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

Multiple concerning metrics impacting FedEx Corporation (NYSE: 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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