Analysts Lower Target Price on FedEx after Its 2019 Outlook Cut

Most analysts reduced their target prices on FedEx (FDX) after the delivery giant trimmed its fiscal 2019 earnings outlook for the second time in three months. 

During its fiscal 2019 third-quarter earnings release on March 19, the company blamed global trade slowdown concerns and weakness in its Express business for its guidance cut.

Investment research companies JPMorgan Chase (JPM), Morgan Stanley (MS), and Barclays (BCS) have reduced their one-year target prices on the stock. JPMorgan downgraded its rating on the FedEx to a “neutral” from an “overweight” and dropped its target price by $25 to $202.

JPMorgan analyst Brian Ossenbeck wrote in a note to clients, “Mix pressures and labor cost inflation are mounting faster than anticipated at Ground,” Reuters reported. He expects FedEx’s operating margin to remain under pressure despite its Ground division rapidly lowering its costs.

Morgan Stanley’s and Barclays’ new target prices for the stock are $148 and $215, respectively, compared to their previous target prices of $156 and $235. The company’s current consensus estimate of $211.44 is 4.5% lower than its target price of $221.40 ahead of its fiscal 2019 third-quarter earnings report.

Nonetheless, most of the analysts polled by Reuters maintain “buy” recommendations on FedEx. Among the 29 analysts covering FedEx stock, 72% have given it “strong buy” or “buy” recommendations, 24% have given it “holds,” and 4% have given it “strong sells.”

During its fiscal 2019 third-quarter earnings conference call, FedEx revealed that the global logistics (IYT) business is being hampered by the economic slowdown across the European Union and Asia—particularly in China. The delivery giant stated that ongoing trade disputes with the United States are hurting the Chinese economy.

Higher expenses related to TNT Express’s integration are also weighing on its bottom line results. FedEx acquired the struggling European company in 2016 for $4.8 billion. However, it hasn’t been able to integrate the business yet, as it requires consultations with employee representatives across several countries in Europe. The company expects to complete these consultations by the end of fiscal 2021, and it expects the process to cost it over $1.5 billion.

Citing the above-mentioned headwinds, FedEx now expects its GAAP (generally accepted accounting principles) EPS before year-end mark-to-market retirement plan accounting adjustments to be $11.95–$13.10, down from its previous forecast of $12.65–$13.40. Similarly, it has lowered its non-GAAP EPS expectation to $15.10–$15.90 from its earlier guidance range of $15.50–$16.60. Analysts polled by Reuters expect it to see EPS of $15.67 in fiscal 2019.

Next, we’ll look at how FedEx performed in the third quarter.