Case Study: What Credible analysts are saying on Fedex (FDX) stock
Key Points
Performance
FedEx (FDX) shares have risen by 2.56% this week. However, on a year-to-date basis, they’re still down by 31.96%. This compares poorly to the S&P 500, which is down by 19.84% during 2022 thus far.
Event & Impact
FedEx posted its second quarter earnings this week, beating Wall Street’s estimates on the bottom line, but missing consensus revenue estimates. Persistent macroeconomic headwinds continue to hurt the company’s international air freight business, which posted -64% volume growth during the quarter.
Noteworthy News:
FedEx’s Q2 revenue came in at $22.8 billion, representing -3.0% year-over-year growth, missing consensus estimates by $920 million. During the second quarter, FedEx posted $3.18 in non-GAAP earnings-per-share which was $0.36/share above Wall Street estimates.
Nobias Insights
55% of recent articles published by credible authors focused on FDX shares offer a “Neutral” bias. However, 5 out of the 7 credible credible Wall Street analysts who cover FedEx believe shares are likely to rise in value. The average price target being applied to FDX by these credible analysts is $198.57, which implies 12.2% upside potential compared to the stock’s current price of $176.95.
Bullish Take Bascome Majors of Susquehanna, a Nobias 4-star rated analyst, said: “Its results and outlook more convincingly support a cycle EPS floor of at least $13.00, with investor focus gradually shifting from downside risk to cyclical opportunity deeper into 2023.”
Bearish Take Mark Solomon, a Nobias 4-star rated author, said, “FedEx Express’ operating income plummeted to $186 million from $660 million in the fiscal 2022 first quarter.”
FDX Dec 2022
FedEx (FDX), a global leader in the logistics space, posted fiscal 2023 second quarter earnings this week. The company missed Wall Street consensus estimates on the top-line, but beat analyst estimates on the bottom-line. The company also provided an update on full-year earnings-per-share guidance, ultimately causing its stock to rally by 2.56% this week. However, even after this short-term share price bump, FDX shares are down by 31.96% on a year-to-date basis.
Credible authors tracked by the Nobias algorithm are “Neutral” on FDX shares moving forward; however, the credible analysts community sees double digit upside potential. Mark Solomon, a Nobias 4-star rated author, published a report at Freight Waves this week, breaking down FedEx’s recent quarterly results.
Bullish Nobias Credible Analysts Opinions:
Solomon said, “FedEx reported adjusted diluted earnings per share of $3.18, coming in above consensus estimates of $2.77. However, revenue came in about $700 million below the lower end of the company’s target range at $22.8 billion. It was als below the $23.5 billion revenue level in its fiscal 2022 second quarter.”
Looking at the company’s bottom-line, he said, “Adjusted operating income came in at $1.21 billion, down from $1.68 billion in the year-earlier quarter. Operating margin fell markedly to 5.3% from 7.1%. Net income dropped to $815 million from $1.3 billion.” He noted that FedEx Express, the company’s international air freight segment, continued to struggle, “especially out of Asia”, due to broader economic slowdowns in the region.
Regarding FedEx Express, Solomon wrote, “Operating income at the unit dropped 64% year over year (y/y) due to lower global volumes. Yield per-package rose 8% y/y.” He also said, “FedEx Express’ operating income plummeted to $186 million from $660 million in the fiscal 2022 first quarter.”
Solomon also mentioned that FedEx management said that they don’t expect a near-term rebound, largely due to persistent macroeconomic headwinds. Solomon continued, “In the second quarter, FedEx Ground, FedEx’s U.S. ground-delivery unit, posted a 24% year-on-year gain in operating income, primarily due to a 13% increase in package yields and cost-reduction actions.” And lastly, he said, “FedEx Freight, the company’s less-than-truckload unit, posted a 32% year-on-year gain in operating income due largely to an 18% increase in shipment yields.”
In an effort to combat inflationary pressures, Solomon said that FedEx is focused on cutting costs to bolster its bottom-line moving forward. He wrote, “FedEx said it identified an additional $1 billion in cost savings following a September announcement that it would shave $2.7 billion in expenses in the current fiscal year.”
“As a result,” Solomon said, “the company expects to cut $3.7 billion in costs for the fiscal year. It also said it would cut capital spending for the fiscal year by $400 million to $5.9 billion.” STAT Times, a Nobias 5-star rated author, also covered FedEx’s Q3 report, publishing a post-earnings article at Stattimes.com this week.
The author stated, “Revenue declined 3 percent to $22.8 billion and net operating margin was down to 5.2 percent from 6.8 percent in the same period last year.” They also put a spotlight on FedEx’s forward outlook, writing, “FedEx is expecting earnings per diluted share of $13-$14 before MTM retirement plans accounting adjustments and excluding estimated costs related to business optimisation initiatives and business realignment activities. Capital spending is likely to decline to $5.9 billion, down from the prior forecast of $6.3 billion.”
Regarding future guidance, STAT Times quoted Michael C. Lenz, FDX’s executive vice president and chief financial officer, who said, "Our teams have an unwavering focus on rapidly implementing cost savings to improve profitability. As we look to the second half of our fiscal year, we are accelerating our progress on cost actions, helping to offset continued global volume softness." And in general, it appears that the market is bullish on this commentary, because FDX shares have rallied by 2.8% this week.
Bearish Nobias Credible Analysts Opinions:
Although the market is bullish, we’ve seen differentiating viewpoints published by credible authors regarding FDX shares this week. Theflyonthewall.com reported that Jonathan Chappell of Evercore ISI, who is a Nobias 4-star rated analyst, “lowered the firm's price target on FedEx to $196 from $202 and keeps an Outperform rating on the shares.”
Theflyonthewall continued, “As he contemplates a slower volume recovery and a material slowing of yield expansion offsetting much of the new cost targets, he is lowering his FY23 and FY24 EPS estimates to $13.85 and $17.00, respectively.”
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.
Yet, 2 credible Nobias analysts, Bascome Majors of Susquehanna and Thomas Wadewitz of UBS, both 4-star rated Nobias analysts, raised their price targets for FDX shares in response to the company’s recent report. Majors raised Susquehanna’s price target from $165.00 to $170.00 and Wadewitz raised UBS’s price target from $215.00 to $225.00.
Theflyonthewall reported that Majors “said its results and outlook more convincingly support a cycle EPS floor of at least $13.00, with investor focus gradually shifting from downside risk to cyclical opportunity deeper into 2023.” Theflyonthewall also highlighted Wadewitz’s analyst note, noting that the analyst said, “The stabilization in Q2 EPS and full year guidance indicate FY23 is likely to be a trough for EPS, which should be supportive of the stock”.
Overall bias of Nobias Credible Analysts and Bloggers:
Overall, 50% of recent articles published by credible authors on FedEx have expressed a “Neutral” bias. Yet, the credible Wall Street analysts that the Nobias algorithm tracks are much more bullish on FDX shares. 5 out of the 7 credible analysts that have expressed an opinion on FDX believe that its shares are likely to increase in value. Currently, the average price target being applied to FDX shares by the credible analysts community is $198.57. Today FedEx shares trade for $176.95. Therefore, the credible analyst average price target implies upside potential of approximately 12.2%.
Disclosure: Nicholas Ward has no FDX position. Nicholas Ward wrote this article for Nobias at their request with the intention 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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