Case Study on Fedex (FDX) with Nobias technology
Summary
FedEx pre-announced earnings on Friday, lowering full-year estimates on the top and bottom lines, causing its shares to fall by 21.4%.
Management highlighted cost saving measures that they plan to take to combat the macro headwinds that they’re experiencing.
Despite the stocks recent weakness, credible analysts remain bullish on shares, with an average price target that implies upside potential of approximately 40%.
FedEx shares had their worst trading day in decades on Friday, falling 21.40% in response to a preliminary earnings update which disappointed Wall Street. Jon Hopkins, a Nobias 4-star rated author, covered the report in an article published at proactiveinvestors.com. He wrote, “FedEx Corp has pulled the full-year financial guidance it issued just three months ago after forecasting below-forecast first-quarter revenue and profit as a global demand slowdown accelerates.”
FDX Sep 2022
Hopkins continued, “FedEx noted that it expects to report revenue of $23.2 billion for the first quarter, missing analysts' expectations of $23.59 billion, while adjusted earnings are expected to be $3.44 per share, well below estimates of $5.14.”
To help combat rising costs, Hopkins noted that FedEx, “said it was cutting costs including shutting some FedEx Office locations, reducing labor hours and consolidating some sorting facilities.” He also quoted senior management who touched upon near-term turnaround plans.
Hopkins wrote, “FedEx's new chief executive officer, Raj Subramaniam said in a statement: “Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the US. We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first-quarter results are below our expectations."’
STAT Times, a Nobias 5-star rated author, also published a report Friday which highlighted FedEx’s precipitous sell--off. The author noted the disappointing fundamental guidance and then went on to say that management “announced closure of over 90 office locations, cancellation of planned network capacity and deferral of staff hiring.”
Regarding operational segment performance from the preliminary earnings report, STAT Times said, “FedEx Express reported revenue of $11.1 billion and operating income of $174 million. While FedEx Ground clocked $8.2 billion revenue, FedEx Freight logged revenue of $2.7 billion.”
The author quoted FedEx’s press release which highlighted specific weakness brought upon by the challenging macro environment. STAT Times said that “according to an official statement…FedEx Express results were particularly impacted by macroeconomic weakness in Asia and service challenges in Europe, leading to a revenue shortfall in this segment of approximately $500 million relative to company forecasts. FedEx Ground revenue was approximately $300 million below company forecasts."
STAT times said that the company has reduced capital spending guidance from “$500 million to $6.3 billion.” However, they highlighted good news on the shareholder returns front, stating, “The company has reaffirmed plans to repurchase $1.5 billion stock in 2023.”
Jonathan Chappell of Evercore ISI, a Nobias 4-star rated analyst, also published a research note on FDX shares Friday. He said that because of the vague statements provided by management on the cost cutting measures, their exact time tables, and ultimately, their expected impacts on long-term performance, it is going to be “difficult” to model performance out past Q2.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
With this uncertainty in mind, Chappell lowered his price target on FDX shares from $318.00 to $247.00. Chappell called the stock a “Tactical Underperform” in today’s environment; however, he maintained his long-term “Outperform” rating.
Although 50% of recent articles published on FedEx by credible authors (only individuals with 4 and 5-star Nobias ratings) have expressed a “Neutral” sentiment, the majority of credible Wall Street analysts that Nobias tracks remain bullish on shares.
Right now, the average price target that these analysts place upon FDX shares is approx. $200. This is below the stock’s fairly tight trading range in the $200-$240 area since April of 2022. However, the stock’s recent sell-off sent shares plummeting through support.
It’s certainly possible to see more downgrades like Chappells in the coming days and/or weeks which would move the average price target lower; however, for the being being, it represents significant upside potential. The current average price target being applied to shares implies upside potential of approximately around than 40%.
Disclosure: Nicholas Ward has no FDX position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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