Goldman Is Pulling FedEx Off Its 'Conviction Buy' List, But Don't Freak Out

FedEx Corporation FDX has seen a 14.73 percent decline in its share price year-to-date.

Tom Kim of Goldman Sachs has maintained a Buy rating on FedEx, while lowering the price target from $214 to $184.

The stock has been removed from the Conviction Buy List due to expectations of persisting headwinds leading the uncertainty regarding the company’s near term EPS.

The company has modestly reduced its FY16 EPS guidance, while attributing the revision to “weaker LTL demand within Freight, and higher self-insurance reserves and operating costs within Ground,” according to the Goldman Sachs report.

The underperformance of the stock during 2015 is likely to have been caused by investor concerns regarding FedEx’s FY16 guidance, as well as global growth concerns. However, Kim believes that the stock “still offers an attractive value proposition for shareholders.”

Kim expects the company to be able to deliver EPS growth of 18 percent in FY16, while the EPS outlook for the medium and long term “remains bullish.”

The Express business reported “impressive” Q1 results and appears to be on track to achieving its profit improvement target of $1.6 billion. Kim expects the increased costs associated with the GENCO integration to be temporary.

“Meanwhile, we think the selfinsurance reserves should moderate after a significant accrual was booked in 1Q. Ground’s long-term earnings power remains intact, in our view,” Kim added.