Which European companies will benefit the most from a stronger dollar?!
As the euro falls to its weakest level against the dollar in more than a year, buoyed by Donald Trump's presidential victory, some European companies may find themselves poised for windfall profits. Trump's victory, combined with Republican control of Congress, has paved the way for a possible policy overhaul: higher tariffs, increased defense spending and a reassessment of foreign aid, all of which are sending ripples through markets. global.
In this changing economic landscape, Bank of America has highlighted a select group of European companies uniquely positioned to benefit from a stronger dollar. These firms offer European investors a hedge against euro weakness and a buffer against the uncertainties of Trump-era policy changes.
Who benefits and why?
European companies that derive a significant portion of their revenue from the United States but maintain relatively low asset exposure to North America tend to perform well when the dollar strengthens. This revenue-asset imbalance allows these companies to enjoy increased North American sales revenue while minimizing exposure to dollar-based cost increases in assets.
A stronger dollar increases the value of US-generated revenue when translated into euros, directly boosting profits for European companies with significant North American sales. This provides an increase in profits without requiring adjustments to prices or production levels.
On the other hand, the low exposure of tangible assets in the US helps to reduce the operational cost risks associated with the appreciation of the dollar. Companies with leaner operations in the United States can focus on generating higher revenues without the burden of increased costs such as real estate, wages or regulatory expenses that can erode profitability.
In contrast, companies with significant asset exposure to the United States face increased sensitivity to dollar-based costs. Ultimately, European companies with a more balanced or minimal active footprint in the United States can sidestep these challenges, focusing instead on reaping the rewards of higher dollar-denominated earnings.
In a report published Thursday, Bank of America quantitative strategist Paulina Strzelinska examined a group of European companies positioned to take advantage of the dollar's strength. These companies, identified for their high revenue exposure to North America and minimal tangible assets in the region, are well suited to capture the advantages of currency gains without incurring significant dollar-based operational costs.
Major European beneficiaries of a stronger greenback
· Novo Nordisk: This Danish pharmaceutical giant tops the list with 59% of its revenue sourced from North America and no tangible assets there. The company is well hedged against dollar-based operational costs and will benefit from currency conversion gains.
· British American Tobacco: BAT secures second place with 44% of its sales in North America and no physical assets in the region, enabling it to capitalize on the strong dollar without dollar cost pressures.
· Ferrovial: The Spanish infrastructure firm derives 36% of its revenue from North America, with zero tangible assets in the region, making it highly vulnerable to dollar gains without exposure to asset-related costs.
· Beiersdorf: Known for brands like Nivea, this German company generates 26% of its revenue in North America, but has no physical assets in the United States.
· Kongsberg: The Norwegian defense and marine technology firm earns 24% of its revenue from the US but holds only 3% of its assets there.
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