Goldman Sachs, in its latest European equity strategy report, points out that market expectations for improved profit margins in European companies over the next two years may be overly optimistic.
For companies in the Stoxx 600 excluding the financial and commodities sectors, the market consensus expects net profit margins to rise from approximately 8.7% in 2026 to 10.1% in 2028, an expansion of approximately 140 basis points. Goldman Sachs, however, expects profit margins to remain largely stable during the same period, with the 2026 level of approximately 8.7% already close to historical highs.
Goldman Sachs believes that further improvements in corporate profit margins will primarily depend on accelerated economic growth and increased capacity utilization. However, the bank anticipates that global growth momentum will remain moderate, and European companies' pricing power may weaken as demand slows. Persistently high energy costs and refinancing expenses will increase pressure on profit margins. Productivity gains from AI may provide additional support, but some efficiency benefits are expected to be passed on to consumers through market competition.
This divergence is already reflected in earnings forecasts.
Goldman Sachs projects that European companies, excluding the financial and commodities sectors, will see earnings per share (EPS) grow by 6.5% in 2027, significantly lower than the market consensus of 12.6%. The bank's overall 2027 EPS growth forecast for the Stoxx 600 is approximately 7%, lower than the market expectation of around 9%. If corporate profit margins fail to continue expanding, earnings forecasts for the next two years may face downward revision pressure.
