U.S. Companies Could Feel Pinch From Europe Exposure: Citi

U.S. companies in cyclical and defensive industries could take the biggest earnings hits if Europe falls into recession.

M. Lorden | Taxi | Getty Images

Citigroup Chief U.S. Equity analyst Tobias Levkovich said while Europe represents 10 percent of the S&P 500 constituent sales, the austerity programs and signs of a slowing economy could mean that business will be impacted for companies with sales and earnings exposure.

Levkovich said cyclical companies could see the most softness, and that may not yet be priced into their stocks.

The five groups with the most exposure are materials, autos and components, consumer durables and apparel, consumer services and capital goods, he said in a note. Traditional defensive groups also have a high percent of sales from Europe. Those defensive groups include food, beverage and tobacco, pharmaceuticals and biotechnology and household products.

Levkovich notes it is impossible to tell exactly what the earnings impacts from Europe would be due to limited disclosure and tax sourcing decisions, so using sales may be the best guide.

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"In light of cutbacks in government spending, tax increases and waning business confidence, there already has been some commentary on slipping appliances, bearings and heavy-duty trucks demand. In many respects, these early remarks are a worrisome sign," he wrote.

Citigroup analysts screened companies by large sales exposure and weaker balance sheets and came up with some names that could feel the most impact from Europe's woes. Those names include Owens-Illinois , Ford and DuPont .

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