Wells Fargo Expects FedEx Margins To Remain Under Pressure From Market Woes

FedEx Corporation FDX reported disappointing third-quarter results Tuesday and lowered its fiscal 2019 guidance.

The flexibility of the company’s network allows it to respond more quickly to competitive threats and a tough supply chain environment, according to Wells Fargo.

The Analyst

Wells Fargo’s Casey Deak maintained an Outperform rating on FedEx and reduced the price target from $250 to $220.

The Thesis

FedEx reported third-quarter adjusted EPS of $3.03, significantly lower than the consensus estimate of $3.15. Revenue came in at $17 billion, short of the consensus of $17.7 billion. The consolidated operating margin of 5.8 percent also missed the consensus expectation of 6.3 percent.

The company cited slowing global growth and increased costs across the network as the reasons for its poor performance.

Although FedEx is facing challenges and has been through management changes — including the retirement of COO David Bronczek and appointment of Raj Subramaniam as his successor — the company has a flexible network that positions it for “more streamlined operations and quicker responses to competitive threats in an increasingly complex supply chain environment,” Deak said in a Wednesday note. 

FedEx is likely to continue to witness challenges, including stress on global airfreight and customer movement toward deferred services, the analyst said. Yet the recent pressure on the company’s stock and its growing share in international markets makes the shares undervalued, he said. 

Deak reduced the adjusted EPS estimates for FY19 and FY20 from $17.30 to $15.60 and from $20 to $17.50, respectively.

Price Action

FedEx shares were up 1.41 percent at $177.63 at the time of publication Thursday. 

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