Analyst: Numbers Underlying FedEx's Consensus Beat 'Seemed To Miss'

FedEx Corporation (NYSE: FDX) will close 2017 celebrating the underperformance of the competing U.S. Postal Service and the struggles of rival Amazon.com, Inc. (NASDAQ: AMZN).

With a 30-percent run, the firm had a relatively good year — but perhaps only relatively. Bernstein is critical of FedEx’s absolute value and potential.

The Rating

Bernstein analyst David Vernon reiterated a Market Perform rating on FedEx and raised the price target from $212 to $236.

The Thesis

The ostensible second-quarter consensus beat FedEx reported after the close Tuesday did not impress Bernstein. The bottom line, when adjusted for a one-time tax credit and integration, "seemed to miss," and accompanying guidance reflected similarly short-term relief rather than any sustainable improvement, Vernon said. (See the analyst's track record here.) 

The outlook leans partly on cyclical inflation: tax-savings reinvestments and a 75-percent hike in the TNT Express budget, which Vernon said signals a lower return on investment.

“While bullish to adjusted forecasts (which go up unless you are fundamentally more bearish due to the higher adjustments), this increase raises the question of whether adjusting one-time items from a cyclically elevated base makes sense,” the analyst said. 

Although confessing “solid” core price in FedEx’s ground segment, Vernon said he considers the underlying bull case “thin” and is bearish on a perceived lack of commitment to capacity discipline in the firm’s residential business.

He raised quarterly estimates based on integration adjustments and raised his price target in consideration tax benefits.

Price Action

At the time of publication, FedEx was trading up 2.49 percent at $248.55.

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