HSBC picks out 9 stocks that will shine in upcoming earnings season

With the market on tenterhooks regarding Greece, the forthcoming earnings season should help relieve some of the built-up tension and get investors focused on the fundamentals again, HSBC said in a note on Wednesday.

The bank’s top-down message on earnings is a positive one.

“We expect a significant upside surprise in 2015. Our earnings per share growth forecast for Europe ex-UK of 25% is around double the consensus expectation. The early indications are promising, with the first quarter surprising significantly to the upside,” it said.

In terms of individual stocks, HSBC highlighted nine stocks with the potential to deliver an upside surprise to earnings in 2015.

“We highlight nine companies that our European sector analysts have buy ratings on and where they are more positive than consensus on the outlook for earnings,” it said.

The companies are Peugeot, Renault, Norwegian Air Shuttle, Rheinmetall, NCC, USG People, Saint Gobain, Admiral and NN.

HSBC said it expects Peugeot to restock its independent dealers as of the second quarter of 2015, which has a positive impact on fixed cost absorption and revenues per unit, as well as working capital.

As far as Renault is concerned, it sees a strong set of first-half results on 30 July and expects the company to generate 3.3% automotive earnings before interest and tax.

It reckons Norwegian Air Shuttle will see very strong earnings momentum in calendar 2015. On the revenue side, its long-haul operations are maturing, as are its growth operations in Spain and the UK, while its core Nordic market is benefitting from a remarkably benign supply demand environment, said the bank.

HSBC said that compared to the current 2015 Factset consensus for Rheinmetall, its EBIT estimate is 12% higher at €280m.

“We think the market is too cautious on the earnings recovery in the defence division,” it said.

NCC’s first-quarter results featured a decent earnings beat with a seasonal EBIT loss of SEK161m, versus the bank’s estimate for a loss of SEK165m and consensus estimates for a loss of SEK173m. HSBC pointed to positive surprises from the
three most important operating entities, Construction, Housing and Roads. “Should the trends continue, we see NCC delivering nicely on our projected earnings improvement during full-year 2015,” it said.

On USG People, it noted that demand, i.e. job vacancies, and labour markets continue to gain strength in the company’s key markets.

As far as Saint Gobain is concerned, HSBC said: “We share management’s optimism that France will trough in 2015 and Germany will end the year positive, from a comparable base that gets considerably easier in H2.”

It said Admiral remains a beneficiary of rate increases in the UK private motor segment. The investment story is also supported by HSBC’s above-consensus EPS and DPS estimates and the company’s strong capital and reserve position.