SKN | UBS Sees Further Upside in European Earnings as Profit Recovery Broadens Into 2026

Key Takeaways:

• UBS maintains a positive outlook on European equities after third-quarter results reinforced its assessment that the region’s earnings recovery remains on track.
• According to UBS, reported corporate earnings have increased approximately 24% year over year, or around 10% excluding energy, with the proportion of companies beating estimates above its historical average.
• The bank favors beneficiaries of cyclical recovery and structural investment, while warning that higher discount-rate assumptions could offset part of the benefit from stronger earnings at index level.

UBS sees the possibility that European corporate earnings will outperform its existing 2026 growth expectations, following a third-quarter reporting season that has strengthened the bank’s confidence in the region’s profit recovery. The assessment, led by Matthew Gilman, head of European equity strategy at UBS’s Chief Investment Office, points to improving revenues, recovering margins and a broader base of corporate earnings growth. For investors with international portfolios, the bank’s latest position provides an important indication of where it sees resilience and potential opportunity across European markets.

UBS Identifies Stronger Earnings Momentum Across Europe

UBS highlighted that earnings among companies reporting third-quarter results had risen approximately 24% year over year, with more than half of companies having reported. Excluding the energy sector, earnings growth stood at approximately 10%. The proportion of companies exceeding analysts’ estimates was also above average.

Gilman identified three developments supporting the bank’s assessment: accelerating revenue growth, continued margin recovery and earnings upgrades progressing faster than the usual seasonal pattern. This combination matters because it suggests that corporate profitability is benefiting not only from cost discipline but also from improving business activity.

UBS also emphasized that the recovery is becoming less dependent on a narrow group of companies. Investment demand associated with artificial intelligence, electrification and defence remains an important growth engine, while improving sales volumes are beginning to support businesses that experienced several difficult years.

UBS Positions Its Outlook Around Cyclical and Structural Opportunities

The bank’s analysis identifies a more balanced earnings environment, although the recovery remains uneven. Financial-sector results have been less impressive than in recent quarters, which UBS largely interprets as normalization following a particularly strong period. Consumer demand also remains inconsistent.

Nevertheless, UBS sees potential in cyclical companies. European cyclical stocks have underperformed defensive shares by approximately 17% since mid-June. Gilman believes much of that relative weakness may already have occurred, particularly given the continued resilience of their earnings outlook.

Within European equities, UBS favors sectors positioned to benefit from cyclical recovery and structural investment. These include banks, information technology, industrials, consumer discretionary and healthcare. The bank also identifies Germany, European market leaders, Swiss mid-cap companies and selective consumer exposure through its Luxury and Lifestyles theme as areas of interest.

Why UBS Still Sees a Valuation Constraint

Despite its constructive earnings assessment, UBS does not suggest that stronger profits will automatically translate into equivalent equity-market gains. Gilman noted that higher earnings could be substantially offset at index level by increased discount-rate assumptions.

This distinction is particularly relevant for investors managing wealth across multiple currencies and jurisdictions. Corporate earnings, market valuations and financing conditions do not move in isolation. Even a broadening recovery can produce uneven investment outcomes when financial conditions become less supportive.

Looking ahead, UBS will be watching whether revenue growth, margin improvement and earnings upgrades continue beyond the third-quarter reporting season. The durability of investment demand and the performance of cyclical sectors will help determine whether the bank’s anticipated upside materializes. For internationally diversified portfolios, the central message is measured: Europe’s earnings recovery is gaining breadth, but valuation and interest-rate conditions remain essential considerations.

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