UBS Considers What The Bears Say About FedEx

Hedge funds are concerned about FedEx Corporation’s FDX fiscal third-quarter earnings significantly missing consensus estimates when the company reports results on March 17, according to UBS.

The FedEx Analyst

Thomas Wadewitz maintained a Buy rating for FedEx with a price target of $187. UBS had upgraded from Neutral to Buy on Feb. 10.

The FedEx Thesis

The Street expectations for FedEx do seem too high, especially given the decline in activity out of China due to the coronavirus outbreak, Wadewitz said in the note. The consensus estimate for the company’s fiscal third quarter estimate is $1.76 per share, significantly higher than the UBS estimate of $1.48 per share.

Despite this, management may still have a constructive conference call, with discussions around company-specific initiatives including air network capacity cuts and delivery of Express B2C in Ground, the analyst mentioned.

Some hedge funds are also concerned about the company’s low free cash generation over the past several years, Wadewitz said. He added, however, that margin expansion from the fiscal 2020 trough level would support free cash flow generation in fiscal 2021 and 2022.

The analyst expects FedEx’s free cash to rise significantly in fiscal 2023 when the company’s capital spending is likely to decline.

FDX Price Action

Shares of FedEx were up 1.67% to $161.26 at time of publication.

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