FedEx Gains on Better-Than-Feared Results Though Analysts Wary

(Bloomberg) -- FedEx Corp. shares are higher in premarket trading Wednesday as many on Wall Street call the company’s fourth-quarter report “not as bad as feared.”

But the tone of some analysts’ reports suggests disappointment and testiness, as FedEx’s full-year earnings forecast missed estimates. Executives’ comments on the company’s Express unit troubled analysts and management noted that the fiscal 2020 performance would be hurt by global trade weakness.

The report prompted several telling comments from Wall Street, ranging from “the knife is still falling” to “show me the money.”

Despite the skepticism, the stock rose as much as 2.6% in early trading Wednesday, as a report that some said wasn’t as bad as expected enticed investors to get into a stock that dropped 7.4% in the three sessions heading into the print.

Here’s what Wall Street analysts are saying about the quarterly report:

Morgan Stanley, Ravi Shanker

“The Knife Is Still Falling.”

“FY20 guidance came in below our bear case and well below consensus.” “Numbers could fall further as secular pressures intensify.”

“Mgmt. acknowledged on the call -- likely for the first time -- that negative e-commerce mix from lighter packages and shorter distances are likely to pressure yields going forward.”

Management didn’t quantify its outlook for “improved” free cash flow in fiscal 2020. “Given the walk from EPS to FCF including a $1 billion discretionary pension contribution, it is hard to see a path to meaningful -- if any -- FCF generation in FY20, even with the lowered capex outlook.”

“We continue to caution against bottom-fishing on valuation until we know where the bottom is.” Rates equal-weight, price target $143.

FedEx’s Next Year Outlook May Be Weighed Down by Trade War

BMO, Fadi Chamoun

“We characterize FDX Q4/F19 results as better than feared. Ground and Freight segments appear on stronger footing going into F2020, while the Express segment outlook continues to be weighed down by a weak cyclical backdrop and TNT integration is likely still a year away from providing any substantial benefits.”

“The stock is trading at bargain valuation levels, however, with an opportunity for EPS to
reaccelerate over the medium term. Rates outperform, price target $190.

Loop Capital, Rick Paterson

“Yet another leap of faith.”

“The company is once again implicitly asking investors to believe in the strategy and be patient. We’ve been here again and again (10% Express margins anyone?) and the current valuation suggests there’s very few patient investors left.”

“We’re admittedly somewhat jaded ourselves and only maintain our favorable rating given our view that, ultimately, FedEx’s unique and in many cases market-leading networks are worth more than a single digit P/E.” Rates buy, price target $220.

Citi, Christian Wetherbee

“Not Terrible…Not Good, but Not Terrible”

Fourth-quarter results were “better than expected, with each segment beating our targets,” but the fiscal 2020 forecast was “the main event and was in line with lower buy-side expectations in the range of $14-$15.”

“We’re not suggesting it’s a win, but we believe that with sentiment at close to an all-time low, in our opinion, it appears to be realistic enough to provide some degree of floor in expectations.”

“We believe FedEx continues to hold potential from TNT, which coupled with washed-out expectations and valuation keeps us buy rated, but it faces challenges, particularly in F1H20.” Price target $180.

Deutsche Bank, Amit Mehrotra

“Show me the money”

“The title of this note mirrors the company’s response to our question on last Q’s earnings call -- which related to lack of free cash flow despite significant earnings growth.”

“In this context, today’s release was disappointing and follows a string of negative revisions (each one becoming harder to defend).”

He pointed out that Express profits declined 15% year-over-year on a 1% revenue decline, with margins narrowing 140bps, and Ground EBIT was down 3% y/y on a 11% increase in revenue (margins down over 200bps).

“This is not how things should work; profits should go up when revenue goes up. Unfortunately, the company’s guidance does not do much to clear the air.”

Rates buy.

Stephens, Jack Atkins

“Geopolitical issues and the very real potential for increased trade tensions pose an additional risk to the downside relative to FDX’s FY20 outlook.”

“As a result, a successful resolution to the China/U.S. trade standoff is critical for the stock to work meaningfully higher.”

“Investors have understandable reservations around FDX’s embrace of e-commerce traffic within both Express and Ground. We hope that as the year progresses more details around FDX’s strategy will emerge, which will allow the market (and us) to gain greater conviction that this plan will yield the expected return on the Company’s valuable assets.”

“Net/net we view FY20 as a transition year and we do look for significantly improved results in FY21.” Rates overweight; price target $210.

To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Lisa Wolfson

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