Morgan Stanley Sees 80% Chance FedEx Trades Lower After Q4 Print

FedEx Corporation (NYSE: FDX) is scheduled to report fiscal fourth-quarter results in late June, but what's more important for investors is the company's fiscal 2020 guidance, according to Morgan Stanley.

The Analyst

Ravi Shanker maintains an Equal-weight rating on FedEx with an unchanged $148 price target.

The Thesis

FedEx provided a weak fiscal fourth-quarter guide in its March earnings report, and the weakness is likely to carry over through at least into the first half of 2020, Shanker said in a Thursday note. (See his track record here.) 

The consensus estimate is calling for 10-percent year-over-year earnings growth to $16.76. The likelihood of FedEx's guidance matching current estimates stands at 20 percent, as it implies current weakness is a "one-off," the analyst said. 

Under a base case scenario, FedEx's 2020 EPS guidance would come in at $16, implying the headwinds will carry over through at least the first half of 2020, Shanker said. If this occurs, the stock should be able to hold on to its current multiple of 10 times EPS, which implies downside of 7 percent from current levels to $160 per share, he said. 

The likelihood of FedEx guiding its 2020 EPS to $15 stands at 30 percent, which implies that headwinds will intensify into fiscal 2020. Under this scenario, a similar multiple of 10 times EPS implies 13-percent downside in the stock to $150 per share.

The base case scenario and a bear case outlook combine for an 80-percent likelihood of FedEx's stock trading lower, the analyst said. 

Price Action

FedEx shares were trading down 3.25 percent at $170.03 at the time of publication Friday. 

Related Links:

Wall Street Divided On Buying The FedEx Dip

BMO Shares Takeaways From Meeting With FedEx, Expects Cost Savings From Buyouts, TNT Express

Photo by Kevin McCoy/Wikimedia.