Recovery in Europe is fragile, and total economic growth could be weak for years. Even Japan, a longtime basket case, is growing faster. The potential stumbling blocks for Europe are many, as witnessed most recently by banking troubles in Cyprus, political paralysis in Italy, and the threatened collapse of Portugal’s government. But policy makers have shown an ability to control such flare-ups, and the risks of a Eurozone debt implosion have been greatly reduced. Germany, has been among the stronger economies over the past few years. And many expect the country to take a more active role in sustaining the Euro-Zone after German elections take place in a few months from now.
The improvement in Europe’s outlook represents a significant turning point for equity investors.
Morgan Stanley (NYSE:MS) in a report on European Equity Strategy noted Country Consensus Valuations and Country Consensus Margin, Leverage and Growth Expectations:
Europe consensus valuations: Germany at discount
According to the chart below, MSCI Europe trades at a Forward P/E ratio of 11.4 times and it trades at a book value of 1.45 times with dividend yield of 4.1%.
Germany, France and the U.K are trading at a discount to MSCI Europe and Sweden, Switzerland and Denmark trading at a premium to MSCI Europe. Moreover, despite Germany being considered one of the strongest European economies, the country trades at a discount to MSCI Europe in terms of P/E, P/B, FCF, EV/EBITDA, P/S.
Portugal has the highest Net Debt/Equity ratio followed by Spain and Italy. Switzerland has the lowest Net Debt/Equity ratio followed by Ireland and Germany.
Greece is strongest in sales growth (3 year CAGR) followed by Switzerland and Denmark. Belgium showing weakest sales growth. France is showing better EPS growth rate than Germany (3 year CAGR). Finland has the highest DPS Growth (3 year CAGR) followed by Switzerland and the Netherlands. Greece and Ireland has lowest DPS Growth.
Sweden, Switzerland, U.K , Norway, Greece, Denmark are showing better ROE return than MSCI Europe.