FedEx shares nosedive after dismal results
Shares of global delivery giant FedEx sank as markets opened in the US on Wednesday, after its dismal results and outlook prompted a slew of price-target cuts from Wall Street, which said its air delivery business needed improvements.
If current losses hold, FedEx’s shares, which fell more than 11 per cent, were poised to lose over $8bn (£6.32bn) in market cap as at least five brokerages cut their price targets (PT). Shares of rival UPS also fell as much as 3.5 per cent.
BoFA Global Research cut its PT by $21 to $313, the largest action on Wednesday. The stock has a median PT of $296.50, according to LSEG data.
Volatile macroeconomic conditions, muted retailer restocking and reduced demand from the company’s largest Express customer, the U.S. Postal Service (USPS), which has been diverting more packages from higher-margin air services to cost-effective ground services, dealt a blow to the company’s air delivery business.
Operating income for the air-based Express unit saw a 60 per cent drop for the quarter, resulting in overall company profits that fell short of expectations.
The drop in Express earnings came as a surprise to analysts, who had anticipated that the cost-cutting initiatives announced earlier in the year would offset some of the decline in business from USPS.
“FedEx’s quarterly results are a step back, not step forward,” Deutsche Bank analyst Amit Malhotra said, while emphasizing that FedEx’s Express business has consistently presented the segment with the most significant opportunity for improvement.”
But TD Cowen analyst Helane Becker expects FedEx to walk away from the USPs business next year, when the contract expires. Shares of FedEx trade about 14 times forward profit estimates, below rival UPS’s 16.7 multiple.
Reuters