'Too Much of a 'Show-me Story': FedEx Shares Fall After Berenberg Cut to Hold
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Shares of FedEx (NYSE: FDX) are down over 2% in pre-open Friday after Berenberg analyst William Fitzalan Howard downgraded to Hold from Buy with a price target of $275.00 per share (down from $330.00).
The risk/reward is no longer favorable, said Fitzalan Howard in a downgrade research note, amid “rising cyclical risks and a mixed change of strategic direction.”
“FedEx shares have had something of a reprieve in the past few weeks, after the company changed its CEO and the apparent influence of an activist investor prompted some strategy changes. This raised hopes that the capital markets day (CMD) this week might mark a break from the business’s chequered reputation of the past few years. However, with near-term earnings risks now mounting and mixed prospects for the execution of the strategic review, we think the shares may pause for breath until the macroeconomic outlook becomes clearer,” the analyst added.
The analyst urged FedEx to further improve capital discipline as the company still lags behind its peers in this aspect.
“Although the company now has a target to bring investment down to 6.5% of sales by 2025, this remain c1.5ppt ahead of peers. Between this and $2bn of restructuring costs over the next five years, we do not expect any further positive surprises on capital returns to shareholders anytime soon.”
All in all, the analyst sees persisting headwinds although he admits valuation is “too cheap to short.”
“With the CMD out of the way and substantial risks to earnings in the medium term, we see limited catalysts for a rerating,” Fitzalan Howard concluded.
By Senad Karaahmetovic
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