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".
