Wall Street is piling on as
Downgrades abound after
(ticker: FDX) shocked investors, reporting weaker than expected earnings for its fiscal first quarter, ended in August, while it also withdrew financial guidance for the year.
The new downgrades come too late to save investors any pain today. Shares could have further to fall from here, but the stock is off more than 20% in premarket trading Friday.
It all started Thursday evening. FedEx announced it earned about $3.44 per share from $23.2 billion in sales. Wall Street was looking for more than $5 in per-share earnings from $23.5 billion in sales. Management said volumes were slowing down as “macroeconomic trends significantly worsened.” Costs were a problem too.
So far, five analysts downgraded shares in response. The stock was cut to Neutral from Buy at BofA Securities, while J.P. Morgan analyst Brian Ossenbeck cut his rating to Hold From Buy and his price target to $214 from $258 a share. Loop Capital Markets analyst Rick Paterson cut his rating to Hold from Buy and his price target to $202 from $339 a share.
KeyBanc analyst Todd Fowler cut his rating to Hold from Buy. He suspended his price target. Fowler’s target coming into the downgrade was $325 a share. Finally, Stifel analyst J. Bruce Chan downgraded shares, like the others, to Hold from Buy. His price target went to $195 from $288 a share.
There were other price target cuts from the Street. The average analyst price target is now about $250 a share, down from almost $290 a share just a couple of days ago.
There have been six downgrades of FedEx stock this month. Only Citi’s Christian Wetherbee downgraded shares to Hold from Buy before the guidance disaster. Still, 55% of analysts covering the stock still rate the shares Buy. And the average price target is about 50% above where shares are slated to open. Maybe it’s a good time to snap up shares on the cheap? After all, shares are trading at about 9 times updated fiscal year 2023 earnings estimates.
Discretion might be the better part of valor in this case. For starters, earnings estimates probably have further to fall, making it tough to call the stock cheap yet. That 9 times multiple probably isn’t really 9 times.
And another time FedEx ran into a string of tough results was back in late 2018. Back then, FedEx cut its full-year guidance to roughly $16 a share from about $17.50 when reporting fiscal 2019 earnings in December 2018.
Shares dropped more than 12% in response. It took a few more quarters for the company to work out the kinks. Shares were down another 10% over the next 12 months while the
gained about 28%.
But over the next year, from late 2019 to 2020, FedEx shares rose almost 90% while the S&P rallied 15%.
It’s tough, and usually a bad idea, to try to time the market. FedEx stock did become a strong performer at some point in 2019 into 2020. And shares are closer to a bottom now than before. Still, past experience shows investors should have some time to evaluate what’s going on for a few months.
Sometimes, patience is a virtue.
Write to Al Root at email@example.com