Morgan Stanley says these global stocks are set for earnings beats — and gives one over 45% upside

Published Tue, Jul 19 20227:49 PM EDT

Earnings season is getting underway — and it's expected to be a big one. Market watchers are predicting lower earnings and more subdued guidance as the impact of a series of rate hikes takes hold. But Morgan Stanley 's European strategists believe this results season will outperform expectations — as it is essentially backward looking — and is backing a number of stocks in particular. "We expect 2Q2022 results to beat expectations again. However, tougher [competition], fading consumer/corporate confidence and increasing margin pressures suggest a narrower beat than last quarter," Morgan Stanley's strategists, led by Ross MacDonald, said in a note on Jul. 14. 'High conviction ideas' The investment bank listed a number of "high conviction ideas" — which its analysts are positive on —heading into earnings. One such stock is Airbus , which Morgan Stanley has raised its earnings forecast for by 8% and 4% for financial years 2022 and 2023, respectively. It predicts that higher input costs, delays to engine supply and tougher competition are unlikely to be major headwinds for Airbus' second-quarter earnings. Morgan Stanley has a price target of 135 euros ($136.85) on the stock, which closed at around 104 euros on Monday, representing a potential upside of 29.8%. French utility firm Engie also made the bank's list, with Morgan Stanley anticipating the company's second-quarter earnings to be a "positive catalyst" for the stock. A potential upgrade of its full-year 2022 guidance could also be on the cards, with the bank saying it is 19% above consensus on the company's recurring full-year net income. Morgan Stanley has a price target of 16 euros on the stock, giving it potential upside of 45.5% from Monday's 11 euros close. The bank also likes luxury goods retailer LVMH . It expects the company to deliver "another industry leading performance," driven by solid top line performance from its fashion and leather goods division, better gross margins and foreign exchange gains. Morgan Stanley has a price target of 835 euros on the stock, which closed at around 614 euros on Jul. 18 — an implied upside of 36%. What's next for European stocks While the bank remains upbeat on second-quarter earnings, it believes the "backward looking" results do not represent what lies ahead. "Unfortunately, the positive message from 2Q results is largely irrelevant, given it is backward looking. European earnings revisions have turned negative over the last couple of weeks, and we expect this new downgrade cycle to accelerate over the coming weeks as macro uncertainty prompts analysts to reduce forward estimates," MacDonald said. "We believe these downgrades will commence irrespective of whether justified by company guidance or not — analysts will move pre-emptively to lower their forecasts even if company commentary remains benign," he added. Analysts' consensus earnings per share estimates are 15% and 3% higher for full-year 2022 and full-year 2023, respectively, according to Morgan Stanley.