Why Investors Might Consider Taking Profits In FedEx

Stifel Nicolaus on Tuesday downgraded FedEx Corporation FDX to Hold from Buy and recommends some profit-taking due to likely lower returns amid longer and costlier TNT integration. The stock also reached Stfiel’s $186 price target.

“[W]hat we believe to be a still-fragile global economic environment with the heavy-lifting of the TNT integration ahead, we are choosing to take profits here and wait to re-enter at a later point,” analyst David Ross wrote in a note.

On the macro front, Ross said the election results offers optimism in the form of lower taxes, increased infrastructure spending, reduced regulation, and a renewed focus on domestic industry.

However, Ross warns that potential higher tariffs and other changes in trade policy could hurt FedEx's volumes on the trans-Pacific trade.

In addition, Ross pointed out independent contractor issues at FedEx Ground operations and said the company’s move to convert completely to an ISP (Independent Service Provider) model by 2020 should limit Ground margins.

“Although we believe the stock is more likely to hit $200 before going back to $170, we think the upside is becoming riskier in the absence of upwards earnings revisions, which we think will be hard to come by during the TNT integration,” Ross added.