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It is best for companies to be conservative with their Q4 and 2023 outlook on EPS calls.
- We are 1/6 through Q4 and Technology companies have to be seeing weaker demand today versus 3 and 6 months ago.
- Enterprise Technology companies are likely seeing deals of all sizes get pushed back in the pipeline – particularly large deals – as corporate buyers take a cautious approach given the uncertain macro environment.
- Keep an eye on Technology companies with significant debt positions. It is one thing to have had comfortable debt coverage ratios 12 months ago when Treasury rates were near zero. It is a different ballgame today as many companies will be required to rollover debt at much higher interest rates. As interest expense climbs, companies will have less capital to reinvest in the business and to distribute to shareholders.
- The combination of higher debt expense, lower macro demand and a strong Dollar is not a recipe for earnings growth. In fact, it is quite the opposite as earnings are under significant pressure.
- It is best for companies to take a cautious approach to Q4 and 2023 guidance for these reasons.