Obstacles and Challenges for FedEx
Consensus EPS Estimate for Q1 2020 is $3.18 (-16.41% YoY)
Consensus Revenue Estimate for Q1 2020 is $17.07B (+0.13% YoY)
EPS revisions past 90 days include 0 upward and 16 downward
Revenue revisions past 90 days include 2 upward and 8 downward
FDX reports Q1 2020 earnings on Tuesday 9/17/19 AMC. This very famous global shipping service provider reports revenue in four segments: Ground (29% of total revenue and over 50% of the operating profits), Express (54% of total revenue and is the division which is expected to disappoint), Freight (11% of total revenue), and Services (6% of total revenue).
Operating margins have declined over the last three years while its revenue has made small gains. Free Cash Flow has been super unimpressive over the last three years and the company has had to borrow to pay its dividend and repurchase shares. Most of the EPS and revenue revisions for the past 90 days have been down and nope, we don’t have any confidence that this is over yet.
Internally, FDX has been integrating its acquisition of TNT purchased in May of 2016. The costs for this went above what management initially projected by $200 million from a cyber-attack in 2017 and they are not done yet. Apparently and sadly, it is quite a mess. The company has already broadcast to wall street that FY 2020 is a transition year again. They have taken steps to maintain their investment-grade bond rating with no dividend increases planned in FY 2020 and no buybacks.
External issues are large, growing and unknown. The ongoing US-China trade war has had a real impact on FDX, and China has targeted FDX as a company to pick on. So, this isn’t going away quickly. Slowing economies worldwide are clearly going to provide more headwinds. And then there is the Amazon ground contract, that FDX announced last month it would not be renewing after it also ended its air-shipping relationship with Amazon in June. You may have heard; Amazon is also targeting taking over the global shipping and logistics market.
FDX is up 8.09% this month and is up 7.55% YTD. Below is the weekly chart going back ten years. In our opinion, the stock has reversed off the $150 level three times this past year and could push up to test its 55-week ema at $182.70 level. But looking left on this weekly chart you see that $182.70 was resistance for it in 2014 and 2015 and support in part of 2017. So, we are skeptical it can get above this level, (unless it is bought out). Ultimately, FDX is just facing too many issues and this will take it a few years to work through. In our opinion what we may be looking at here is a larger head and shoulders formation still in progress and it appears to be working on the right-side shoulder. Think of FDX as a trading stock over the next year and a half.
Zack’s rates FDX a 3 heading into earnings and has lowered its consensus estimate for earnings by 12.6% in the last 90 days. EarningsWhispers has 55% expectation to beat and a 41% expectation for price to rise. Bernstein expects a beat for this quarter. Implied volatility levels for next week's options suggest +/- 8.67point move. If FDX beats and this move occurs this would take the stock right to the 183 level.
Good luck bulls and bears!
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