Hit by rising labor costs and supply-chain issues, the parcel-shipping giant
(ticker: FDX) reported $4.37 in adjusted per-share earnings from $22 billion in sales for the first quarter of its 2022 fiscal year. A year earlier, FedEx earned $4.87 a share from $19.3 billion of sales, so profits fell even as sales rose.
Shares were down 5.7% to $237.67 in premarket trading, while futures on the
Dow Jones Industrial Average
were both up about 0.5%.
The weak quarter caused Raymond James analyst Patrick Tyler Brown to cut his rating on FedEx stock. He downgraded shares to Hold from Buy and suspended his target of $330 for the stock price.
Too much could potentially go wrong for him to keep recommending the stock. “More global uncertainty,” more capital spending and financial forecasts that depend on cost improvements later in the year is a “risky elixir,” according to Brown.
J.P. Morgan analyst Brian Ossenbeck, who warned investors in his earnings preview report that the quarter would be rough, is more bullish. He kept his Buy rating on shares, but cut his price target to $329 a share from $346.
Still, he has concerns, saying investors aren’t likely to jump back into the stock after the cut to guidance. “Incremental interest from potential long term holders will remain tepid after management’s commitment to grow capacity in this environment,” wrote the analyst in a Wednesday report.
Like Ossenbeck, Cowen analyst Helane Becker kept her Buy rating but cut her target price for the shares. Becker’s new target is $297 a share, down from $335.
“The trend to higher wages is driving higher [shipping] rates,” wrote Becker. The company has announced a 5.9% price increase taking effect in January 2022. That is 1 percentage point higher than the 2021 price bump. Inflation “is not specific to [FedEx] but an issue plaguing a number of companies,” Becker said. She wants FedEx to focus on improving profit margins down the road.
Overall, Wall Street still likes FedEx stock. About 72% of analysts rate shares Buy, while the average Buy-rating ratio for stocks in the S&P is about 55%. The average analyst price target, however, dropped to about $321 a share from $338 after the earnings.
Most analysts aren’t abandoning their Buy ratings, despite a rocky patch for FedEx’s shipping operations. They believe the stock could rise, if investors can feel comfortable that all the bad news is reflected in the price.
Write to Al Root at [email protected]