Wall Street is going on as
stock drop. Contrarian investors may want to get shares on the cheap but that seems early.
(ticker: FDX) surprised investors, reporting weaker-than-expected earnings for the first fiscal quarter, which ended in August, and also withdrew financial guidance for the year.
The new downgrades came too late to save investors any pain on Friday. This could have resulted in a further decline in shares, but the stock opened significantly lower and closed down 21.4%. That’s the stock’s worst daily decline ever, according to Dow Jones Market Data.
It all started on Thursday evening. FedEx announced that it earned about $3.44 per share on $23.2 billion in sales. Wall Street was looking for more than $5 in earnings per share from $23.5 billion in sales. Management said volumes were slowing as “macroeconomic trends worsened significantly.” Costs were also a problem.
So far, five analysts have downgraded shares in response. The stock was cut to Neutral from Buy at BofA Securities, and JP Morgan analyst Brian Ossenbeck cut his rating to Hold From Buy and his price target to $214 from $258 a share. Loop Capital Markets analyst Rick Paterson cut his rating to Hold from Buy and his price target to $202 from $339 a share.
KeyBanc analyst Todd Fowler cut his rating to Hold from Buy. It suspended its price target. Fowler’s target going into the downgrade was $325 a share. Finally, Stifel analyst J. Bruce Chan downgraded shares, like the others, to Hold from Buy. His price target went to $195 from $288 a share.
There were other price target cuts from the Street. The average analyst price target is now around $250 per share, down from nearly $290 per share just a few days ago.
FedEx stock was downgraded six times this month. Only Citi’s Christian Wetherbee downgraded shares to Hold from Buy before the guidance crash. Still, 55% of analysts covering the stock still rate the shares Buy. And the average target price is about 50% above where shares are slated to open. Maybe it’s a good time to get shares on the cheap? After all, shares are trading around 9 times updated fiscal year 2023 earnings estimates.
Discretion may be the best part of steam in this situation. First, earnings estimates are likely to fall further, making it difficult to call the stock cheap just yet. That’s probably not a multiple of 9 times really 9 times.
And once again FedEx came into a series of tough results at the end of 2018. Back then, FedEx cut its guidance for the full year to about $16 per share from about $17.50 when fiscal 2019 earnings were reported in December 2018.
Shares fell more than 12% in response. It took the company a few more quarters to work out the connections. Shares fell by a further 10% in the next 12 months and the
found about 28%.
But over the next year, from late 2019 to 2020, FedEx shares rose nearly 90% while the S&P gained 15%.
Trying to time the market is tough, and usually a bad idea. FedEx stock became a strong performer at some point in 2019 into 2020. And shares are now closer to the bottom than before. However, past experience shows that investors should have some time to consider what is going on for a few months.
Sometimes, patience is a virtue.
Write to Al Root at firstname.lastname@example.org