The FedEx Corporation Doom Is Not All Bad News, According To Expert

FedEx Corporation

The expert believes that there is some bright spot in the darkness surrounding FedEx Corporation

FedEx Corporation (NYSE: FDX) stock declines following a startling profit warning and a poor earnings report, but analysts see some positive signs.

The stock price of FedEx Corporation fell after the company reported dismal profits, which was followed by a surprising profit warning; nonetheless, experts saw some positives.

Friday saw a decline in the price of shares of FedEx Corporation because the world’s largest package delivery company’s warning of a dismal earnings report didn’t go far enough; yet, other analysts saw cause to be hopeful.

Late Thursday, the company reported fiscal first-quarter profit and revenue that fell short of expectations. The company also announced plans to reduce costs by up to $2.7 billion and raise shipping rates in response to weakening demand brought about by historically high inflation, which weighed on consumer spending.

FedEx Corporation had issued a profit warning before the results, which shocked investors on Wall Street because it came only one week before the company’s actual earnings release.

During the morning trading session on Friday, the share price of FDX (FDX, -3.37%) dropped by 2.6%, moving closer to its lowest closing since June 2020. Since FedEx Corporation published its profit warning after the market closed on September 15, it has dropped a staggering 26.5%, with the record-setting drop of 21.4% occurring on September 16. Since September 15, the Dow Jones Transportation Average DJT has had a decline of 10.7%, over the same period.

FedEx Corporation (FDX) has become a “show-me story,” according to Evercore ISI analyst Jonathan Chappell, because of all the execution risks connected with its cost-cutting and rate-raising plan. He feels that “the good news” was that the corporation revealed some information on the timeframe of the plan and exhibited “urgency” in implementing it. Chappell reduced his stock price objective to $225 from $243, but he maintained the company’s outperform rating.

Additionally, he removed FedEx Corporation’s shares from Evercore’s “tactical underperform list,” indicating a potential chance to sell the stock soon.

Chappell wrote to clients that “FDX is a show-me story stock at this point,” which is a label that is not conducive to broader market skittishness. Chappell also stated that “proof of execution is required before there is a greater willingness to provide support, even at depressed valuation levels.” “That said, the clear miss-and-lower catalyst is done, management is taking active efforts to stop the margin hemorrhage,” and the relative underperformance has already been “immense” in the previous month. “That said, the obvious miss-and-lower catalyst is done,”

Even though J.P. Morgan analyst Brian Ossenbeck has reaffirmed his neutral rating and stated that the forecast for profits and free cash flow implies the company may not be “cheap” for several quarters, he believes that at present pricing, the stock is “becoming a bit more intriguing.”

Ossenbeck dropped his price estimate for the stock from $214 to $192, implying around a 28% increase from where it is now trading.

Christian Wetherbee, an analyst at Citi, believes that the management of FedEx Corporation was ineffective in persuading investors that the company had a viable strategy that it could carry out. As a result, “shares might be subject to more pressure in the short term,” he said, lowering FedEx Corporation’s target price from $180 to $165 and maintaining a neutral rating.

He continued, saying, “The hole was deeper than we expected.” After listening to FedEx Corporation’s F1Q23 conference call, our primary worry is that the amount of negative operational leverage in FedEx Corporation’s business appears to be more than we had anticipated.

No less than thirteen of the thirty-two experts that FactSet polled reduced their estimates for the stock price. This reduced the average objective from $291.40 at the end of August to 211.84 dollars.

Despite the widespread pessimism surrounding the stock, not a single analyst from the group polled had a pessimistic outlook on FedEx Corporation; 16 of the analysts were optimistic, while the remaining analysts had a neutral outlook.


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About the author: Valerie Ablang is a freelance writer with a background in scientific research and an interest in stock market analysis. She previously worked as an article writer for various industrial niches. Aside from being a writer, she is also a professional chemist, wife, and mother to her son. She loves to spend her free time watching movies and learning creative design.