European stocks rallied for a third consecutive week as companies from Bayer AG to Banco Bilbao Vizcaya Argentaria SA and BT Group PLC reported earnings that beat analysts’ estimates.
Bayer, Germany’ largest drugmaker, rose 7.2 percent after cost cuts at its plastic unit helped second-quarter profit.
BBVA, Spain’s second-biggest lender, climbed 15 percent, while and Akzo Nobel NV advanced more than 9 percent.
About 60 companies posted better-than-projected net income this week, according to Bloomberg data.
The STOXX 600 added 2.4 percent to 224.91, near the highest level since November, as all 19 industry groups increased except oil and gas companies. The benchmark index for European equities climbed 9.3 percent last month, bringing the rebound from a 12-year low on March 9 to 42 percent.
“While companies’ sales show the crisis is here, they have managed to cut costs and help income in a quick and preventive way,” said Juan Carlos Acitores, who helps oversee about US$20 billion at Ahorro Corporacion Gestion in Madrid.
“Since the fear of a 1930s-style recession is behind us, it does not pay to have your money in the bank while some stocks pay several times more in dividends,” Acitores said.
Earnings at more than half of STOXX 600 companies that have reported results since July 8 beat predictions, according to Bloomberg data, with profits shrinking 33 percent on average. Net income exceeded estimates by an average of 22 percent, while sales were almost in line with projections, exceeding them by 0.9 percent. For the full year, analysts expect 7.1 percent profit growth, estimates compiled by Bloomberg show.
The three-week rally has pushed valuations in the STOXX 600 to about 33 times its companies’ past earnings, the highest level since January 2004, according to Bloomberg data. This compares with a valuation of 14.2 times projected profits.
National benchmark indexes rose in all 18 western European markets this week, except Ireland. Germany’s DAX gained 2 percent, while France’s CAC 40 climbed 1.8 percent. The UK’s FTSE 100 added 0.7 percent.
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