FedEx Stock Price Falls 5% – Time to Buy FDX Stock?

FedEx (FDX) stock was trading almost 5% lower in US postmarket price action, adding to its already dismal run in the year. FDX stock is trading flat for the year and looks set to turn negative today looking at the post-market carnage.

FedEx stock is now down over 20% from the 52-week highs that it hit earlier this year. What’s the forecast for FDX stock and is it a good buy in September?

FedEx stock recent news

FedEx reported its fiscal first-quarter 2022 earnings yesterday after the close of markets. The company reported revenues of $22 billion in the quarter which were ahead of the $19.3 billion that it had reported in the corresponding quarter last year. The company’s topline growth was better than expected in the quarter. However, the earnings report fell short on some of the other metrics that led to a slide in FDX stock.

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FDX earnings miss estimates

FedEx reported an adjusted operating margin of 6.8% in the quarter which was significantly below the 8.5% that it had reported in the corresponding period last year. The company’s adjusted EPS of $4.37 fell well short of the $4.88 that analysts were expecting. Commenting on the fall in profits, FedEx said, “First quarter operating results were negatively affected by an estimated $450 million year over year increase in costs due to a constrained labor market which impacted labor availability, resulting in network inefficiencies, higher wage rates, and increased purchased transportation expenses.”

It added that these were offset by higher package and freight rates and growing international exports. Also, the company had a favorable net fuel impact in the quarter.

FedEx lowered its guidance

Meanwhile, FedEx also lowered its fiscal year 2022 guidance. It now expects to post an adjusted EPS between $19.75-$21 in the year as compared to the previous guidance of $20.50-$21.50. The guidance excludes mark-to-market on the retirement plan, TNT Express integration costs, and other business realignment activities. The company expects capital spending at $7.2 billion in the year. The company attributed lower guidance to challenging business conditions which it expects to extend longer.

It also added, “These forecasts assume continued growth in U.S. industrial production and global trade, a gradual improvement in labor availability beginning in the second half of fiscal 2022, no additional COVID-19-related business restrictions, and current fuel price expectations.”

Labor shortage

FDX has been grappling with a severe labor shortage which has been taking a toll on its business. The company has reportedly lost some customers to rivals like UPS. On its part, FedEx has increased wages and is also offering higher wages for the weekends. However, the labor shortage situation hasn’t improved much for the company.

FedEx stock forecast

Wall Street analysts meanwhile have a bullish forecast for FDX stock. Of the 32 analysts covering the stock, 25 rate them as a buy or higher while the remaining seven rate it as a hold. None of the analysts rate it as a sell. FedEx has a median target price of $350 which is a premium of almost 39%. Its street high target price of $381 represents an upside potential of over 51%. The street low target price of $270 is also a 7.1% premium over current prices.

That said, after the soft guidance and earnings miss, some of the analysts might downwardly revise the stock’s target price. Notably, ahead of the earnings release also, several brokerages including UBS, KeyCorp, Citigroup, and JPMorgan Chase had lowered the stock’s target price.

UBS lowered the target price for FDX stock

“We believe suboptimal staffing of their Ground and Express sorting facilities was a source of inefficiency in addition to cost pressure from inflation in per hour costs,” said UBS analyst Thomas Wadewitz as he lowered the target price from $397 to $380 while maintaining the buy rating. He added, “Visibility to the path forward on margin performance is limited at the present time as it is not clear how much of the 1Q issues will remain as a headwind looking forward.”

Meanwhile, as FedEx said in the earnings call, the first quarter headwinds are expected to persist for some more time.

FDX stock long term forecast

Looking at the long-term forecast, analysts expect the company’s sales to rise 8.3% in the fiscal year 2022 and then fall to 4.8% in the fiscal year 2023. Over the long term, the integration of TNT Express would be a key driver for the stock.

FedEx stock valuation

Looking at the valuations, FedEx stock trades at an NTM (next-12 months) PE multiple of 11.9x. To put that in perspective, the multiples have averaged 13.6x, 14.2x, and 14.5x over the last three years, five years, and ten years respectively. To be sure, the labor shortage situation in the US is a near-term headwind for FDX stock. However, the current valuation discount to the long-term averages looks like a good buying opportunity.

The company would also increase the shipping rates beginning next year which will help it offset the cost pressures. Beginning November, it will also charge a fuel surcharge for certain customers amid rising oil prices.

Should you buy FDX stock?

FDX looks like a good stock to buy and the recent weakness and the post-earnings slump have made the stock even attractive. The stock is not looking very bullish on the charts though and trades below the 50-day, 100-day, and 200-day SMA (simple moving average). It has also fallen below the short-term moving averages like the 10-day, 20-day, and 30-day SMA. The MACD (moving average convergence divergence) also gives a sell signal. However, after the recent slump, FedEx stock is now getting near the oversold zone with a 14-day RSI (relative strength index) of 31.5 which is not far from 30 below which stocks are seen as oversold.

Overall, looking at the upwards momentum in the US economy and the upcoming holiday season, FDX looks a good stock to buy.

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