FedEx Rocked by Earnings, But Some Analysts Remain Bullish

No one likes a horrendous earnings surprise.

But that’s what FedEx shareholders were given late last night.

Last checked, shares are down more than $18 a share after an earnings miss on trade worries, and the loss of Amazon.com as a customer.  

Adjusted EPS came in at $3.05, as compared to estimates for $3.15.  Revenue of $17.05 billion slightly missed expectations for $17.06 billion.  

“Our performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty,” CEO Frederick Smith said, as quoted by CNBC. “Despite these challenges, we are positioning FedEx to leverage future growth opportunities as we continue the integration of TNT Express, enhance FedEx Ground residential delivery capabilities and modernize the FedEx Express air fleet and hub operations.”

Then it made things worse, reducing full-year guidance for 2020 to $10 to $12 per diluted share.  Not helping, FedEx dumped Amazon.com from air cargo service back in June 2019, noting they would not renew the U.S. contract with Amazon.  All as the two began to compete more directly with delivery logistics.  

In addition, the company will be hiking rates again.

According to Reuters, FedEx rates will increase at an average rate of 4.9% for domestic, export, and import services starting January 6, 2020.

Here’s what analysts are saying

“That escalated quickly,” said Citigroup, as quoted by Barron’s.

“Clearly the macro has decelerated in Europe and trade issues are having a building negative impact on Express,” FedEx’s overnight shipping business. Still, the firm rates FDX a Buy and maintained a price target of $180 for the stock. 

Stifel analysts downgraded the stock from Buy to Hold with a new target of $171 a share.

“We are stepping to the sidelines with a Hold rating, as the shares are back to the low-end of the trading range in a downward trend,” they said. “If all goes well, the stock could be at $180 again next year. If not, there is still downside to the shares, so we will wait to see more favorable risk/return before getting interested again.”

Cowen analysts still rates FDX a buy as well with a $190 price target.

“We believe earnings should recover in [fiscal year 2021], and would obviously improve sooner if there were a trade deal between the US and China,” they said.  “Another concern is the potential for increased tariffs with the EU as the US earlier this week won a trade dispute at the World Trade Organization over subsidies to Airbus.”

Keep an eye on FDX.  It may soon be a “blood in the streets” opportunity after pulling back.

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