Oppenheimer Has Doubts About Fedex After Company Reports Earnings

Oppenheimer has downgraded shares of shipping company FedEx and believes the company has a lot to prove in the next few quarters.

The firm has downgraded FedEx from “outperform” to “perform” citing the company’s earnings miss and weak forecast.

“With Express/Ground margins well below historical trend, we anticipate FedEx to be a ‘show me’ story for multiple quarters,” Oppenheimer analyst Scott Schneeberger said in a note to clients on Wednesday.

Schneeberger has also removed his prior $167 price target after the company’s Q2 results were weaker than expected.

The analysts expects some headwinds to abate and 2H20 to be a period of moderate improvement. However, with Express/Ground margins well below historical trend, Schneeberger believes FedEx will be a “show me” story for multiple quarters.

FedEx reported $17.3 billion in revenue for the second quarter of its 2020 fiscal year, which was down from the $17.8 billion posted in the year-before quarter. Net income in the quarter was $560 million, down 40% from $935 million in the 2019 second quarter.

“The quarter just ended is an anomaly because of the compressed shipping season before Christmas, necessitating a significant bow wave of expenses and volumes that will largely fall in our third fiscal quarter,” CEO Fred Smith told investors on a conference call late Tuesday.

“In addition, this quarter has seen significant effects on the industrial economy due to continuing trade disputes, including reductions in international air freight and tepid at best B2B domestic parcel and freight shipping.”

“As I listened to the call Tuesday night I found myself thinking that Fred Smith is running a 500,000-person start-up that delivers goods on Saturday and Sunday with ever-rising costs and no increase in the price it can charge and that just lost its best client. No, worse; it just lost its best client and that client is now competing with it!” Jim Cramer wrote in his Real Money column on Wednesday morning.

Disclaimer: We have no position in FedEx Corporation (NYSE: FDX) and have not been compensated for this article.