Analysis: Boom in European bank earnings hints at a rally with legs

Some of the expectations for higher ECB rates have already translated into higher stock prices, but analysts flagged shares still look cheap compared to their historical average.

"A lot of the good news of how yields have gone up and the relief from no imminent recession is fully reflected in their prices," said Hani Redha, global multi-asset portfolio manager at PineBridge, which has $143.1 billion under management. But "this is a sector that has lagged for a long, long time, particularly in Europe... they are not necessarily that expensive on a secular basis," he added.

European bank shares are trading at just 0.73 times their price-to-book value, according to Refinitiv Datastream. This is below their 20-year average of closer to 1.0 and much cheaper than their U.S. peers, which are trading at around 1.1 times.With the ECB a bit behind the likes of the UK and U.S. central banks, which started raising rates months earlier, equity strategists said there is potential for further bank earnings upgrades in the region.

In the meantime, euro zone lenders' earnings per share have surged to their highest since the global financial crisis in 2008.

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