One Wall Street analyst is sounding the alarm about FedEx’s vulnerability in 2023, especially if the US economy enters a recession.
On Monday, EvercoreISI Jonathan Chappell wrote in a note, “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. 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.”
After the close of trading Tuesday, FedEx reported profits fell 24% in the quarter ended Nov. 30. Revenues had continued to decline 3%, to $22.8 billion. According to FactSet, analysts’ expectations were for revenues to come in at $23.7 billion.
The average number of packages FedEx handled daily fell 10.2% during the quarter compared to the prior year, however the company said it was optimistic it could mitigate the losses with aggressive cost-cutting. The company noted it had identified an additional $1 billion in cost savings and reduced its capital spending plans for the next fiscal year.
Regardless, Chappell didn’t wait for the report before downgrading his views for the next year.
Chappell added, “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 cut his price target for FedEx shares from $225 to $202.
Chappell continued, “The stock has clearly re-rated this year following the September pre-announce shock. 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.”
