Bear of the Day: FedEx Corporation (FDX)

FedEx (FDX) stock has tumbled nearly 30% in the last 12 months to fall far behind the S&P 500’s climb and rival United Parcel Service (UPS). Plus, shares of the shipping giant suffered one of their biggest one-day drops in years after it lowered its earnings guidance on September 17.

What’s Going on with FedEx?

FedEx shocked many on Wall Street when the firm in August essentially ended its relationship with Amazon (AMZN). Some might contend that the global shipping powerhouse pulled the cord too early, even though company management noted that “Amazon contracts represented only a small proportion” of its revenues.

CEO Frederick Smith said on FedEx’s Q1 fiscal 2020 earnings call that his company’s decision not to renew its Amazon contract will hurt near-term profits. However, he went on to note that the company has started to land and onboard deals to help replace the lost traffic, while also removing “significant costs which were unique to Amazon's requirements.”

It seems that the Memphis, Tennessee-based firm didn’t want to be in business with a company that aims to take over the global shipping and logistics market. And FedEx hopes to do what Microsoft (MSFT) has done with cloud computing: attract Amazon’s direct rivals, including companies like Walmart (WMT).

FDX aims to improve its FedEx Express hub automation, modernize its FedEx Express air fleet, and much more going forward. Management also outlined how it plans to enhance its offerings to attract more e-commerce customers and business to consumer clients, while remaining a B2B-heavy operation. “To lead in e-commerce, we have launched or announced FedEx Extra Hours, an express service, which provides nightly pickup with delivery the next business day,” Smith went on to say on FDX’s earnings call.

FedEx has more plans to help improve and bolster its e-commerce business as it aims to better compete against its core competitors. Company management noted that FedEx competes against four other firms: UPS, DHL, the US Postal Service, and more recently Amazon.

Along with investors’ Amazon-related questions, FedEx continued to point to broader economic worries. Last quarter, the company significantly cut its fiscal 2020 profit forecast and noted that its “performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty.”

Price Movement

As we touched on at the outset, FDX stock has underperformed recently. FedEx shares have fallen 32% in the past 24 months, while its larger decline began at the start of 2018. Investors will also see that shares of FedEx are down roughly 10% in the last three years, with UPS up 6% over this stretch.

FDX stock closed regular trading Thursday down 1.2% at $154.05 per share on lower-than-average trading volume. This represented a 34% downturn compared to its 52-week high of $234.49 per share.

Q2 2020 Outlook & Beyond

Looking ahead, FDX’s second-quarter fiscal 2020 revenue is projected to slip 1.4% from the year-ago period to $17.58 billion, based on our current Zacks Consensus Estimate. This would mark a downturn compared to its recently-reported quarter that saw its sales come in essentially flat.

Meanwhile, full-year sales are projected to come in roughly flat at $69.72 billion, with fiscal 2021 revenue expected to come in 3.8% higher than our current-year estimate to hit $72.39 billion.

At the bottom end of the income statement, FedEx’s 2020 outlook appears far worse. The company’s adjusted second-quarter earnings are projected to tumble 29%, with FY20’s EPS figure projected to fall 22% against 2019.

Peeking further down the road, the shipping firm’s 2021 earnings are expected to climb 13.6% above our 2020 estimate. With that said, FDX has missed our quarterly earnings estimates in three out of the last four quarters and we can see just how rough FedEx’s earnings revisions picture has turned.

Bottom Line

FedEx stock is a Zacks Rank #5 (Strong Sell) at the moment, based in large part, on its recent negative earnings trends. FDX also holds a “D” grade for Value and Momentum in our Style Scores system for an overall “D” VGM score.

And the Transportation - Air Freight and Cargo industry that FDX is part of currently rests in the bottom 33% of our 255 Zacks industries. Investors still interested in the broader space might instead consider #2 (Buy)-ranked Radiant Logistics, Inc. (RLGT).

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