The shipping giant FedEx
FEDEX
-22.03%
closure:0
opening:159.34
High:161.66
low:155
cycle:—
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cut the adjusted profit forecast for the next quarter sharply, so that it is expected to be 33% less than analysts’ expectations – something that causes the company’s stock to plunge by tens of percent today in trading. The company announced that it earned about $3.44 per share on sales of $23.2 billion. Wall Street expected a profit of more than $5 per share on sales of $23.5 billion. Management said the results were low because “macroeconomic trends have worsened significantly.”
So far, four analysts have downgraded the stock in a buy-to-hold response: JP Morgan analyst Brian Osenbeck lowered his price target to $214 from $258 a share. Loop Capital Markets analyst Rick Patterson also lowered his price target to $202 from $339 a share. KeyBanc analyst Todd Fowler temporarily lowered his price target from about $325 per share, and analyst J. Bruce Chan lowered his price target to $195 from $288 per share.
The average analyst price target is now about $250 per share, down about 13.8% from nearly $290 per share just a few days ago. Still, 55% of the analysts reviewing the stock still give it a buy recommendation when the average price target is about 50% above where the stock is trading today. So is this a good time to pick up stocks on the cheap? Not at all safe. Using discretion won’t hurt in this case. For starters, earnings forecasts are likely to drop further, making it still difficult to call the stock cheap.
The last time FedEx issued a tough earnings forecast was at the end of 2018. That’s when the company lowered its annual profit forecast to about $16 a share from about $17.50. In response, the shares fell by more than 12% and later in the year fell by another 10% while the S&P 500 increased by about 28%. However, over the following year, from late 2019 to 2020, FedEx stock jumped nearly 90% while the S&P 500 rose just 15%.
Trying to time the market is usually a bad idea. FedEx stock has indeed performed strongly in early 2020, and now the stock price is closer to the bottom than before. Still, past experience shows that investors need a few months to assess what will happen next.
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