FedEx FDX shares suffered one of their biggest one-day drops in years after it lowered its earnings guidance for the year in September. The company has tried to recover since then, but FDX stock is down over 33% in the last two years as investors pull back on the shipping giant during the Amazon AMZN and e-commerce age.
The question is should investors think about buying beaten down FedEx stock before it releases its second quarter fiscal 2020 earnings results on Tuesday, December 17?
The Simple Story
FedEx stock has tumbled over the last two years even though its sales have grown. The downturn came as the global shipping powerhouse’s longer-term earnings outlook plummeted (see chart below). More recently, FDX shocked many on Wall Street when it in August essentially cut ties with Amazon.
Many investors thought that FDX pulled the plug too early on its relationship with the e-commerce company even though management said that Amazon represented only a small proportion of sales. Clearly, the Memphis, Tennessee-based firm no longer wanted to do business with a company that aims to become a shipping and logistics behemoth in its own right.
With this in mind, FedEx hopes to do what Microsoft MSFT has done with cloud computing: attract Amazon’s direct rivals, which includes the likes of Walmart WMT. The firm is also trying to improve its FedEx Express hub automation and modernize its FedEx Express air fleet.
Plus, FedEx executives have highlighted their plans to attract more e-commerce and business-to-consumer clients, while remaining a B2B-heavy operation. These initiatives are aimed to help FDX better compete against its core competitors, which include United Parcel Service UPS, DHL, the US Postal Service, and now Amazon.
Despite its long-term efforts, FedEx continued to point to broader economic worries as a reason for its more tepid near-term outlook. Last quarter, management said that its “operating results declined primarily due to weakening global economic conditions, increased costs to expand service offerings and continued mix shift to lower-yielding services.”
Other Fundamentals
The chart above helps investors see how much FDX’s earnings outlook has plummeted. As we mentioned, FedEx shares have fallen 33% in the last 24 months. However, the company’s stock is only down 1.5% in the last six months and has popped 13% since early October.
FedEx closed regular trading Wednesday at $159.08 per share, down 20% off its 52-week highs. On the technical side, FDX shares recently popped above its 50-day moving average but sit below the 200-day.
Meanwhile, FedEx stock is trading at 12.1X forward 12-month Zacks earnings estimates. This marks a premium compared to the Transportation-Air Market’s 10.5X average but does comes in far below its own three-year high of 18.7X and 14X median.
FDX pays an annualized dividend of $2.60 per share, for a 1.66% yield. However, this comes in below the 10-year U.S. Treasury note’s 1.80% and far below rival UPS’ 3.24% (and UPS stock is up 20% in 2019).
Q2 2020 Outlook & Beyond
Looking ahead, FDX’s Q2 fiscal 2020 revenue is projected to slip 1.4% from the year-ago period to $17.57 billion, based on our current Zacks Consensus Estimate. This would mark a downturn compared to Q1’s flat movement.
With this in mind, the firm’s full-year sales are projected to come in flat at $69.72 billion, with fiscal 2021 revenue expected to come in 3.8% higher than our current-year estimate to hit $72.39 billion.
At the bottom end of the income statement, FedEx’s 2020 outlook appears far worse. The company’s adjusted second-quarter earnings are projected to tumble 29.5% to $2.84 per share, with FY20’s EPS figure projected to fall 22% against 2019.
Peeking further down the road, the shipping firm’s 2021 earnings are expected to climb 13.3% above our 2020 estimate, which would still see it come in far below 2019’s figure.
Bottom Line
FDX has missed our quarterly earnings estimates in three out of the last four quarters and its earnings revision picture has plummeted since it reported its Q1 results. FedEx is a Zacks Rank #3 (Hold) that holds an “F” grade for Momentum in our Style Scores system. Plus, its Transportation - Air Freight and Cargo industry rests in the bottom 30% of our more than 250 Zacks industries.
Therefore, investors should probably wait for FedEx’s guidance and see how Wall Street reacts before taking a chance on FDX stock.
FDX is set to report its quarterly results after the closing bell on Tuesday, December 17.
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