FedEx stock is off to a sluggish start in fiscal 2020, at least according to Citigroup.
Analyst Christian Wetherbee wrote in a Thursday research report that investors new fiscal year 2020 was going to be a rough year. In June, FedEx (ticker: FDX) management said coming year’s earnings decline by “mid-single digit percentage” compared with fiscal 2019. Still, things aren’t looking so good.
“Three months into the fiscal year it appears that incremental headwinds have emerged,” writes Wetherbee. “Which are likely to pressure earnings below our previous expectations.” He lowered estimated fiscal 2020 earnings per share to $14.25 from $14.60, down about 2%. But the analyst rates shares at Buy with a $180 price target.
The back story. Sluggish performance isn’t new for FedEx investors. The stock has lagged behind the market for the past three years, losing about 1% on average a year since 2016, far worse than the 15% gain of the Dow Jones Industrial Average over the same span. Rival United Parcel Service (UPS) has returned about 5% a year on average over the past three years, better than FedEx, but also lagging behind the market.
Both parcel shipper stocks have struggled, in part, because investors fear Amazon.com (AMZN) will become a significant competitor and start offering logistics services to outside companies. FedEx, in additional to the Amazon problem, is struggling to integrate its 2016 acquisition of European parcel shipper TNT Express.
What’s new. Wetherbee notes that after FedEx issued guidance in June the company subsequently cut its global GDP and industrial production forecasts. The company also raised its outlook for consumer spending, but about 75% of FedEx sales are driven by business-to-business transactions, so the adjustments, on the whole, are negative.
Looking ahead. He still likes the stock though. “We continue to think that FedEx’s stock is better positioned for longer-term upside for several reasons,” writes Wetherbee. Reasons to pick up FedEx stock include a turnaround TNT, e-commerce growth, and, interestingly, lower Amazon exposure.
Barron’s recently wrote positively about FedEx, believing fears of new competition from Amazon were overblown and valuation was attractive. Since our story appeared in late July, FedEx stock is down about 5.4%. The Dow, for comparison, is down 3.5% over the same span. For the year, FedEx stock is down about 2%, far worse than the 14% gain of the Dow.
Don’t forget, FedEx’s fiscal year ends in May, and the company will report fiscal 2020 first-quarter earnings in mid-September.
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