Market Overview

Here's The Sell-Side Sentiment Following FedEx's Q3 Report

Here's The Sell-Side Sentiment Following FedEx's Q3 Report

FedEx Corporation (NYSE: FDX) reported after the market close on Tuesday adjusted third-quarter earnings that sorely missed estimates, while its revenues were in line. The company blamed the earnings miss on the negative net impact of fuel, one fewer operating day at FedEx Express and FedEx Ground and network expansion at FedEx Ground.

The company's 2017 adjusted earnings per share guidance of $11.85 to $12.35 surrounded the consensus estimate of $12.

Stock Sheds Post-Earnings Losses

After trading down about 4.4 percent in the after-hours session on Tuesday, the stock recovered and was up by over 2 percent subsequently. On Wednesday, the stock gap-opened higher and has been up since then.

Here's how sell-side analysts viewed the quarterly results:

Barclays Sees Upside For Relatively Inexpensive FedEx Shares

Reviewing the results, Barclays said solid fourth-quarter guidance, positive traction on Ground margins and a favorable three-year Express Outlook would drive upside for the relatively inexpensive FedEx shares.

The firm attributed the huge Q3 miss to a resumption of normal seasonality and some fuel headwind. Barclays expressed confidence in the company's ability to hit its $18 per share earnings target for 2020.

FedEx' Long-Term Story is Favorable

UBS views the long-term story as favorable even as the weak third quarter results and limited visibility remain headwinds. Analysts Thomas Wadewitz and Alex Johnson believe the upside framework for combined Express & TNT and the potential for medium term improvement in Ground margin support attractive multiyear earnings per share growth and upside for the stock.

On the Q3 results, UBS said Express and TNT underperformed, while Ground was better than expected. The firm also noted that the company's new framework that models operating income improvement in combined Express + TNT points to $1.2 billion to $1.5 billion in 2020 off the 2017 base.

FedEx: Top Pick In Transportation Sector

BMO Capital Markets said FedEx remains its top picks in the transportation sector. Analyst Fadi Chamoun believes the Q3 miss was due to transient reasons. The larger source of the miss was weaker-than-expected results at Express, which were negatively impacted by the lag in fuel recovery, the analyst added. The analyst also said the company's new 2020 profit improvement target for Express, including TNT, was well ahead of his expectations.

The firm clarified that the company's 2017 earnings per share guidance implies fourth-quarter guidance of $3.79–$4.29, which at the mid-point is well ahead of its estimate, making up for the bulk of the Q3 shortfall.

Baird Raises Price Target

Baird said FedEx remains its top large-cap idea. Analyst Benjamin Hartford expects investor attention to turn away from fiscal-year 2017's headwinds and toward the company's multi-year potential of improving its ROIC/FCF profile and sustaining 10–15 percent annual earnings per share growth.

This, according to the analyst, would provide a compelling backdrop and support an upward re-rating of FedEx' relative valuation and the sustained outperformance of the stock. While retaining its Buy rating, Baird lifted its price target for the shares of FedEx to $222 from $209.

Q3 Provided Data Points To Reinforce Positive Thesis On FedEx Shares

Deutsche Bank said the third-quarter results, though disappointing, gave enough data points to reinforce its positive thesis on FedEx shares. The firm noted that Express earnings that accounted for 55 percent of total company profits are expected to increase by 40–50 percent over the next three years, equating to $1.2 billion to $1.5 billion in operating earnings.

With Ground margins on an upward trajectory, the data points suggest strong double-digit earnings per share growth in 2018 and beyond. The firm lowered its 2017 earnings per share slightly, while raising its 2018 earnings per share estimate and its price target by $1 to $210.

Investors May Shrug Off Q3 Miss

Credit Suisse said investors may shrug off the Q3 miss, given the company's line of sight to Express EBIT improvement, including TNT, of $1.2 billion to $1.5 billion by 2020 versus 2017.

The firm expects capex to trend down as a percent of revenue over the next few years, unlike United Parcel Service, Inc. (NYSE: UPS). This, according to the firm, would lead to an improvement in free cash flow. According to the firm, the risk is that e-commerce growth has led to a structural increase in the capital intensity of the Ground business. As such, the price target was raised to $219 from $209.

Ratings/Price Targets

  • Baird: Outperform/raised to $222 from $209.
  • Barclays: Overweight/$230.
  • BMO Capital Markets: Outperform/$220.
  • Credit Suisse: Outperform/$219, up from $209.
  • Deutsche Bank: Buy/$210, up from $209.
  • UBS: Buy/$215.

At the time of writing, shares of FedEx were up 1.64 percent at $194.98.

Related Links:

FedEx Shares Could Rise Over 30% By 2020

Sell-Side Expectations For FedEx Getting More Upbeat As Q3 Release Approaches

Latest Ratings for FDX

Sep 2020Deutsche BankUpgradesHoldBuy
Sep 2020StifelUpgradesHoldBuy
Sep 2020UBSMaintainsBuy

View More Analyst Ratings for FDX
View the Latest Analyst Ratings


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