European Stocks Mainly Positive Despite BP, Deutsche Bank Worries

LONDON (The Deal) -- European stocks were mainly in positive territory Tuesday as strong corporate news offset concerns about imminent U.S. and EU sanctions against key sectors of Russia's economy and ahead of a two-day Fed meeting starting today.

In London the FTSE 100 was up 0.24% at 6,804.26, while in Frankfurt the DAX added 0.02% to 9,599.64. In France the CAC 40 rose 0.9% to 4,383.74.

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U.K. clothing retailer Next (NXGPY) rose 2.61% to 6,690 pence in London after reporting a better-than-expected 10.7% rise in first-half Next brand sales, of which 2.4% came from the opening of profitable new stores. The company also raised its full-year sales and profit guidance. The company now forecasting 7% to 10% sales growth for the year, up from the 5.5% to 9.5% range it gave in April.

In Madrid, Ferrovial (FRRVY) gained 1.81% to 16.035 euros, a day after the Spanish construction company and 20% owner of London's Heathrow Airport posted a better-than-expected first-half net profit of 168.4 million euros, 41% below the previous year. EBTIDA rose 16% at Heathrow in the first half.

In London, BP (BP) was down 0.74% as concerns about Russia offset a better-than-expected second-quarter profit of $3.6 billion. The company also announced a dividend of 9.75 cents per ordinary share, in line with expectations.

As a 20% stakeholder in Russia's OAO Rosneft, BP stands to lose considerably should Washington and Brussels impose fresh sanctions on energy and other key sectors of Russia's economy over the Ukraine conflict.

In Paris, Renault slumped 4.2% to 66.55 euros, after the French automaker posted a negative 360 million euro automotive-unit cash flow in the first half, compared to a loss of 31 million euros a year ago.

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Speaking to journalists in Paris, Renault CFO Dominique Thormann predicted that the second half will be a "mixed bag of risks and opportunities," and further declines in emerging markets such as Brazil and Russia.

In Frankfurt, Deutsche Bank (DB) shed 11% after rising earlier in the day.

Europe's largest investment bank posted a better-than-expected pre-tax second-quarter profit of 917 million euros, 16% above last year, amid a 4% decline in non-interest expenses and lower provisions for credit losses. Income from trading debt and foreign exchange amounted to 1.83 billion euros, which was also above expectations.

In Zurich, UBS (UBS) was down 1.2%. Switzerland's largest lender posted a 15% rise in second-quarter profit to 792 million Swiss francs ($876 million) and said it settled a German cross-border tax dispute.

Asian indices rose. In Tokyo the Nikkei advanced 0.57% to 15,617, while in Hong Kong the Hang Seng rose 0.87% to 211.90.

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In Tokyo, Nissan Motor (NSANY) rose 1.85% to 1,020 Japanese yen, a day after it reported a 13% jump in first-quarter operating profit and a 10.4% rise in net revenue on "encouraging" demand for new products and improving market conditions in North America, China and Europe.

Later today all eyes will be on the U.S. as a two-day Federal Reserve monetary policy committee meeting kicks off and the latest economic indicators from the world's largest economy. The S&P/Case-Shiller home price index is expected to show that housing prices in 10 American cities rose at a lower pace in the year through May, while the July Conference Board report may show that consumer confidence rose to its highest level since January 2008.

TheStreet Ratings team rates UBS AG as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate UBS AG (UBS) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income and reasonable valuation levels. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • UBS AG has improved earnings per share by 14.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, UBS AG turned its bottom line around by earning $0.93 versus -$0.73 in the prior year. This year, the market expects an improvement in earnings ($1.16 versus $0.93).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Capital Markets industry average. The net income increased by 14.5% when compared to the same quarter one year prior, going from $1,041.10 million to $1,192.31 million.
  • 38.50% is the gross profit margin for UBS AG which we consider to be strong. Regardless of UBS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 11.95% trails the industry average.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Capital Markets industry and the overall market, UBS AG's return on equity is below that of both the industry average and the S&P 500.
  • In its most recent trading session, UBS has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.

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