Wall Street is piling up as
stock dips. Contrarians may want to buy shares on the cheap, but it seems a little early for that.
Downgrades abound afterwards
(ticker: FDX) shocked investors by reporting lower-than-expected earnings for its fiscal first quarter ended in August, while also withdrawing financial guidance for the year.
The new downgrades came too late to save investors any pain on Friday. Shares could fall further from here, but the stock opened dramatically lower and closed down 21.4%. That’s the stock’s worst daily drop ever, according to Dow Jones market data.
It all started on Thursday afternoon. FedEx said it earned about $3.44 per share on $23.2 billion in sales. Wall Street was looking for more than $5 in earnings per share on $23.5 billion in sales. Management said volumes slowed as “macroeconomic trends worsened significantly.” Cost was also an issue.
So far, five analysts have downgraded the stock in response. The stock was downgraded to Neutral from Buy at BofA Securities, while JP Morgan analyst Brian Ossenbeck cut his rating to Hold From Buy and his price target to $214 from $258 per share. Loop Capital Markets analyst Rick Paterson lowered his rating to Hold from Buy and his price target to $202 from $339 per share.
KeyBanc analyst Todd Fowler lowered his rating to Hold from Buy. He suspended his price target. Fowler’s downgrade target was $325 per share. Finally, Stifel analyst J. Bruce Chan downgraded the stock, along with others, to Hold from Buy. His price target was raised to $195 from $288 per share.
There were other price target cuts from the Street. The average analyst price target is now around $250 per share, up from nearly $290 per share just two days ago.
There have been six downgrades to FedEx stock this month. Only Citi’s Christian Wetherbee downgraded the stock to Hold from Buy before the guidance debacle. However, 55% of analysts covering the stock still rate the stock Buy. And the average price target is about 50% higher than where the stock is scheduled to open. Maybe it’s a good time to buy stocks cheap? Besides, shares are trading at about 9 times updated FY2023 earnings estimates.
Discretion may be the better part of valor in this case. For starters, earnings estimates likely need to fall even further, making it hard to call the stock cheap just yet. That 9 times multiple is probably not really 9 times.
And another time FedEx faced a string of tough results was back in late 2018. That’s when FedEx cut its full-year guidance to about $16 a share from about $17.50 when it reported its earnings 2019 in December 2018.
Shares fell more than 12% in response. It took a few more quarters for the company to work out the kinks. Shares fell by 10% over the next 12 months, while the
gained about 28%.
But over the next year, from late 2019 to 2020, FedEx shares rose nearly 90%, while the S&P rallied 15%.
It’s hard, and usually a bad idea, to try to measure the market. FedEx stock performed strongly at some point in 2019 through 2020. And shares are closer to the bottom now than before. However, past experience suggests that investors should have some time to assess what is happening for a few months.
Sometimes, patience is a virtue.
Write to Al Root at email@example.com