Investing.com -- Barclays (LON:BARC) has raised its earnings per share (EPS) forecast for Europe and increased its price target for the Stoxx 600, citing a more positive long-term growth outlook driven by German fiscal reforms.
The investment bank raised its 2026 earnings per share (EPS) forecast to 8% from 4%, while its Stoxx 600 price objective was lifted to 580 from 545. Despite acknowledging the risks of tariffs and slowing U.S. growth, Barclays maintained its below-consensus EPS forecast of 4% for 2025.
“The upgrade to our 2026 number reflects that it will take time for the positive European growth impetus to materialize in earnings, plus there should be less tariff risk by the time we are working through 2026,” strategists led by Emmanuel Cau noted.
Barclays did not adjust its year-end 2025 price-to-earnings (P/E) forecast of 14.5x, which already reflects increased optimism around growth but remains subject to short-term uncertainties regarding tariffs and growth.
In addition to the Stoxx 600, Barclays also increased its targets for the FTSE 100 and Euro Stoxx 50 indices to 8,900 and 585, respectively.
The strategists suggest that although European equities are not immune to a potential growth scare, they may fare relatively better compared to U.S. equities in such a scenario.
“We believe that EU equities can hold relatively well this time, as positioning unwind and valuation normalization may be more pronounced in the U.S. in the event of a downturn,” they explained.
Factors such as trade barriers, policy uncertainty, and a possible rebalancing of investments from the U.S. to Europe could support European stocks, alongside progress in Ukraine and optimism regarding China.
After a strong start to the year driven by fast money inflows, European valuations have returned to fair value. Real money flows are beginning to pick up, but concerns over weaker U.S. growth and high inflation, potentially exacerbated by Trump’s policies, have reignited stagflation fears.
Tariff risks also pose a near-term headwind, with the April 2 deadline approaching.
According to Barclays, a worst-case scenario of a 25% blanket tariff could erase much of Europe’s expected growth this year, though the direct earnings impact would be limited, as U.S. goods exports account for only about 12% of Stoxx 600 revenues.
“And, with tariff losers underperforming notably year-to-date, some of the risks are arguably priced in,” the investment bank added.
Barclays maintains an overweight stance on Germany, the MDAX, and value stocks in Europe.
Sector-wise, Financials and Industrials are seen as the largest and most liquid sectors used by investors to get into EU equities, but strategists caution that much of the upside may already be priced in.