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FedEx Grapples With TNT Express Cyberattack: Time to Dump?

Zacks Equity Research

On Nov 27, we issued an updated research report on FedEx Corporation FDX. The stock has been downgraded to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold). Going by the Zacks proven model, the Sell-rated stocks (#4 or 5) are likely to underperform the broader market over the next one-three months.

Reasons Behind the Downgrade

FedEx’s operations have been severely hurt by the Jun 27 cyberattack on its subsidiary, TNT Express. The attack caused large-scale service delays on its TNT Express unit. Evidently, the company’s top line in first-quarter fiscal 2018 was affected, primarily due to decreased volumes at TNT Express. First-quarter results were also hampered by Hurricane Harvey. In fact, the company incurred costs of approximately $300 million during the quarter due to the catastrophe.

What is even worse is that the situation is not likely to reverse in the near future. As a result, the company has lowered its guidance for fiscal 2018. It now expects earnings in the band of $11.05-$11.85 per share, excluding year-end MTM pension accounting adjustments. Previous outlook had called for a rise of $13.20-$14 in the metric.

Additionally, high costs pertaining to investments in the company’s Ground unit may also limit the bottom-line growth in the second quarter of fiscal 2018. Results of the same period are expected to be out on Dec 19. Moreover, the company’s efforts to meet growing customer demand during the holiday season are further escalating costs. FedEx’s high-leverage ratio is another cause for concern.

Further, recent reports of Amazon AMZN testing new waters with a business-to-consumer delivery service are another challenge to the company. With Amazon starting its own delivery service, competition for the company is likely to intensify.

Negative sentiments surrounding the stock can also be gauged from the Zacks Consensus Estimate for earnings of fiscal second quarter being revised 0.7% downward in the last 30 days.

FedEx Corporation Price and Consensus

 

FedEx Corporation Price and Consensus | FedEx Corporation Quote

 

Stocks to Consider

Some better-ranked stocks in the broader Transportation sector are Gol Linhas Aereas Inteligentes S.A. GOL and International Consolidated Airlines Group SA ICAGY, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Gol Linhas and Deutsche Lufthansa have soared more than 100% in a year.

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Gol Linhas Aereas Inteligentes S.A. (GOL) : Free Stock Analysis Report
 
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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
FedEx Corporation (FDX) : Free Stock Analysis Report
 
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