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FedEx Analysts Say Investors Need To Wait And See What's Next After Guidance Withdrawal

Global delivery giant FedEx Corporation (NYSE: FDX) reported third-quarter results Tuesday and withdrew its guidance for the full year.

Benzinga · 03/18/2020 20:10

Global delivery giant FedEx Corporation (NYSE: FDX) reported third-quarter results Tuesday and withdrew its guidance for the full year. Here's how some of the Street's top analysts reacted to the announcement.

The FedEx Analysts

Morgan Stanley analyst Ravi Shanker maintained an Equal-weight rating on FedEx's stock with a price target lowered from $109 to $100.

Baird analyst Benjamin Hartford maintained at Outperform, unchanged $140 price target.

Raymond James analyst Patrick Tyler Brown maintained at Outperform, price target lowered from $167 to $150.

Stephens analyst Jack Atkins maintained at Overweight, price target lowered from $145 to $135.

Morgan Stanley: Coronavirus A 'Mixed Bag'

FedEx reported earnings per share — including TNT Express acquisition-related costs — of $1.20 versus the "smart consensus" EPS of $1.28, Shanker said in a note.

Revenue of $17.45 billion was around 3.5% above expectations and up 3% from last year. Despite "all the noise" in the quarter, revenue handily beat expectations, although it could partly be a function of cutting expectations too far ahead of the print, the analyst said. 

FedEx acknowledged that its revenues were underperforming expectations ahead of the coronavirus outbreak, and an early Lunar New Year more than offset an extra working day and the favorable timing of Cyber Monday, he said. 

Disruptions from the coronavirus appear to be a "mixed bag" so far as total cargo capacity to China, which is down 40%, but FedEx maintained its service levels, Shanker said. This resulted in higher load factors, the analyst said.

FedEx said China volumes started to rebound in early March, according to Morgan Stanley. 

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Baird: Record Load Factors In Asia

FedEx's quarter was impacted by deteriorating global economic conditions, and a suspension of guidance is "not a surprise," Hartford said in a note.

While there remains risk moving forward, as part of Europe and the U.S. are in quarantine, there are signs of normalization of activity in China, the analyst said. 

In addition, a notable drop in airfreight supply has resulted in record load factors in Asia, he said. 

While there are early signs of a potential broader global economic recovery, calling an end to the coronavirus pandemic is "obviously impossible," Hartford said.

Investors should be on the lookout for further catalysts in the weeks and months ahead, the analyst said. 

Raymond James: China 'Encouraging,' Rest Of The World 'Unknown'

FedEx's global reach implies it participates in more than 99% of global GDP, so measuring its exposure to the coronavirus is "front and center," Brown said in a note.

FedEx said it has seen a week-over-week rebound in air demand to and from China since the beginning of March, the analyst said. 

On the other hand, the "demand shock" to Europe and North America remains unknown, as factories in Europe only recently started to shut down, he said. 

Over the long-term, investments being made across the FedEx business — such as Ground/Express "Last Mile Optimization," synergies at TNT and last-mile delivery at FDX Freight —should generate future operational cost benefits, Brown said. 

Stephens: Bullish Stance Despite 'Significant Uncertainty'

FedEx will "almost certainly" be impacted from incremental earnings pressures as business investment pauses and consumer spending slows, Atkins said in a note.

The company should benefit from increased air cargo demand and increased B2C traffic in the U.S., although B2B traffic in the U.S. and Europe could come under significant pressure, the analyst said. 

FedEx has the ability to take "aggressive steps" to lower capex and costs if pressures persist, he said, adding that there are already specific cost items in process that support a bullish stance on the stock.

FDX Price Action

FedEx shares were set to close down 4.9% at $99.61 at the time of publication Wednesday.

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