When FedEx Corporation (NYSE: FDX) reports earnings, there is a good chance its stock reaction is going to be quite volatile. This is not exactly a new situation. If you look back at the FDX stock chart over the last five years there is just a whole series of major-ups and major-downs after earnings or guidance updates. FedEx closed at $300.39 on September 19, and the post-earnings reaction took shares all the way down 15% to $254.64 the following day.
Oggonomics will never say that history has to repeat itself. Then again, history is one of the greatest tools that equity investors can try to use. If history holds true, this may be a strategic buying opportunity after a 15% drop. As this is a “may be” it comes with no guarantees, and this is in no way to be interpreted as investment advice nor is this a recommendation to buy or sell FedEx or any other stock.
FedEx appears to be a classical rangebound stock of sorts. It has yet to recapture its 2021 peak from when everyone was still just having every good that could be delivered sent to their home. And everyone seemed to be working from home then as well. Both of those trends have changed and FedEx has tried to gradually tweak its operations since with seasonal and temporary hiring as needed.
EARNINGS & RETURNING CAPITAL TO INVESTORS
On top of a slight drop in revenues, FedEx showed earnings at $3.60 per share – versus $4.55 EPS a year ago and consensus estimates of $4.76 EPS. Guidance is also a drag for the year, now pegged $20 to $21 EPS for low single-digits when consensus estimates were $20.71 EPS.
FedEx had completed a $1 billion buyback during the quarter. It has also approved $1.5 billion for additional buybacks, but its $65 billion market cap implies that this buyback is not the world’s strongest.
The $5.52 current dividend per share implies that FedEx is spending a little more than one-fourth of its earnings to send its shareholders as dividend. We also have the idea of how much stock can be repurchased based on the data above.
IS THE CONSUMER SHIFT THAT STRONG?
If you see a 15% drop in a major S&P 500 company like FedEx, it has to spook timid investors. Whether it spooks strategic investors or makes them want to be opportunistic remains to be seen.
The reality is that FedEx has some operational headwinds. The company is in a softer demand environment from industrial and corporate accounts. Consumers are simultaneously tight on their spending. More specifically, FedEx is dealing with lower demand for its priority services and higher demand for its deferred services. All in all, it means lower average daily package volumes.
WALL STREET IS STICKING BY FEDEX
Despite all the caution, Wall Street analysts are by and large trying to stick with ratings after the report. The price targets were cut almost across the board, but many ratings remain positive for upside ahead.
Oggonomics has outlined many analyst calls that were made on FedEx after earnings:
- BofA Securities maintained its Buy rating but lowered it price objective to $308 from $34 5after noting the earnings miss and stalled B2B volumes.
- Evercore ISI maintained its Outperform rating but cut its target to $318 from $335.
- JPMorgan kept an Overweight rating but cut its target to 350 from $359.
- R.W. Baird maintained its Outperform rating but trimmed its price target to $320 from $340.
- Morgan Stanley maintained its Equal-Weight rating but lowered its price target to $200 from $215 in the call.
- Loop Capital maintained its Buy rating but its price target was cut to $288 from $317.
- Raymond James maintained its Outperform rating but cut its target to $310 from $330.
- Stifel kept a Buy rating but cut its target to $321 from $327.
- Susquehanna maintained its Positive rating but cut its target to $330 from $345.
- TD Cowen maintained its Buy rating but cut the target to $328 from $334,
- UBS kept a Buy rating but cut its target to $311 from $333.
THE DOWNGRADE EXCEPTIONS
Morgan Stanley was one of the exceptions with a formal downgrade. The firm downgraded FedEx to Underweight from Equal-Weight and cut its price target down to $200 from $215.
HSBC also downgraded FedEx to Hold from Buy with a $300 price target.
FinViz now shows the FedEx consensus analyst price target at $312.08.
STOCK CHARTS & TEA LEAVES
The following chart (courtesy of stockcharts.com) will show the continual series of big-ups and big-downs from its earnings and guidance commentary in the last three years. Again, this has so far been a very rangebound stock. That doesn’t mean it has to continue to be that way. And while it has not taken out the 2021 high up to recently it was exhibiting a steady stream of higher highs and higher lows.
