Wall Street analysts are bailing on FedEx after the shipping giant reported earnings that missed estimates and cut its full year forecast on Tuesday after the bell. Management blamed the loss of Amazon business, trade issues, and foreign business related to TNT Express integration.
Analysts from Stifel, BMO, Deutsche Bank, and KeyBanc reacted swiftly by downgrading the stock.
Shares of the company plunged 14% in midday trading to $149.01.
"We downgrade FDX to sector weight from overweight to reflect a softer international outlook, negative mix shift with respect to Ground margins, and elevated nearterm investment," analysts at KeyBanc said.
One analyst admitted that a downgrade after the fact might be obvious but said company management has to start taking responsibility.
"The downgrade reflects two key issues: very weak fiscal 1Q results and guidance, and lack of acknowledgement from management with respect to its own execution failures," Deutsche Bank said.
"While some may view this as the bottom in shares, we don't see any support until management takes responsibility for recent performance and clearly articulates a credible path to better results and cash flow (and delivers on it). In the meantime shares will continue to melt lower, and rightfully so," they said.
Here's what else analysts are saying about FedEx's earnings report:
BMO- downgraded to 'market perform' from 'outperform' & target price to $165 from $190
"The weaker global macroeconomic environment is weighing more heavily on FDX's higher-margin B2B business than anticipated. TNT should prove to be a significant growth catalyst over the medium to long term once integration is complete and costs to serve improve, particularly in Europe, but any meaningful contribution appears to be at least a year away with limited visibility and downside potential if trade tensions escalate and/ or the macro backdrop weakens further. Finally, while investments in hubs and air fleet modernization should have a positive long-term impact, the elevated capex is pressuring free cash flow in the near term and driving financial leverage higher."
Deutsche Bank- downgraded to 'hold' from 'buy' & target price to $142 from $178
"This downgrade to Hold - when shares are off over 7% in the aftermarket after very weak fiscal 1Q results – is about as helpful as a warm coat on a hot summer's day. We get it. But the downgrade reflects two key issues: (1) very weak fiscal 1Q results and guidance, and (2) lack of acknowledgement from mgmt. with respect to its own execution failures (i.e. performance 'negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty')."
KeyBanc- downgraded to 'sector weight' from 'overweight'
"We downgrade FDX to Sector Weight from OW to reflect a softer international outlook, negative mix shift with respect to Ground margins, and elevated nearterm investment. Additionally, with execution elusive in recent quarters, we anticipate a 'wait and see' approach with respect to expected intermediateterm margin and earnings improvement despite current valuation seemingly reflecting a portion of current headwinds."
Stifel- downgraded to 'hold' from 'buy'
"First, the miss - F1Q20 adj. EPS of $3.05 was short of the Street consensus estimate of $3.15 and our estimate of $3.18. This was driven by lingering TNT-related challenges in Europe and worse-than-expected margins at Ground. FDX has been an underperformer and is unlikely to switch to an outperformer over the next few quarters unless this is finally 'the sandbag event' and the global economy rebounds in 2020 - then the stock is back at $200. But we believe that scenario is not most probable."
Morgan Stanley- Equal weight rating & price target to $120 from $131
"FDX's 1Q was mostly inline w/MSe and may have even beaten buyside expectations but a ~20% FY guide cut seized the narrative. The cut is big enough that earnings may have troughed but enough structural headwinds remain to keep earnings under pressure for a while. Remain EW with a cautious bias. "
UBS- Sell rating & price target to $132 from $136
"Despite this in line type of report, FDX provided much worse than expected guidance with the midpoint of their new range about 19% below their prior full year guide. The new guide implies a 23% decline in EPS in F2020. The sharp step down appears to primarily be a function of a fall-off in international air activity while higher costs in Ground and pressure on yields are also factors."
