By Vlad Schepkov
An analyst from Morgan Stanley halved his price target on FedEx (NYSE:FDX) from $250 to $125, while maintaining an 'Equal-Weight' rating, following the company’s recently announced profit-warning.
In its latest note, Morgan Stanley draws a parallel between the company’s recent earnings and guidance miss - FDX posted EPS of $3.44 vs consensus of $5.14 and withdrew full-year guidance citing weakness in China and Europe - and the events of 'late 2018-2019, when FDX's NTM consensus EPS dropped roughly 50% in the course of a few quarters and the stock declined by a similar amount as well.'
The analyst further warns that 'high visibility cost actions are already built into that baseline' and thus does not 'expect revenue tailwinds soon', while noting 'the extreme volatility in FDX earnings over the last 5 years and the lack of market confidence in the show-me story.'
As such, he believes investors need 'confidence that numbers have stopped falling first and then a determination of what the right multiple applied should be' for the stock to see any meaningful rebound.
With FedEx’s business moving past the pandemic boom, the stock is also inching close to 'the same level it was in January 2020 and our PT returns to nearly the same level that it was back then as well.'
Morgan Stanley further notes that current issues are not FDX-specific, but rather are 'driven by post-pandemic mean reversion with some element of macro slowing', as it voices similar concerns over the company’s biggest competitor UPS (NYSE:UPS): 'mean reversion and macro slowing will have direct read across to UPS in the coming quarters.'
Given the industry-wide macro concerns, the analyst believes 'it is very unlikely for UPS to be able to outrun these pressures', and suggests more downside is on the way: 'it seems out of sync for UPS to be ~35% higher than pre-pandemic levels.'
Shares of FedEx have fallen nearly 45% YTD and 34% in the past 30 days alone, as the company’s bottom line misses have driven investors away from the stock. By contrast, UPS has 'only' lost 24% in 2022.