricing in a recovery that extends beyond 2026 - an outcome that aligns with the bank’s forward views.
Names to watch
Within its Top Combined Earnings Preview Screen, Morgan Stanley singled out nine stocks it expects could outpace Q4 expectations: Société Générale, Centrica, ABN AMRO, Talanx, Banco Santander, RWE, Barclays, Siemens Energy, and ASML. The strategists said most of these companies score strongly not only on the broader quantitative framework but also when judged solely by analyst preview data.
Implications for investors
For market participants focused on earnings momentum and sector rotation, the bank’s previews spotlight areas where upside surprises may be concentrated - notably banks and technology-linked segments such as semiconductors. At the same time, the persistent elevation of consensus earnings for 2026 warrants attention, as past patterns suggest revisions may be downward over time.
Quote from the note: "Meanwhile, pre-releases early in the season also skew more positively than normal," the strategists said.