UBS sees upside risks for its STOXX Europe 600 price target

Investing.com -- UBS said it sees upside risks for its STOXX Europe 600 target, pointing to improving forward indicators and resilient valuations even as earnings forecasts remain weak. The brokerage maintained its price target for the index at 550 for 2025, flat from current levels, and 590 for 2026, a 7% increase. 

But in its latest European equity strategy note, it added, “Our SXXP price target is 550 for ’25 (0%) and 590 for ’26 (+7%), with upside to both as forward indicators begin to improve earlier than we thought.”

The brokerage said the outlook is supported by a broadening economic recovery across Europe. The OECD composite leading indicator continues to rise in its expansion phase, which UBS described as “reliably positive for European equities.” 

It also highlighted momentum in new orders, noting the equity-weighted index has climbed to 52, “around the highest level since the energy crisis began in 2022.” 

The brokerage said the rise was “most significant and to levels above 50 for construction materials, industrial goods, machinery, and banks—all likely beneficiaries of fiscal stimulus and growth drivers in Europe in the coming years.”

Earnings expectations remain subdued for the near term. For 2025, UBS projects 1.5% sales growth and flat earnings growth for the index. “SXXP 2025 sales growth (1.5%) and earnings growth (0%) estimates continue to decline,” the brokerage stated. 

But it added that forward-looking estimates “have troughed just below 0%, and we think will now start to rise as the more sticky 2H26 EPS growth expectations increasingly dominate the forward window.”

Sector trends are uneven. Upgrades are concentrated in transportation, telecoms and capital goods, while downgrades persist for luxury, autos, semiconductors and healthcare equipment. 

UBS said weakness is “concentrated in tariff/FX sensitive sectors” and that exporters remain under pressure from a stronger euro and U.S. tariffs.

Valuations offer further support to the market outlook. The STOXX Europe 600 trades at roughly 14.5 times forward earnings, and UBS said that gap with discount rates has now closed. 

“Considering that we do think growth will rise in 2026, there is room for the valuation to begin to expand again now,” the brokerage said. It added, “The SXXP forward PE is around 14.5x…there is room for the valuation to begin to expand again now”.

Positioning also leaves scope for gains, with UBS noting that “positioning in Europe remains quite light” and that net inflows could lift preferred sectors such as banks, utilities, industrials and telecoms.

According to UBS, even though near-term earnings are constrained, strong order growth, easing valuation pressure, and light investor positioning should allow the index to outperform its current direction.