Credit Suisse: FedEx Concerns 'Valid,' But Selloff Creates Buying Opportunity

Multiple concerning metrics impacting FedEx Corporation FDX are "valid," but the bullish case for the stock can is still justifiable, according to Credit Suisse.

The Analyst

Analyst Allison Landry maintains an Outperform rating on FedEx with a price target lowered from $307 to $263.

The Thesis

FedEx's outlook has diminished as of late due to signs of a slowdown in global economic growth, while the timing of the announcement of Express CEO David Cunningham's retirement comes in the middle of the peak shipping season, Landry said in a Wednesday note. (See her track record here.) 

The more logical conclusion from recent woes is that investors can "kiss good-bye" the prior Express operating income guidance of $1.2 to $1.5 billion in 2020 and a path to $20 in EPS at the same time, the analyst said. 

FedEx shares are now pricing in $16.20 in EPS in fiscal 2019 and $18.30 the next year, which implies a valuation of less than 12 times 2019 consensus estimates and 10.5 times 2020 estimates, Landry said. The recent drop in the stock and lower valuation creates a "tactical long opportunity" due to "relatively limited" further downside potential, she said. 

Credit Suisse's revised $263 price target is based on the following:

• A 2019 EPS estimate of $17.06.
• A tax rate of 25.5 percent.
• Mid-to-long-term EBIT growth of 4.5 percent per year.
• A return on incremental invested capital of 40 percent.
• A discounted rate/required return of 8.95 percent.

Price Action

FedEx shares were trading slightly higher at $189.69 at the time of publication Wednesday. 

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