SA: Can FedEx deliver strong earnings against darkening macro backdrop?

SEEKING ALPHA reports:

FedEx Corporation (NYSE:FDX) is due to post its fiscal second quarter earnings after the bell on Tuesday.

Shares of the Memphis-based transportation company have plunged over 30% in 2022, due in no small part to disappointing earnings results. For example, its September pre-announcement sent shares spiraling downward as analysts called out a “massive miss” on expectations. Annual earnings estimates have been slashed on the Street since that point.

For the quarter due to be reported on Tuesday, the reined in estimates reflect a consensus of $2.83 in earnings per share and $23.72B in revenue. In the past two years, the company has exceeded EPS estimates 50% of the time and revenue 75% of the time.

Analysts have come out to advise clients that, despite the deep revisions, there is still downside risk for shares as the company could still come up short of a lowered bar. Further, the importance of 2023 forecasts looms large as the company cuts costs by grounding planes and trimming its headcount into the holiday season.

“Demand is under pressure amid economic softness and cost inflation may be challenging to offset with pure price in perpetuity, especially amid a weak volume backdrop,” Evercore ISI analyst Jonathan Chappell said. “Recessionary headwinds are likely to intensify post the peak holiday season, and as execution of the cost-led strategy still requires a bit of ‘prove it’.”

Chappell therefore cut his EPS forecasts for FedEx and expects weaker than consensus volume through 2024. He also trimmed his price target on the stock to $202 from $225.

Wells Fargo also trimmed EPS estimates, expecting a choppy trend into next year. Worse yet, the team does not see a low valuation providing much of a floor. As such, the bank’s team assigned an $185 price target to shares alongside a Hold-equivalent rating.

“Even after substantial revisions, we believe EPS estimates have downside risk, and we remain cautious with shares,” the team concluded.

The full post is here.