Looking for upside in Europe
Consumer discretionary, consumer staples and telcos have the best prospects as profit margins recover in that part of the world
AT 4 PER CENT, profit margins in the euro area are still close to levels consistent with recession, but they stand at historical highs of above 9 per cent in the US. This big difference explains much of the earnings gap, with earnings per share (EPS) currently 30 per cent below trend in the euro area and 10 per cent above trend in the US.
However, this depressed picture conceals significant disparities. Not all sectors have low margins. This significant heterogeneity has important implications when assessing not only the potential for a rebound in euro-area margins, but also which sectors have the strongest upside potential.
Some sectors still profitable
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