Why FedEx Stock May Fall Further on U.S.-China Trade War

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Why FedEx Stock May Fall Further on U.S.-China Trade War

FedEx Corp. (FDX) shares, which have already lagged the market this year and down 5% on Tuesday, might fall much more as the U.S.-China trade war eats into the delivery giant’s profitability, according to one team of bearish and as detailed in a recent Barron’s story. The stock is currently more than 10% below its year-to-date high, having totally missed the market’s bounce after January’s bigger slump.

Delivery Giant Misses Targets

A number of Wall Street analysts have reduced their profit and price predictions for FedEx after the business said that the trade war had already hurt 10% of its China sales. Bears are concerned that negative headwinds will intensify when President Trump adds $200 billion in Chinese imports to his tariff list, which is expected to go into force on September 24.

FedEx stock closed up 0.5% on Wednesday at $242.88, reflecting a 2.7% loss year-to-date (YTD), behind competitor United Parcel Service (UPS), which has also down 0.8% YTD, and the wider S&P 500’s 8.8% gain over the same time.

FedEx Stock Lags the Market

Index/CompanyYTD Performance
S&P 5008.8%
Dow Jones Industrial Average6.8%
FedEx-2.7%

(For more information, see FedEx Delivers Earnings Below 2018 Downtrend.)

FedEx fell short of Wall Street profits estimates in the most recent quarter, reporting EPS of $3.46 on sales of $17.05 billion, compared to the average of $3.83 and $16.88 billion. In terms of full-year 2018, the delivery business raised its prediction for EPS to $17.50 at the midpoint, up from $17.40 before and the Street’s consensus estimate of $17.39.

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While increased delivery demand, higher rates, and reduced taxes bolstered results, profits were eroded by greater management bonuses and a rise in hourly worker pay.

Bulls Stick to Upbeat Long-Term Forecast

In light of the report,Credit Suisse lowered its price target on FedEx shares down from $315 to $307, still implying a 26.4% upside from Wednesday close. Analyst Allison Landry indicated that she “wasn’t thrilled” with results yet agrees with management that the numbers don’t tell the full story, including an expected improvementlong-term pricing. (For more, see also: FedEx Delivers Earnings Below Its Quarterly Pivot.)

Credit Suisse Trims Price Target

Previous: $315
Current: $307

Barclaysalso remains bullish on FedEx, despite lowering estimates on the “softer-than-expected results” and noting that improved FY outlook is “a bit perplexing.” Analyst Brandon Oglenskireiterated his overweight rating and $310 price target on FedEx stock.

FedEx is one of many global corporations that have taken a hit on heightened trade tensions. While China only accounts for 2% of FedEx’s total top line, executives indicated in the earnings call that trade tensions have spilled over into the broader economy, creating a more cautious business environment and slowing down economic activity.

FedEx’s fears echo warnings from other global corporations and market watchers who indicate that equities could fall in the double digits if the trade war continues. Ian Hissey, the vice president of FactSet’s portfolio analytics group, told CNBC that effects could be “widespread” andthat global equities could fallbetween 8% and 17%.

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