FedEx (FDX) Falls After Missing on Q1 and FY EPS Expectations Amid Labor Costs, Raymond James Downgrades to Market Perform

September 22, 2021 6:06 AM EDT
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Price: $235.18 -0.05%

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    25 Buy, 15 Hold, 0 Sell

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Shares of FedEx Corp (NYSE: FDX) are down over 5.5% in pre-open Wednesday after the company missed on the analyst EPS estimates for FQ1 due to higher labor costs.

FedEx reported a Q1 EPS of $4.37 to miss on the analyst estimate of $5.00. Revenue for the quarter came in at $22 billion versus the consensus estimate of $21.91 billion.

“The execution of our strategies continues to drive higher demand for our services, despite the disruptive impact of the pandemic to labor availability and global supply chains,” said Frederick W. Smith, FedEx Corp. chairman and chief executive officer.

On the guidance front, the company said it is calling for FY2022 EPS between $19.75 and $21.00, versus the consensus of $21.20.

Morgan Stanley analyst Ravi Shanker said FQ1 results demonstrated a “rough start to FY22.” The analyst cut the price target to $250.00 per share from the prior $270.00 on the Equal-weight stock.

“Our main conclusion after today is that the FY22 guidance cut is not enough — International Express will start to sharply normalize in 2H22 as international passenger belly capacity comes back, competition in Ground intensifies and stores continue to reopen. All the while cost inflation continues, which makes it hard to see how 2H results will be a “strong performance.” FDX’s 1Q miss and FY guidance cut is the fourth negative catalyst in the Parcel space since June (UPS analyst day, FDX 4Q results/FY22 guide, UPS 2Q results/FY guide), which will likely further pressure the structural Parcel bull case. On the other hand, we continue to see evidence of the structural bear case including the negative flywheel effect (price increases not keeping up with costs which pressures margins) and increased capacity/competition,” the analyst said in a client note.

KeyBanc analyst Todd Fowler slashed the price target to $325.00 per share from the prior $350.00 but reiterated an Overweight rating as FDX valuation remains attractive.

“We lower estimates to reflect the current quarter shortfall and elevated labor expense and network inefficiencies NT. Our FY22E EPS becomes $20.00 (from $21.50), including $4.43 F2Q22E EPS; our FY23E EPS becomes $23.00 (from $24.00). While we expect Ground margins to reflect cost headwinds NT, we are encouraged by Express margin sustainability and improved performance in Freight. Further, reduced inefficiencies likely support sequential improvement in 2H/FY23,” Fowler said in a note.

Shares were further hit after Raymond James analyst Patrick Tyler Brown downgraded from Outperform to Market Perform with a price target of $330.00 per share.

"While we remain heartened that the parcel pricing and volume backdrop remains constructive and FedEx’s LTL operation continues to hit on all cylinders, we are concerned that numbers remain at risk as the guidance assumes a continued growth in Industrial Production and trade, labor inefficiencies abate, and less controllable “bad guys” from last year don’t recur (think weather). While FDX trades at only 13x our revised FY2022 EPS, we’d stress they are also trading 23x all-important FCF, a premium to its facing peer and more inline with the broader complex. Further, outside reaping from their sizable investments over the past decade (outsized NOPAT growth) or throttling capex, we see limited multiple expansion opportunities," the analyst commented in a note.

FDX stock price is now trading about 6% in the red YTD.

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