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Morgan Stanley reveals its 8 favorite stocks ahead of European earnings season

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

Bing Guan | Bloomberg | Getty Images

Morgan Stanley named eight stocks to buy ahead of the highly anticipated earnings season in Europe.

Stocks in the region have risen this year on early signs of easing inflation in Europe. However, the effects of slowing growth and the war in Ukraine remain key concerns for investors.

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

Morgan Stanley’s 8 European Stock Picks

Company Ticker Date of profit Currency Share price Target price Advantage (%)
Universal music group UMG-AMS March 2 euro 23.43 35.00 49.38
TV show TEP-PAR February 23 euro 252.10 320.00 26.93
SCOR SCR-PAR 09-Feb euro 23.83 30.00 25.89
Alice S.A ELLIS PARK March 2 euro 15.75 18.80 19.37
Sartorius STO-ETR January 26 euro 350.50 415.00 18.40
Acr AC-PAR March 8 euro 29.19 34.00 16.48
SAP SAP-ETR March 1 euro 106.58 123.00 15.41
Group Compass KPG-LON January 26 GBP 19.32 22.00 13.90

Source: Morgan Stanley, January 20

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

Universal Music Group – music distribution

UMG 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 rally to earnings, which should take place in early March. We believe consensus forecasts for subscription and streaming revenue and margin growth in 2023 are too low, and believe that FY22 earnings will be the catalyst for investors to re-evaluate both metrics.”

Teleperformance – Outsourced customer service

TV show 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 the company’s TikTok videos. Its own internal audit revealed no significant adverse findings.

Morgan Stanley says:

“Teleperformance’s stock has been under scrutiny since November after a flurry of negative news about content moderation in Colombia erupted. We continue to maintain that these risks were overstated and that Teleperformance remains a well-run organization. More importantly, none of this news changes the company’s underlying growth and earnings profile.”

Elis – outsourced laundry services

Elida beat market expectations in the third quarter on revenue and said there was no slowdown in demand in the 29 countries in which it operates. Following a sharp rise in energy costs over the summer, Elis also said it had agreed a price increase with customers that will start between October 2022 and January 2023.

Morgan Stanley says:

“Elis offers sustainable GDP+ growth over the cycle, which is expected to be structurally higher post-Covid (driven by increased demand for hygiene, reliability, accountability and ESG).”

Accor is a French hotel company

Acr is implementing what it calls an “asset light” strategy to simplify its balance sheet. Last week, it sold a stake in China’s H World Hotels for $460 million, reducing its net debt. After the asset disposal, Barclays Research Group upgraded the stock to hold.

Morgan Stanley says:

“We believe there is a good tactical setup for Accor with RevPAR [revenue per available room] The data is ahead of consensus for FY23 (+4%) and the sale of H World, which helps to address issues related to operational and strategic focus.”

— CNBC’s Michael Bloom contributed to this report.

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