FedEx Was Abandoned Too Late By Wall Street. Here’s Why You Shouldn’t Buy The Stock Yet.
FedEx stock is plunging today, and Wall Street is piling on as a result. Those interested in contrarian investing might be tempted to snap up shares at a discount, but it seems a little early for that to be the case.
After FedEx FDX –23.11% (ticker: FDX) reported weaker-than-expected earnings for its fiscal first quarter, which ended in August, and withdrew its financial guidance for the year, there have been a number of downgrades abound.
As of today, the new downgrades come too late to be able to save investors from any pain. As of Friday morning, the stock is off over 20% in premarket trading, but the stock could fall further from here.
Thursday evening was the beginning of it all. From $23.2 billion in sales, FedEx earned about $3.44 per share from its earnings of $3.44 per share.
As a result of sales of $23.5 billion, Wall Street was expecting earnings per share of more than $5 from $23.5 billion in revenue.
It was explained by the management that volumes were slowing down as a result of “significantly worsening macroeconomic trends”. Costs were also a concern.
So far, five analysts have downgraded shares of the company as a result of this.
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, respectively.
According to Rick Paterson, an analyst at Loop Capital Markets, the company’s rating has been downgraded from Buy to Hold and the price target has been cut from $339 to $202.
The KeyBanc analyst Todd Fowler has cut his rating from Buy to Hold. The price target he had set for the stock has been suspended.
Prior to the downgrade, Fowler had set a target of $325 a share for the stock. As a final note, Stifel analyst William Chan has downgraded shares, along with the others, from Buy to Hold.
As a result, his price target went from $288 a share to $195 a share.
Other price targets were also lowered by the Street as a result. In recent days, the average analyst price target for the company has fallen from almost $290 a share just a few days ago to about $250 a share.
In the past month, FedEx stock has been downgraded six times. Among the analysts who downgraded shares before the guidance disaster, only Citi’s Christian Wetherbee downgraded shares to Hold from Buy.
Despite this, 55% of analysts covering the stock still rate the shares as a buy. In addition, the average price target is about 50% above the opening price of the shares.
Buying shares on the cheap might be a good idea right now, isn’t it? It is important to remember that shares of the company are trading at only about 9 times the updated earnings estimates for the fiscal year 2023.
When it comes to this case, discretion may be the better part of valor. Firstly, earnings estimates are likely to fall further before the stock can be referred to as cheap at this point, making it difficult to make such a claim. There is a good chance that the 9 times multiple isn’t really 9 times.
In late 2018, FedEx also had a string of difficult results to contend with due to a string of poor performance.
As of December 2018, FedEx reported its fiscal 2019 earnings, which were announced in December 2018.
At that time, FedEx cut its full-year guidance to about $16 a share, down from about $17.50 a share.
As a result, shares of the company dropped more than 12%. In order to get the company to work out the kinks, it took a few more quarters.
There was another 10% loss in shares over the next 12 months, while the S&P 500SPX –1.62% gained about 28% during this period.
Over the next year, from late 2019 to 2020, FedEx shares rose almost 90%, while the S&P 500 rallied 15% during that period.
Trying to time the stock market isn’t an easy task, and it’s usually a bad idea, as well.
As a matter of fact, FedEx stock did become a strong performer at some point during 2019 and 2020.
As a result, the shares are more likely than before to reach a bottom in the near future.
In spite of this, past experience has shown that investors should take some time to assess what is going on over the course of a few months.