Despite Profit Cut, Pro Sees 39% Upside for FedEx
Although FedEx recently slashed its profit outlook, upcoming releases of new Apple and SamsungElectronics products could help make the company a buying opportunity, one analyst said.
“I think the knee-jerk reaction is to say this is a bellwether company saying things aren’t good so therefore we sell,” said Jeff Kauffman, an analyst at Sterne Agee. “In this case, I think there’s a little something different to read into in.”
Kauffman has a “buy” rating on FedEx’s shares, along with a $120 price target, which represents 39 percent upside from its intraday trading price on Wednesday.
On Tuesday, the company reduced its earnings forecast to $1.37 to $1.43 a share for the quarter ended Aug. 31. Analysts had been expecting $1.56 per share, according to Thomson Reuters data.
About two-thirds of the guidance reduction was due to an increase in fuel prices during the past five to six weeks, one that Kauffman said the company would recapture through a fuel surcharge later. The remaining one third was due to a weak holiday shipping season, with retailers shying away from restocking as much inventory for the crucial back-to-school season, he added.
The rumored upcoming announcements of Apple’s mini iPad and iPhone 5, and the Samsung tablet launch will also help boost FedEx’s results, Kauffman predicted.
“We have a lot of technology product that will need to be shipped this fall that wasn’t shipped last year,” he said. “So in the case of FedEx, I actually think that this is a buying opportunity on what we knew was already weak numbers.”
Still, one area in which Kauffman is not predicting stronger growth is FedEx’s overnight express service. That division has not grown since 2000. On Tuesday, the company said the majority of its shortfall was in its express division, as consumers continued to migrate from overnight air options to slower, less expensive options.
“The way people ship product has changed over the last decade, and FedEx is finally catching up to that reality,” he said.
—By CNBC.com’s Katie Little; Follow Her on Twitter@katie_little
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Jeff Kauffman does not own shares of FedEx.