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No Holiday Gift From FedEx, But Some Analysts Still See Delivery Around The Corner

Dave Royse

FedEx Corporation (NYSE: FDX) shares dropped more than 10% Wednesday after the company's second-quarter earnings miss and fourth guidance cut this year.

Analysts acknowledged its dilemma in a changing delivery sector, but some saw FedEx's woes as having bottomed out, with a return to a package of better performance about to knock on the front door.

Analysts put the blame on FedEx's continuing struggles in the new world of e-commerce. Providing quicker shipping on more days is expensive, it turns out. FedEx acknowledged it underestimated the cost to expand to seven-day delivery and now is also dealing with Amazon.com, Inc. (NASDAQ: AMZN) as a competitor, rather than as a customer. It's also still trying to integrate acquired European courier TNT Express.

The Analysts

Morgan Stanley's Ravi Shanker kept an Equal-Weight rating on the stock but lowered the target price from $111 to $109.

Wells Fargo's Allison Poliniak-Cusic continues to have an Overweight rating on FedEx, but lowered the price target from $189 to $183 while lowering earnings estimates.

Bank of America analyst Ken Hoexter reiterated a Neutral stance while lowering the price target from $170 to $163.

KeyBanc's Todd Fowler reiterated a Sector Weight rating and lowered earnings estimates.

Raymond James analyst Patrick Tyler Brown reiterated an Outperform rating.

The Theses

Shanker summed up the consensus, attributing the miss to higher costs for increased service, lower yields and mix and price competition that comes with taking part in the e-commerce delivery boom.

"[E]xactly the negative flywheel of e-commerce that has underpinned our secular bear case on parcels since 2016," Shanker wrote in a note. The problems continue to point to a "long-term structural bear thesis," for FedEx and its competitor, United Parcel Service, Inc. (NYSE: UPS).

Bah Humbug

The earnings report was "no holiday gift from FDX," Poliniak-Cusic said.

View more earnings on FDX

"FDX once again took a knife to expectations," she noted, citing FedEx's lower revenue forecast that led her to lower the full year 2020 earnings estimate from $12 to $11. Ground shipping had headwinds from those higher expansion-related costs, and the loss of Amazon revenue.

But, "we ... continue to take the view that FY2020 earnings will be a likely bottom for FDX as the TNT integration moves behind them, international demand stabilizes or inflects higher when/if a trade agreement is finalized, and FDX grows into its recent investments," she wrote.

Other Reactions

FedEx still has "too many fires," Hoexter said, citing increased costs of seven-day delivery, the Amazon loss and the trade war overhang.

Still a "wait-and-see" approach and Fowler agreed margins are likely bottoming, but doesn't anticipate near-term normalization "given an unfavorable macro backdrop and elusive execution." More cost cutting and an improved trade outlook could change things.

Brown said there is light at the end of the tunnel. It's been a "hyper-frustrating" period for the shipper, he said, but noted management's optimism.

"We will keep a close eye on macro, service, and integration progress," he wrote.

Price Action

FedEx shares were down 10.13% to $146.69 at publication time.

Related Links:

New Chapter In Ugly FedEx-Amazon Divorce Puts Merchants In Middle

FedEx Hits "Bottom" In Fiscal 2020 Second Quarter 

Photo by Kevin McCoy/Wikimedia.

Latest Ratings for FDX

Date Firm Action From To
Dec 2019 Maintains Equal-Weight
Dec 2019 Maintains Outperform
Dec 2019 Maintains Neutral

View More Analyst Ratings for FDX
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