Downward estimate revision
FedEx’s (FDX) earnings estimate revisions have largely moved downward. The company slashed its earnings outlook for fiscal 2019 during its second-quarter earnings results on December 18. The mean estimate for the fiscal 2019 EPS decreased to $16.37 from $17.33 on December 17. The fiscal 2020 EPS estimate decreased to $18.29 from $19.84.
Most of the investment research firms including JPMorgan Chase (JPM), Credit Suisse (CS), Morgan Stanley (MS), and Barclays (BCS) have lowered their one-year target price on the stock. JPMorgan Chase, Credit Suisse, Morgan Stanley, and Barclays’ new target prices are $233, $236, $156, and $235, respectively—compared to the previous target prices of $256, $263, $230, and $310. The current consensus estimate of $231.37 is ~16% lower than the target price of $273.89 before the second-quarter earnings report.
Most of the analysts polled by Reuters maintained a “buy” recommendation on FedEx. Among the 30 analysts covering FedEx stock, 80% recommended a “strong buy” or “buy,” 17% recommended a “hold,” and 3% recommended a “strong sell.”
Fiscal 2019 outlook
FedEx lowered its earnings guidance range for the current fiscal year due to concerns about a possible global slowdown. During the company’s second-quarter earnings release, FedEx’s executive vice president and CFO, Alan B. Graf, Jr., said, “Global trade has slowed in recent months and leading indicators point to ongoing deceleration in global trade near-term.”
FedEx expects the GAAP EPS before the year-end mark-to-market retirement plan accounting adjustments to be $12.65–$13.40—down from the previous forecast of $15.85–$16.45. The non-GAAP EPS is expected to be $15.50–$16.60—compared to the earlier guidance range of $17.20–$17.80.
During FedEx’s second-quarter earnings conference call, the company stated that the downbeat fiscal 2019 outlook is mainly due to weakness in its international business, especially in Europe. FedEx stated that the Chinese economy has weakened due to ongoing trade disputes with the US.
FedEx noted that a massive slowdown in the United Kingdom due to Brexit uncertainty, protests in France, and a contraction in Germany’s GDP hurt its international business. The company thinks that these factors could impact other European countries and slow down Asian economies’ growth rate.
Investors looking for exposure in FedEx could invest in the iShares Transportation Average ETF (IYT), which has allocated ~12.8% of its fund in the stock.