Morgan Stanley reveals its 8 favorite stocks ahead of Europe’s earnings season

Universal Music Group’s operational headquarters in Santa Monica, California.

Bing Guan | Bloomberg | Getty Images

Morgan Stanley has identified eight stocks to buy ahead of a highly anticipated earnings season in Europe.

Shares in the region have risen this year on the first signs of easing inflation across Europe. Nevertheless, the impact of sluggish growth and the war in Ukraine remains a key concern for investors.

Here are the European stocks the Wall Street bank thinks will outperform, even though the broader market is likely to take a hit on earnings.

Morgan Stanley’s 8 European stock picks

company Ticker Earnings date means of payment Share price Price target Upward (%)
Universal Music Group UMG-AMS 02-Mar EUR 23.43 35.00 49.38
Teleperformance TEP PAR 23-Feb EUR 252.10 320.00 26.93
SCORE SCR PAIR 09-Feb EUR 23.83 30.00 25.89
Elis SA ELIS PAIR 02-Mar EUR 15.75 18.80 19.37
Sartorius SRT-ETR 26-Jan EUR 350.50 415.00 18.40
Accor ac couple 08-Mar EUR 29.19 34.00 16.48
SAP SAP ETR 01-Mar EUR 106.58 123.00 15.41
Compass group CPG-LON 26-Jan British pound 19.32 10 p.m 13.90

Source: Morgan Stanley, 20 January

Here’s what they had to say about four stocks from the above table:

Universal Music Group – Music distribution

Meadow reported 13.3% organic growth and beat expectations last quarter. The company also named former Paramount Pictures CEO Sherry Lansing as chairman earlier this year.

Morgan Stanley says:

“We expect the stock to rise to earnings expected in early March. We believe consensus forecasts for Subscription & Streaming revenue growth and margins in 2023 are too low and believe that FY’22 earnings will be a catalyst for a reassessment of both metrics by investors.”

Teleperformance – Outsourced customer care

Teleperformance was investigated by the Colombian government after a Time Magazine article accused it of violating the “right to dignity, work and social security of workers” who moderate TikTok videos in the company. Its own internal audit identified no material adverse findings.

Morgan Stanley says:

“Teleperformance shares have been under scrutiny since November following the outbreak of negative news flows surrounding its Content Moderation in Colombia. We continue to maintain that these risks were overblown and underlying Teleperformance remains a well-managed entity. More importantly, none of this news flow changes the company’s fundamental growth and earnings profile.”

Elis – Outsourced laundry

Elise beat market expectations in the third quarter for revenue and said there was no slowdown in demand across the 29 countries it operates in. After soaring energy costs over the summer, Elis also said it had negotiated price increases with customers, that would start between October. 2022 and January 2023.

Morgan Stanley says:

“Elis offers robust GDP+ growth through the cycle, which is expected to be structurally higher after COVID (driven by increased demand for hygiene, reliability, accountability and ESG).”

Accor – French hospitality company

Accor is implementing what it calls an “asset light” strategy in an effort to simplify its balance sheet. Last week it sold a $460 million stake in China’s H World hotels, lowering its net debt. Following the asset disposal, Barclays’ equity research team upgraded the stock to a hold.

Morgan Stanley says:

“We believe there is a good tactical setup for Accor, with RevPAR (revenue per available room) data running ahead of FY23 consensus (+4%) and the sale of H World helping to address ongoing concerns over operational and strategic focus.”

— CNBC’s Michael Bloom contributed reporting.

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