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Even After FedEx Shares Plunge 45%, There's Still No Bottom In Sight

By Investing.com (Haris Anwar/Investing.com)Stock MarketsSep 19, 2019 11:15AM ET
www.investing.com/analysis/even-after-fedex-shares-plunge-45-theres-still-no-bottom-in-sight-200465987
Even After FedEx Shares Plunge 45%, There's Still No Bottom In Sight
By Investing.com (Haris Anwar/Investing.com)   |  Sep 19, 2019 11:15AM ET
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The world’s largest parcel-delivery service, FedEx Corporation (NYSE:FDX), has flagged some alarming news to investors. In its 1Q 2020 earnings statement on Sept. 17, the company slashed its profit forecast for the year as a worsening economic environment, triggered by the U.S.-China trade spat, took its toll on the company’s Express delivery business — which is widely considered a proxy for the global economy.

The Memphis, Tennessee-based transportation giant now expects per-share earnings to fall between 16-29% in the current fiscal year, compared with the forecast of a mid-single-digit percentage decline issued in June. FedEx also lowered its revenue outlook.

Blaming increasing trade tensions and policy uncertainty, Chief Executive Officer Fred Smith said in a conference call: “The global economy continues to soften and we are taking steps to cut capacity.”

The profit warning comes after the company posted an 11% drop in fiscal first-quarter profit, driven by the Express unit's weakness, which delivers packages by jet and is especially vulnerable to global trade disruption.

Ominous Sign for Industrial Stocks

That continuing drag sent FedEx shares tumbling yesterday, falling almost 13% to $150.91, their lowest level in more than two years. The stock is down about 45% from the record high it reached in early 2018 when it hit $274.66 a share.

Fedex price chart
Fedex price chart

The deepening slump in FedEx shares is also an ominous sign for other industrial stocks, such as Caterpillar Inc (NYSE:CAT). and Deere & Company (NYSE:DE), as the lingering slowdown in global economic activity could further hurt their sales and delay the recovery.

But investors should remember that in an environment of economic uncertainties like the current one, blaming everything on the economy is a tactic many CEOs use to hide the internal issues. In the case of FedEx, there are also several other triggers for this dismal performance.

The biggest one is the company’s continuing troubles at its European business after its costly takeover of TNT in 2015. That deal is still very much a work-in-progress that has failed to unlock the value investors were hoping to see.

FedEx said in March the integration costs for the acquisition are expected to exceed $1.5 billion through fiscal 2021, with the potential of further escalation. The integration challenges and the slowing European economy have raised doubts about the benefits of the TNT deal, with some analysts questioning the wisdom behind this massive undertaking.

After Q1 earnings on Wednesday, analysts from Stifel, BMO, Deutsche Bank and KeyBanc downgraded the stock, putting into question any hopes of a swift turnaround. Deutsche Bank said in a note it has lowered the rating on the the stock to ‘hold’ from ‘buy’ and cut its target price to $142 from $178 because:

"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.”

With the softening economy, FedEx has also been restructuring its operations to cope with the rise of e-commerce orders. It recently ended is contract with Amazon (NASDAQ:AMZN) and announced plans to offer seven-day home delivery and to handle more of the packages it used to route through the U.S. Postal Service.

Bottom Line

FedEx’s outlook on weakening world trade and the economy cements our view that investors should stay away from buying stocks closely tied with the global economy. It’s tough to see a bottom in FedEx stock as it faces so many headwinds, including macro weakness, issues related to TNT integration and a huge cost escalation. These negative factors will continue to put pressure on the company’s cash flows and sharply diminish the chances for higher dividends.

Even After FedEx Shares Plunge 45%, There's Still No Bottom In Sight
 
Even After FedEx Shares Plunge 45%, There's Still No Bottom In Sight

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Bobster Bambino
Bobster Bambino Sep 21, 2019 11:02AM ET
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Wont touch this thing unless it breaks to 129, will probably find support there.
Luis Reynoso
Luis Reynoso Sep 21, 2019 2:30AM ET
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FedEx will bounce back. Perhaps it is time to buy now that the stock is cheap. FedEx has a very strong brand recognition internationally and a history of delivering at reasonable costs. I am long on FedEx and sold some put options at 16 delta at Friday closing.
natvar bhakta
natvar bhakta Sep 21, 2019 2:30AM ET
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Right price 120
Anthony Anthony
Anthony Anthony Sep 19, 2019 5:49PM ET
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Fedex hire many incompetent workers. their stock price deserve more plunge.
Jordan Stevens
Jordan Stevens Sep 19, 2019 5:48PM ET
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I think the trade war is only temporary. online shopping will continue. Global trade will bounce back. Confidence comes and goes. Sounds like a buying opportunity to me.
Andy Brinkhaus
Andy Brinkhaus Sep 19, 2019 2:55PM ET
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"world's largest parcel delivery service" Ummm... #FakeNews. UPS is larger and delivers more. Fedex dropped their Amazon account too, so now UPS has to pick up the slack.
Brady Murray
Brady Murray Sep 19, 2019 2:55PM ET
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Negative. Fedex is bigger than UPS by quite a bit.
Brady Murray
Brady Murray Sep 19, 2019 2:55PM ET
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Wait. You are correct. Ups overtook Fdx a while back even with TNT. Fdx is bigger internationally
Brady Murray
Brady Murray Sep 19, 2019 2:55PM ET
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Wait youAre correct. Even with TNT fed ex did not overtake UPS. Fed ex is bigger internationally
Diego Muñoz
Diego Muñoz Sep 19, 2019 2:08PM ET
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Headline is click bait
Tim Lee
Tim Lee Sep 19, 2019 2:06PM ET
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Amazon..eom. I can count 5:1 ratio of trucks any day from Manhattan window.Same in cow farm USA
Keith Ligertwood
Keith Ligertwood Sep 19, 2019 2:02PM ET
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The head line suggests it dropped 45% in one day which would be alarming, however< it is over more than a year..still not good mind you
john kennedy
john kennedy Sep 19, 2019 11:20AM ET
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UPS deliveries more packages per day than FED EX, how is FED EX the world's largest?
Andy Brinkhaus
Andy Brinkhaus Sep 19, 2019 11:20AM ET
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The thumbs down are Fedex employees/investors. UPS is ******it now that they dropped their Amazon account.
 
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