The dive in FedEx shares (NYSE 🙂 is accelerating. They hit a three-year low on the news yesterday that China is questioning the world's largest parcel shipping company on a number of & # 39; illegal & # 39; deliveries
According to a Wall Street Journal report yesterday, FedEx's internal protocols changed to meet the Trump government's crackdown on Huawei Technologies Inc. that the delivery giant was misleading two of the packages from the Chinese company to the US, said China at the weekend was drawing up a list of "unreliable entities" that harm the interests of local companies, a movement that may affect FedEx activities in China could endanger the trade dispute between & # 39; the world's two largest economies escalating further
Now FedEx is involved in this trade war, the Street View on its shares has become more bearish. Analyst Thomas Wadewitz at UBS lowered his price target to $ 136, the lowest of the 27 analysts questioned by FactSet. He estimates that FedEx's China-related revenue is approximately $ 4.5 billion, or 6% of total revenue.
FedEx inventory fell 1.3% yesterday to $ 152.34 and pushed it to the lowest level since July 2016.
The sale comes after a four-week losing streak in which the stock fell 18% until Friday. For comparison: shares of competing United Parcel Service Inc. (NYSE 🙂 fell 13% in the same period, while lost 11%.
FedEx struggles on many fronts
While international trade, and in particular the threat from China, is the last negative catalyst to put pressure on FedEx, the company also faces many other problems. The package carrier had fought on many fronts, even before the last setback.
The weakness in global demand, especially in Europe where FedEx was gambling heavily after the acquisition in 2016 of the Dutch-based parcel delivery company TNT Express, and challenges arising from the growing e-commerce are among the main issues that weakening growth
In March, FedEx reported disappointing fiscal results, while the full year outlook was shortened for the second time in three months. The company now expects a $ 4.5 billion sales increase for the fiscal year that ended in May. That would be a drastic fall from the previous $ 6 billion forecast for the year. Adjusted earnings for the fiscal year are $ 15.80 to $ 15.90 per share, lower than a previous forecast of $ 15.50 to $ 16.60.
The acquisition of TNT in 2016 by TNT is still a work in progress because it has failed to unlock the value that investors were hoping to see. FedEx said in March that integration costs for the acquisition are expected to be more than $ 1.5 billion in fiscal 2021, with the potential for further escalation. The integration problems and the slowing European economy have expressed doubts about the benefits of the agreement with TNT, with some analysts questioning the wisdom behind this huge venture
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Bottom Line
As we had recommended in our December FedEx article, investors should avoid the cyclical stocks associated with global economic growth. FedEx is a macro-economic driver and unfortunately got caught up in the cross fires of the escalating trade war. Investors should not be tempted by the sharp fall in the share this year, because we believe this bearish spell did not happen. Investors must prevent them from catching the falling knife.
