Why Macquarie warns consensus earnings growth for ASX 300 shares in FY23 is ‘optimistic’

A young woman looks at something on her laptop, wondering what will come next.A young woman looks at something on her laptop, wondering what will come next.

Top broker Macquarie says the consensus for 10% earnings per share (EPS) growth for S&P/ASX 300 Index (ASX: XKO) shares “looks optimistic”.

Not only that, but a 10% fall seems more likely based on the past three recessions in the United States.

According to reporting in The Australian today, Macquarie’s Australian equity strategist, Matthew Brooks says the 2H FY22 results in the upcoming earnings season may surpass expectations.

He says this is based on US results beating expectations so far, as well as Australian companies reporting good overall conditions.

But he reckons there is risk in the next financial year due to macroeconomic issues like rising interest rates. Therefore, he questions whether the ASX 300 earnings consensus estimate is possible.

FY22 is fine but the risks lie in FY23

Brooks foresees the US Federal Reserve and Reserve Bank of Australia continuing to raise interest rates to slow demand and bring inflation under control.

Meanwhile, disruptions caused by COVID-19 continue to bring down productivity around the world.

Brooks said he expects to see free cash flow pressured by rising costs, higher interest expenses, and higher working capital.

ASX 300 companies might get conservative with guidance

In such circumstances, Brooks reckons companies are more likely to be conservative with their guidance.

With the earnings season almost upon us, Brooks says some companies “may limit their forward looking comments until we get into AGM season.”

Brooks said: “While negative EPS revisions picked up in June – to minus 27% – and July (to minus 25%), this is still half the EPS downgrades seen near a trough.”

A “sustainable low” in the market “requires a trough in the cycle or a shift to easing by central banks”.

The post Why Macquarie warns consensus earnings growth for ASX 300 shares in FY23 is ‘optimistic’ appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has positions in Macquarie Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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