FedEx Corporation FDX shares tumbled Monday after Amazon.com, Inc. AMZN announced a temporary ban on FedEx Ground for third-party Prime sales. To the Street, the new marketplace policy betrayed further deterioration of an already tenuous relationship.
The Rating
Bank of America analysts led by Ken Hoexter maintained a Neutral rating on FedEx and raised their price target from $166 to $170.
The Thesis
By the analysts’ account, Amazon’s latest shipment policy is mostly innocuous. Third-party sellers can continue to use FedEx Ground for non-Prime orders and FedEx Express for Prime.
FedEx assured that most Amazon-related disruption had been done when the partners ended their Ground delivery contract in August and Express shipping contract in June. From the latest restriction, it anticipates minimal effects isolated to a small segment of carriers.
The timing of the policy also helps.
“While this highlights the fractious relationship between these two companies, Amazon also made the announcement on the last day of FedEx’s guaranteed Ground and Home Delivery by Christmas (Monday, December 16), further limiting the impact of the announcement,” Hoexter wrote in a report.
Amazon justified its decision by a decline in delivery performance. ShipMatrix recorded a reduction in FedEx’s on-time holiday deliveries from 96.9% in 2018 to 90.4% this year. The rate drops FedEx from first to last in the shipment space — far behind Amazon, United Parcel Service, Inc. UPS and the U.S. Postal Service. These rivals could profit from FedEx’s stumble.
“While the repercussions of Amazon’s decision will be felt by smaller shippers, peer UPS could benefit from the transfer of incremental volume until Amazon’s ban is lifted,” the analysts wrote.
Price Action
At time of publication, FedEx traded down marginally at $163.16.
Related Links:
NYT: FedEx A Case Study In The Shortcomings Of Trump's Corporate Tax Cuts
FedEx Delivers Pain To Shareholders, But Some Analysts Are Shipping Support
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