FedEx Guidance Underwhelms, But Pullback Might Deliver A Buying Opportunity

While Credit Suisse analyst Allison Landry is expecting a pullback in  FedEx Corporation FDX, she sees this creating a buying opportunity. Thus, she has maintained her Outperform rating and increased his price target from $225 to $237.

Landry cited EPS guidance, lack of clarity surrounding margins, and a high CapEx as reasons for a potential pullback. However, “Our '18-'20 EBIT forecasts decrease only marginally, and as such, our longer term thesis that FDX will improve its margin, return and FCF profile over the next few years is unchanged. We continue to view the stock favorably relative to United Postal Service, Inc. UPS, which is in the midst of a multi-year CapEx upswing,” she noted.

Key Takeaways

Disappointing Guidance

FedEx issued fiscal year 2018 guidance that was in line with consensus, but this still fell short of market expectations according to Landry. FedEx CFO Alan Graf said, “Investments to modernize our aircraft fleet and expand our FedEx Ground capacity are supporting our strong earnings growth. We are very optimistic about fiscal 2018 as evidenced by our earnings outlook."

An Increasing CapEx

FedEx expects capital expenditures to increase by 15 percent year over year.

“Regardless, investors are likely to view this with a skeptical lens in light of management’s prior guidance for CapEx to stabilize and potentially decrease as a % of sales in FY18 and beyond,” Landry stated.

Where Is The Upside?

Landry noted that FedEx’s low gross margins show there is room for pricing upside and she sees FedEx improving these margins in the near future.

Two signs that point toward this direction include UPS’s decision to implement surcharges on oversized packages (provides FedEx with the opportunity to do the same). Additionally, as the number of oversized shipments continues to increase, this could provide FedEx with an opportunity to justify a hike in prices.

Overall, after a decent earnings reports (more details available on Benzinga Pro), FedEx shares were trading around $208 Wednesday.

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