An analyst at JPMorgan Chase & Co (NYSE:JPM), Brian Ossenbeck cuts FedEx Corporation (NYSE:FDX) price target to $258 from $284 as the shares of FedEx settle in last trading session on $209.07. He stated that majority of investors they’ve spoken with believe FedEx will reduce its fiscal year 2023 EPS projection to include the bottom end of its current range. FedEx’s declining economic predictions, year over year drops in Asia-Pacific air cargo prices, and expectations of market share loss in its ground services division all contribute to the gloom.
While the company’s long-term reorganization strategy takes form, global macroeconomic challenges continue to squeeze profits, driving investors away from the stock. As a result, the Memphis, Tennessee-based conglomerate’s stock is down roughly 20% this year, far outperforming its nearest rival, United Parcel Service Inc (NYSE:UPS), which is down 7.5% during the same period.
Given the company’s ambitions with activist investor D.E. Shaw to build long-term value for shareholders, several analysts feel current downturn represents a buying opportunity in FDX. In June, the firm increased its quarterly payout by more than 50% as part of an agreement with Shaw, overhauled its board of directors, and committed to slash expenses to make its operations more effective.
FedEx faces a significant task in eliminating operational inefficiencies that have kept its expenses high. Unlike UPS’s One Network, FedEx’s ground operations are managed by independent contractors, but its express operations own planes and trucks and employs staff and pilots directly.
However, recent moves indicate that Raj Subramaniam, who took over as CEO from founder Fred Smith on June 1, is more amenable to resolving investor concerns as FedEx tries to increase profit margins. As these changes take effect, the macroeconomic environment is turning hostile to logistics companies, with freight volume and rates falling. If the global economy enters a prolonged recession, FDX will likely remain under pressure.
As a result, several Wall Street experts are still pessimistic about the near-term prognosis. Citi downgraded FedEx to neutral from buy in a report this week, citing near-term issues as undermining a strong long-term thesis.
FedEx is becoming an appealing long-term option with the engagement of D.E. Shaw and the new CEO’s emphasis on cost cutting and operational improvements.
That said, this is not the time to go long on a pure economic bet, especially as recession chances rise. Investors, in my opinion, will have a better opportunity to purchase FedEx at a reduced price in the coming months.
FedEx’s operation affects various sectors, from consumer products to medicines, as the world’s largest cargo aircraft and a key provider of package delivery services. In this regard, the success of the corporation is typically a gauge for how the larger economy is faring.
