Earnings Growth Rates Will Decline In 2024
When I look at Technology company earnings estimates for 2024 they appear too bullish. 2024 EPS growth rates will decline. For many companies EPS will go negative on an absolute basis (2024 EPS as compared to 2023). Here are some reasons why:
Revenue growth will decline: Revenue growth will decline for many Technology companies as the U.S. moves further into recession. Lower topline growth means lower EPS growth all else held equal.
OpEx: I expect many Technology companies to reduce headcount in Q4 2023 and January 2024. This will help boost Operating Margins. However, other than reductions in force (RIFs), I don’t see OpEx declining for most Technology companies in 2024 compared to 2023. In fact, most input costs will likely increase – including wages.
Interest Expense: 2024 interest expense will be higher for most debt-carrying companies versus 2023 as lower rate debt rolls over at higher rates. This assumes the Fed will not take rates to 0-2% in 2024.
Credit: Banks will continue to tighten under new capital requirements. Consumer credit balances are up because consumers are dipping into credit to live, not because they are flush with cash.
Lack of Economic Stimulus: Treasury Secretary Janet Yellen is no longer drawing down Treasury’s General Account to stimulate the U.S. economy to the tune of $1.7 Trillion. Student Loan Debt is due this month. The ERC is winding down. In the aggregate this means that the consumer will be spending less on discretionary items.
Further, one can’t assume that 2025 will be an “up” year for earnings. 2023 has looked a lot like 2007 before the economy collapsed in 2008. 2009 was not a recovery year for earnings. In fact, 2009 was worse. Earnings started to recover in 2010 and probably hit their full stride sometime in the 2011-2012 timeframe as I think about my former Technology coverage universe. We are in the early innings of a pronounced economic recession.