FedEx needs to deliver on a cost-cut plan as investor patience wanes - analysts FedEx stock tanked amid recession warnings.
Wall Street analysts said on Friday that FedEx Corp's new chief executive needs to show he can deliver on the promise of aggressive cost cuts, after the company laid out plans to slash up to $2.7 billion in expenses for fiscal 2023.
The pace of cost cuts might not be enough to deal with declining volumes, as analysts largely supported Raj Subramaniam's plan, but they were skeptical of its execution after a series of missteps at the company.
In March, FedEx named Subramaniam, who was the operating chief, to the top job, succeeding company founder Fred Smith.
Even as the industry struggles with capacity due to a volume slowdown, the company is facing operational challenges in integrating its multi-billion dollar TNT Express acquisition and dealing with contractor unrest.
Wells Fargo analyst Allison Poliniak-Cusic wrote in a note that a period of execution will be key to luring investors back to the story despite the current valuation.
Analysts frustrated with its performance compared to rival UPS asked FedEx executives on Thursday whether they had a right team in place to put the company on the right path.
Credit Suisse analysts believe the market is valuing FedEx as though it is structurally broken, despite investor skepticism given FedEx's track record.
The company's shares fell by 40% for the year, compared to a 22% drop in those of UPS, as they were down 1.8% at $151.80 in premarket trading.
It is not all doom and gloom for the company. Some analysts said FedEx had enough room to cut costs and pricing power was holding up for now.
There is evidence that there are excess costs at FedEx, which could be trimmed with proper management focus and execution, according to Credit Suisse analysts.