FedEx remains at risk of laying several more earnings eggs in 2023, especially if the US enters a recession, warns one Wall Street analyst.
“FedEx pre-announced and lowered guidance in mid-September, with its earnings release and conference call one week later focused on cost controls amid a softer volume backdrop, particularly in its international business,” EvercoreISI Jonathan Chappell wrote in a note on Monday. “Although we expect most of these cost levers to be pulled, eventually totaling the targeted $2 billion in savings, the demand dynamic is seemingly softening at a greater-than-expected pace across most markets.”
The transport giant will report its latest earnings on Tuesday after the close of trading. Chappell isn’t waiting to hear what FedEx execs have to say before downgrading his view over the next twelve months.
“Furthermore, as recessionary headwinds are likely to intensify post the peak holiday season, and as execution of the cost-led strategy still requires a bit of ‘prove it’, we are lowering our FY23 and FY24 EPS estimates to $14.68 (from $16.92) and to $18.39 (from $20.50), respectively,” Chappell added.
Chappell marked down his price target on FedEx shares to $202 from $225.
FedEx stock is down 34% in 2022, lagging the 16% drop for rival UPS — which is viewed right now on Wall Street as executing far better.
The company served up a brutal earnings pre-announcement in mid-September, badly missing on quarterly earnings and its outlook. The stock was hammered. A week later, on an earnings call, FedEx execs blamed bloated costs and a slowing global economy for the lackluster performance.
The company went onto say it would slash some $2 billion in costs by reducing excess staff and capacity.
“The stock has clearly re-rated this year following the September pre-announce shock,” Chappell added, “and we continue to apply a large multiple discount to FedEx shares until the fruits of the cost strategy are realized and/or the macro backdrop substantially improves.”
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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