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Earnings

FedEx’s share price: what to expect in Q4 earnings

FedEx's [FDX] share price has yet to really recover from the company’s separation from Amazon last year. The split saw the stock plummet as Amazon brought deliveries in-house to reduce their costs.

Less than twelve months later, FedEx’s share price has taken another hit due to the coronavirus outbreak. The mail carrier’s predominately B2B customer base has suffered as a result of the lockdown, causing the company to pull its fiscal forecast for 2020 back in March. What’s more, the jump in demand for their services caused by the recent boost in e-commerce sales has brought its own increase in costs, rather than simply guaranteeing profit.

So, will FedEx deliver the goods in its Q4 earnings, or will traders be returning FedEx's share price to sender?

 

 

What's happening with FedEx's share price?

FedEx’s share price was down 16.13% year to date (through 26 June’s close). Unsurprisingly, its biggest losses came at the onset of the coronavirus outbreak: between 22 February and 16 March, the stock fell 45.2%, from $164.91 to $90.34. Since then, the stock recovered by 65.1% through 8 June’s close, before plunging almost 13% over the last three weeks ahead of the Q4 results.

16.13%

FedEx's share price drop YTD

  

When does FedEx report Q4 results?

30 June

 

How could the results affect FedEx’s share price?

Coronavirus impact

Shareholders will be hoping that, with people stuck in lockdown, the sustained spike in online deliveries will translate into higher profits and a boost for FedEx’s share price. The mail carrier’s recent report that delivery numbers have topped holiday season figures has given investors some cause for optimism.

That said, the increased demand has also brought attendant cost increases for FedEx, which it has tried to offset by introducing delivery surcharges. If these additional costs still take a swipe at the company’s profit, FedEx's share price could drop post-earnings.

 

Charges and cash flow problems

In April, FedEx reported increased demand from its Asia market, but it also noted a decline in liquidity. This could hurt FedEx’s share price over the next year, especially if the general economic outlook worsens. The mail carrier has already had to stomach a $370 million non-cash impairment charge related to assets from its 2004 acquisition of Kinkos.

FedEx’s share price will be sensitive to any measures put in place now with the aim of getting its service back on track. It will have to attract more B2C customers and reduce costs across the board if it hopes to return to its pre-crisis position.

Alan Graf, FedEx’s executive vice president and chief financial officer, detailed what he thought the company needed to do during Q3 results:

“To mitigate these near-term headwinds and position the company for future earnings growth, we are attacking costs throughout the company by managing capacity, retiring our oldest and least-efficient aircraft, integrating TNT Express, and lowering our residential delivery costs by having FedEx Ground deliver FedEx SmartPost and certain day-definite FedEx Express packages." 

“To mitigate these near-term headwinds and position the company for future earnings growth, we are attacking costs throughout the company by managing capacity, retiring our oldest and least-efficient aircraft, integrating TNT Express, and lowering our residential delivery costs by having FedEx Ground deliver FedEx SmartPost and certain day-definite FedEx Express packages” - Alan Graf, FedEx’s executive vice president and chief financial officer

 

What are the analysts expecting?

The short-term prognosis for FedEx’s share price looks rough. Wall Street expects earnings to come in at $1.66 a share for Q4, down from the $5.01 seen in the same quarter last year. Revenue is also expected to decline, coming in at $16.56 billion, down 7% from the $17.81bn seen in the same quarter last year.

So, can FedEx deliver an earnings beat? The likelihood is slim, given the company’s recent setbacks. It’s worth noting, too, that of the last three quarterly earnings results, FedEx has missed Wall Street expectations twice.

That said, and despite current problems, analysts seem to be backing FedEx. Of the 28 analysts tracking the stock on Yahoo Finance, 21 rate it either a Strong Buy or a Buy. 

Last month, UBS maintained their Buy ratings on the stock, with a $158 price target. Hitting this would see a 21.5% upside on the current share price through 26 June’s close. Analysts at UBS acknowledged that Q4 results would be weak, but were optimistic when looking to FedEx’s prospects of improving margins in the coming years. 

However, expectations amongst other analysts are generally more modest. FedEx’s share price has an average $145.25 12-month price target. This would see a 11.7% upside as of 26 June’s close.

 

Market Cap$33.983bn
Operating Margin (TTM)0.67%
EPS (TTM)-1.34
Quarterly Revenue Growth (YoY)2.80%

FedEx share price vitals, Yahoo Finance, 29 June 2020

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