Shares of FedEx Corp. fell Friday, as the package delivery giant warned of a disappointing earnings report didn't go far enough, but analysts found reason to be optimistic.
The company reported late Thursday fiscal first-quarter profit and revenue that missed expectations, and announced plans to cut costs by up to $2.7 billion and raise shipping rates in the face of weak demand, as historically high inflation weighed on consumer spending.
The results were just one week after a profit warning from FedEx, which stunned Wall Street by coming just one week before the actual earnings report.
The stock FDX was down 2.6% in morning trading Friday, its lowest close since June 2020. It has plummeted 26.5% since FedEx issued its profit warning after the Sept. 15 close, highlighted by the record 21.4% plunge on Sept. 16. Since Sept. 15, the Dow Jones Transportation Average DJT has dropped by 10.7% and a 1,324 point, or 4.3% selloff in the Dow Jones Industrial Average DJIA, S. economy.
Some analysts were able to find some bright spots in the face of all the doom and gloom.
Evercore ISI analyst Jonathan Chappell said that while FedEx FDX has become a show-me story, given the execution risks associated with its cost-cutting and rate-raising plan, he believes that the company provided some specifics on the timing of the plan, and expressed urgency regarding its implementation.
Chappell trimmed his stock price target to $225 from $243, but he reiterated his outperform rating. He removed FedEx's stock from Evercore's tactical underperform list, which suggests that the stock provides a short-term sell opportunity.
Proof of execution is needed before there is a willingness to provide support, even at depressed valuation levels, according to Chappell, a show-me story stock at this point. Management is taking aggressive actions to stem the margin bleed, and the relative underperformance has already been immense in the past month, because of the obvious miss and lower catalyst.
The outlook for earnings and free cash flow suggests the stock may not be cheap for a number of quarters, but it is getting more interesting at current prices, as stated by J.P. Morgan spokesman Brian Ossenbeck.
Ossenbeck lowered his stock price target to $192, which is about 28% upside from current levels, from $214.
Christian Wetherbee doesn't think FedEx's management has succeeded in convincing investors that it has a credible plan that it can execute on, according to Citi analyst Christian Wetherbee. He wrote that shares could be further pressured near-term, while cutting FedEx's target to $165 from $180 and keeping the rating at neutral.
See Now: FedEx stock tank after company withdraws outlook, says year is about to get worse.
He added that the hole was deeper than we thought. Our biggest concern is that the negative operating leverage in FedEx's business seems larger than anticipated, based on FedEx's F 1 Q 23 conference call. No less than 13 of the 32 analysts surveyed by FactSet cut their stock price targets. The average target was lowered to $211.84 from $291.40 at the end of August.
16 analysts were bullish about FedEx, despite the general negativity on the stock, but none of the analysts surveyed were in favor of the stock, as 16 analysts were bullish and the rest were neutral.