Source: Investing Published 09/20/2024, 12:08
On Friday, Morgan Stanley downgraded FedEx (NYSE:FDX) from “equal weight” to “underweight,” and lowered its price target from $215.00 to $200.00.
The firm’s analysis indicates that the company’s expected earnings per share for fiscal 2025 are significantly below the guidance provided by FedEx management, as well as current consensus estimates.
The firm maintains its forecast for FedEx’s earnings per share for fiscal 2025 at $15.80, which is about 25% below the company’s expected range of $20-21. This assessment comes despite the consensus estimate for the fiscal year already being cut by 4% in the past month.
FedEx reported earnings of $3.60 in the first quarter, and according to Morgan Stanley estimates, the company will need to earn roughly $17 per share over the next three quarters to meet its own guidance.
The downgrade reflects concerns about FedEx’s ability to close the large gap between Morgan Stanley’s estimates and the earnings path required to meet management’s guidance.
The company had previously maintained an “equal weight” rating because the biggest risks to the outlook were expected to emerge in the second and third quarters of fiscal 2025 and it was awaiting updates on its less-than-truckload (LTL) shipping strategic review.
The magnitude of the first-quarter earnings shortfall, coupled with the large discrepancy between Morgan Stanley’s forecast and the recovery path required to meet management’s expectations, led to the conclusion that there are greater risks to earnings over a longer period than initially anticipated. This new rating has led to the downgrade to “underweight.”
In other recent news, FedEx reported a decline in its first-quarter earnings due to lower demand for its priority services, with EPS coming in at $3.60, down from $4.55 in the same period last year.
This comes as BofA Securities revised its price target on FedEx stock while maintaining a “buy” rating. The firm’s analyst cited lower demand as the reason for cutting its EPS estimate for the quarter by 9% to $4.76, while also highlighting FedEx’s ongoing cost-cutting initiatives.
Meanwhile, BMO Capital maintained its “market perform” rating on FedEx, forecasting low-to-mid single-digit revenue growth and EPS of $20-$22 for fiscal 2025. Despite the near-term challenges, Baird maintained its “outperform” rating on FedEx, citing the company’s DRIVE initiative as a stabilizing factor for earnings clarity.
Additionally, FedEx announced potential service disruptions in Louisiana due to the expected impact of Hurricane Francine. The company also resumed international priority services in Ukraine and restored international delivery services to and from Israel. These recent developments provide insights into the company’s performance and strategic initiatives.
