FedEx (FDX) received a reduction to its price target Friday from Morgan Stanley as the firm said it expects the package-shipping company’s fiscal Q4 earnings per share and fiscal 2020 EPS guidance to come in below Street consensus estimates when the report is released in late June.
Morgan Stanley’s new price target on the stock is $143 per share, down from $148. This moves the target further below the stock’s Thursday closing price of $158.01. The shares slipped 2.2% in recent Friday pre-market trading to $154.50.
For FedEx’s fiscal Q4 ending in May, the mean estimate of analysts polled by Capital IQ calls for adjusted EPS of $4.91, down from $5.91 a year earlier. Morgan Stanley, meanwhile, sees the quarter’s adjusted EPS at $4.79.
In a note to clients, Morgan Stanley said “the big question into the print is whether the headwinds that have severely pressured [fiscal second-half] results will ease (as [the consensus] expects) or intensify (as we expect) into [fiscal 2020].”
The firm noted it now expects fiscal 2020 EPS of $15.70, which is well below analysts’ mean estimate according to Capital IQ of $16.58.
“We believe the path to Express turnaround targets remains unresolved as tariff limbo, industrial production / international macro softness, and TNT integration continue to cap results,” Morgan Stanley said.
However, the firm added, FedEx’s Ground segment continues to be the driver of the gap between its estimates and the consensus view, driven by six-day service rollout costs, pressure on yields, and incentive compensation.
Morgan Stanley also noted FedEx just announced Thursday that it will move to delivering seven days a week starting in January 2020, which the firm said “means operational cost headwinds are likely continue through the end of [fiscal 2020].”
As for the stock, the firm said, “it may be tempting to think that all the bad news is already in the price, but that has not stopped the stock from underperforming since the initial valuation reset in December.” It added: “If numbers come down again, will investors still want to buy the dip and the attractive valuation? The answer may depend on whether the market believes that FDX’s issues are cyclical, secular, or both.”