FedEx Corp. stock plunged Wednesday after the company’s quarterly miss and steep outlook cut triggered several Wall Street downgrades.
FedEx FDX, -12.92% late Tuesday reported fiscal first-quarter earnings below market expectations and further spooked analysts by cutting its guidance for fiscal 2020 by about 18%, blaming it largely on “trade tensions” and global economic weakness.
FedEx shares closed at their lowest in three weeks and suffered their largest one-day percentage loss since December 2008. The stock traded as low as $148.50, its lowest since Aug. 28.
Of the 27 analysts surveyed by FactSet, at least four analysts downgraded FedEx’s shares and 10 analysts cut their price targets for the stock. The average rating remains overweight, and the average price target was lowered to $171.23 from $180.52 as of the end of August.
Analyst David Ross at Stifel Nicolaus downgraded the package delivery company to hold, after being at buy since March 2018, and cut his price target to $171 from $185. Ross said he expects the stock to continue to underperform over the next few quarters as the global economy is unlikely to rebound in 2020.
KeyBanc Capital’s Todd Fowler also cut his rating to sector weight, after being at overweight for at least the past two years, citing a softer international outlook, a downbeat outlook on FedEx Ground margins and concerns over the need of increased near-term business investment.
FedEx also got a downgrade from BMO Capital Markets’ Fadi Chamoun, who said that while his team continued to be positive on the long-term outlook, “near-term challenges are larger than anticipated and visibility into a positive inflection point in fundamentals is limited.”
Those analysts who kept their ratings intact were quick to point out to that uncertainty going forward.
The guidance cut could mean FedEx’s profits hit their lowest, but it is “hard to see a path to a rebound” and sustained growth, analysts at Morgan Stanley, led by Ravi Shanker, said in a note. Enough “structural headwinds” remain to keep earnings under pressure for a while, they said.
Analysts at Goldman Sachs, led by Jordan Alliger, said FedEx’s outlook was “quite disappointing” even as the analysts didn’t have high expectations for the quarter. They kept their buy rating on the stock, however, taking “the forest through the trees approach,” they wrote.
“Putting the economy aside, fundamentally FedEx is very well-positioned to remain at the forefront of global, time definite delivery, with very few companies able to meet the demand for ever tighter delivery time frames,” the Goldman analysts said. “This gives comfort that the business model itself is not broken long term.”
Analyst Peter Tyler Brown at Raymond James also kept the equivalent of a buy on FedEx shares, saying his team “remain optimistic in the long-term earnings power” of FedEx’s ground shipping business and believe its freight business, underpinned by the company’s “dominant” network of terminals could continue to drive earnings growth.
Moreover, once TNT is fully integrated, its road network can provide “substantial cost savings in Europe” for FedEx, they said. FedEx bought TNT in 2016.
FedEx in August ended its contract to deliver Amazon.com Inc.’s AMZN, -0.28% ground packages, and in June ended its FedEx Express domestic contract with e-commerce giant.
FedEx losses on Wednesday weighed on the Dow Jones Transportation Average DJT, -1.21% and also on rival United Parcel Service Inc.’s UPS, -1.10% shares. FedEx shares have lost 6.5% this year, contrasting with gains of 20% for the S&P 500 index SPX, +0.03% and 16% for the Dow Jones Industrial Average. DJIA, +0.13%
Tomi Kilgore in New York contributed to this report
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