Fedex stock was trading at $151.59 In Pre-Market: 08:35 AM EDT
FedEx Corporation (NYSE:FDX) was downgraded by Wells Fargo on Monday from an Overweight recommendation to an Equal-weight rating. According to analyst Allison Poliniak-Cusic, consensus sales estimates for FDX do not adequately capture the company’s apparent shift from growth to efficiency.
Wells Fargo forecasted reduced medium-term revenue growth to drive sustainably lower valuation and predicted an FY24 two-year revenue CAGR below consensus. According to FDX’s new savings projection, a larger share of projected profits will likely come from cost savings rather than growth, which indicates less growth and, consequently, lower revenue growth.
Although FDX has a tempting relative valuation, the new period of weaker growth probably necessitates a valuation re-rating as well. The company says that in the past, investors believed FDX could expand its sales over the long run at a 6% CAGR, but it now appears that investors anticipate long-term revenue growth closer to 2%. This suggests that the present P/E or EV/EBITDAR may have peaked.
Forecasts for UPS and Fedex stock
Looking ahead, Wells Fargo thinks FDX’s strong cash flow profile and increased execution confidence might result in a much higher valuation, but it sees a lot of risk in the short term.
FDX has a $160 price objective from Wells Fargo. In the premarket, FDX shares decreased 1.78% to $150.50. Investors in United Parcel Service want to know this week whether it is handling the burst e-commerce delivery bubble better than competitor FedEx.
Most operators in the sector have seen their margins suffer as a result of the global shipping crisis, but UPS will provide insight into how it has protected profits and whether it can generate new business to make up for any losses when it releases its quarterly results on Tuesday.
Compared to FedEx stock, which has fallen 40% this year, UPS shares have fallen about 20%. FedEx withdrew its full-year forecast last month, blaming a sharp decline in worldwide demand.
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Author Jowi Kwasu