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Can FedEx Investors Overlook Cyberattack-Related Miss And See A Silver Lining?

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Can FedEx Investors Overlook Cyberattack-Related Miss And See A Silver Lining?
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FedEx Corporation (NYSE: FDX)'s fiscal first quarter earnings report initially sent the stock lower by 4 percent as the company acknowledged it was negatively impacted by a cyberattack in its TNT unit. However, the stock recovered those after-hours losses and was up more than 2 percent Wednesday morning.

FedEx said it earned $2.51 per share in the quarter, which marks a 13 percent decrease from a year ago but includes a 79-cent per share impact from the cyberattack, Bank of America's Ken Hoexter commented in a report. But excluding the cyberattack impact, earnings would have "handily" exceeded the $3.01 per share the analyst modeled.

Meanwhile, FedEx's Freight segment posted "robust" results, which exceeded targets by 13 cents per share, Hoexter said. Ground revenue did exceed what the analyst expected although a higher mix of residential delivery was unfavorable and contributed to the company's overall margins of 13.5 percent falling short of the 13.8 percent expected.

FedEx did reiterate its fiscal 2020 outlook for $1.2 to $1.5 billion in operating income improvement versus 2017's level, which adds "confidence" to the company's ability to "bounce back" from the cyberattack setback.

"While easy to dismiss an aggressive target, particularly given the scale of the TNT setback, we note that FedEx has surprised before, achieving what was viewed as an aggressive target it set in 2014,to improve Express operating income by $1.6 billion from 2014-2017," Hoexter wrote.

Finally, FedEx would have not been forced to lower its fiscal 2018 earnings per share growth target from $13.20-$14.00 to $12.00-$12.80 if it wasn't for the cyberattack, the analyst stated. If anything, this fact highlights the "impressive" underlying core Express performance.

Hoexter maintains a Buy rating on FedEx's stock with an unchanged $240 price target.

Related Link: How Long Will TNT Issues Last For FedEx? This Analyst Isn't Waiting To Find Out

Loop Capital: Huge Miss Equals Price Target Boost

It might seem strange at first, but FedEx's 58-cent per share EPS miss prompted Loop Capital Markets' Rick Paterson to turn incrementally bullish on the stock.

Paterson maintains a Buy rating on FedEx with a price target boosted from $250 to $260 as there are just four key aspects of the earnings report that should matter to investors, including:

  • The TNT cyberattack resulted in a $0.79 per share EPS miss and Hurricane Harvey accounted for another two cents per share impact,
  • Ground operating income is expected to show an improvement to operating income,
  • Freight posted its highest operating margin over the past three years and its second highest ever, and
  • The outlook for the Express division of delivering operating profit improvements remains unchanged.

Latest Ratings for FDX

DateFirmActionFromTo
Mar 2018Credit SuisseMaintainsOutperformOutperform
Mar 2018Morgan StanleyMaintainsEqual-WeightEqual-Weight
Mar 2018KeyBancMaintainsOverweightOverweight

View More Analyst Ratings for FDX
View the Latest Analyst Ratings

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