Finance
GRAPHIC- Europe's earnings gain pace while lofty valuations cap rewards
Published by Global Banking & Finance Review®
Posted on February 16, 2026
4 min readLast updated: February 16, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on February 16, 2026
4 min readLast updated: February 16, 2026
Europe's earnings are growing, but high valuations limit rewards. Financials lead growth, while euro strength and tariffs impact companies.
LONDON, Feb 16 (Reuters) - European company earnings growth is picking up this reporting season against a tentatively improving economic backdrop, but wary investors are demanding more than solid results to justify sky-high valuations.
Companies representing 57% of Europe's market capitalisation have reported so far, achieving average earnings growth of 3.9% in the fourth quarter, ahead of estimates for a final result of a contraction of 1.1% based on LSEG I/B/E/S data.
"Overall, EPS recovery is on track, especially in Europe," said Barclays European equity strategist Magesh Kumar Chandrasekaran.
Here are the top themes emerging from the earnings season:
SKIP A BEAT
So far, 60% of European companies have beaten earnings expectations, compared to a typical quarter when 54% would beat analyst estimates, according to LSEG I/B/E/S.
Companies that have outperformed expectations, however, have not been as likely to be rewarded with a positive share price reaction, analysts said.
Deutsche Bank noted that the net price reaction of a stock on the day of earnings has been flat for companies that beat expectations and negative in low-single-digit percentages for misses.
"It is to do with the higher valuations we're at," said Carolin Raab, European equity and cross-asset strategist at Deutsche Bank.
"At those valuations, it's typical to see some short-term pullbacks and a bit more nervousness around earnings, even though what we are hearing from companies is not so bad."
Europe's STOXX 600 currently trades on a multiple of 15.3 times forward earnings, its highest since January 2022.
STRONGER EURO FACTORED IN
The STOXX 600 is an international index and generates almost 60% of its revenue outside Europe. So the persistent strength of the euro, which rose above $1.20 for the first time in over four years last month, remains a key consideration for the region's companies.
Dorian Carrell, head of multi-asset income at Schroders, said the strength of the single currency is something that companies have been factoring in.
"The large part of it is done, in the sense that U.S. companies have benefitted and it's been a headwind for Europe," Carrell said.
"From here, the trajectory of the dollar and euro from our perspective is less clear, which would probably be an advantage to European companies."
TARIFF UNCERTAINTY RECEDES AND REALITY KICKS IN
Analysis from market intelligence platform AlphaSense showed the number of companies mentioning tariffs in earnings calls dropped sharply since the middle of last year, when U.S. President Donald Trump's trade plans rattled markets, but that doesn't mean that there have been no ramifications for European companies.
"We're definitely starting to see the impact of tariffs feeding through," said Sutanya Chedda, European equity strategist at UBS.
"Some companies are passing it on to consumers, while some are taking a hit on margins."
BANKS STILL LEAD, SET TO BE AI WINNERS
There are only a handful of sectors that have posted earnings growth in Q4, with financials being one of them.
Deutsche Bank's Raab said this quarter is the twelfth in a row that banks have, on net, beaten estimates.
"We're seeing financials as the sector with the most guidance upgrades relative to downgrades," Raab said.
"We still like the sector and the earnings environment still looks pretty good."
While losers from artificial intelligence have dominated the news agenda recently, UBS believes the banking sector will be "net winners", even though AI has made little difference to near-term earnings estimates.
TECH DISPERSION
Nothing has highlighted the dispersion in technology stocks quite as much as the recent performance from the euro zone's largest company, Dutch ASML, and its fourth-largest, Germany's SAP.
ASML, whose tools are used by chipmakers including the world's largest, Taiwan's TSMC, raised its sales outlook due to surging demand from the AI buildout. In contrast, software company SAP, which was Europe's largest company as recently as March last year, tumbled 16% on earnings day as concerns grew about AI's disruptive effects on the software sector.
"Semiconductors have done so much better than software companies recently," Schroders' Carrell said.
"Our philosophy is to look where expectations and valuations are low, so we think that might be a little bit overdone," Carrell added, noting that software valuations are now cheaper than for hardware.
(Reporting by Samuel Indyk; Editing by Amanda Cooper and Elaine Hardcastle)
Earnings growth refers to the increase in a company's profit over a specific period, typically measured on a quarterly or annual basis. It indicates the company's ability to generate more profit compared to previous periods.
Valuations in finance refer to the process of determining the current worth of an asset or company. This can involve various methods, including comparing earnings, market trends, and economic indicators.
The STOXX 600 index is a stock market index that represents 600 of the largest companies across 17 European countries. It is used to gauge the performance of European equities.
EPS, or Earnings Per Share, is a financial metric that indicates the profitability of a company. It is calculated by dividing net income by the number of outstanding shares.
The strength of a currency can significantly impact a company's earnings, especially for those generating revenue internationally. A stronger currency can reduce profits when converting foreign earnings back to the home currency.
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