FedEx reports earnings next week for the first quarter of its new fiscal year.
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For investors, 2021 is essentially in the books. Full-year earnings estimates for most companies aren’t going to change all that much from this point forward. What matters more now is the outlook for 2022. Investors will get an important look at the coming year soon, starting with FedEx .
FedEx (ticker: FDX) reports its fiscal 2022 first-quarter earnings on Sep. 21 after the market closes for trading. The parcel delivery giant will also update its annual guidance, which includes the important holiday shipping season, and stretches into May 2022.
These days, things are good for the company, but—as ever—the market is forward-looking. Investors, as well as Wall Street, aren’t as sanguine as they have been about the company in recent months.
FedEx projected $21 in adjusted per-share earnings for fiscal 2022 back in June, when management gave its initial guidance for the coming fiscal year, up from earnings of about $18 a share in fiscal year 2021. Analysts were a little more bullish than that, projecting about $21.16 a share in 2022 earnings. But estimates have started to go down, with consensus earnings projections for the 2022 fiscal year slipping to about $21 a share. Something is bothering the Street.
J.P. Morgan analyst Brian Ossenbeck rates shares Buy, but he is showing some nerves as well. The analyst cut his price target on the stock to $346 a share from $366 earlier in September. What’s more, he’s telling clients to “stay on the sidelines” going into the quarterly earnings print. There are too many questions right now, he says, such as whether rising labor costs will hurt profit margins and how the stock will react to slowing e-commerce growth.
Ossenbeck prefers waiting until later in the year to add to positions. At that point, the labor cost situation will be better understood and holiday shipping surcharges—meaning higher prices for FedEx services—will be in full effect. He projects $4.75 a share in fiscal first-quarter earnings and sees that jumping to $5.16 a share in the 2022 fiscal second quarter.
Cowen analyst Helane Becker also rates shares Buy. Like Ossenbeck, she wants FedEx management to address the labor situation going into the seasonally busiest time of the year. Becker points out FedEx will be adding about 50,000 workers to meet peak demand.
She projects $5.05 in fiscal first-quarter per-share earnings, a little higher than Ossenbeck and a little higher than the Street’s $4.88 consensus per-share earnings projection. Becker’s price target for the stock is $335, while the average analyst price target sits at about $340 a share. That implies gains of about 30% from recent levels, but the average target price—like earnings estimates—has also gone down, from about $350 a share back in June.
The stock, after an epic 2020, is also mirroring that recent downward shift in sentiment. Coming into Friday, FedEx stock is about flat for the year, trailing behind the 19% and 14% respective gains of the S&P 500 and Dow Jones Industrial Average.
The shipper’s shares gained 72% in 2020 as Covid-19 reduced the number of planes in the air—taking down shipping capacity—and boosted demand for online shopping.
Now there is a new set of questions about labor costs and the impact of rising prices on demand for FedEx services. The answers to those questions will likely determine the direction of FedEx stock for the next few months. It will also give investors a sense of how labor and demand issues will impact other companies in 2022 as well.
Write to Al Root at [email protected]
