By Senad Karaahmetovic
A Citi analyst has downgraded shares of FedEx (NYSE:FDX) to neutral from Buy as he sees the potential for macro headwinds to challenge earnings growth this year.
The analyst argues that FedEx is more long-term looking and its initiatives are mostly focused on F24 and beyond. The new price target is $225, down from the prior $270.
“We believe Ground volume has been weakening through F1Q and further macro weakness (highlighted by mgmt in July and August) make DD EPS growth difficult even with better pricing through peak,” the analyst said in a client note.
In addition to the FDX downgrade move, the analyst has also opened a pair trade - Overweight UPS vs Underweight FedEx.
“We are more confident in UPS’s ability to lower costs and execute in a challenging macro environment,” the analyst added.
As far as the wider North America Transport sector is concerned, Citi analysts are concerned about the pace of freight activity. Along these lines, the analyst sees upcoming data points leaning negative.
“Our checks suggest peak TL freight is not materializing and the pace of imports is slowing into what should be a strong seasonal period. TL spot rates have also taken a recent leg lower and while rail carloads are holding steady, there is little evidence of improvement and we see risk to 4Q estimates building,” the analyst concluded.
Net-net, while FDX is downgraded to Neutral, the analyst reiterated Buy ratings on UPS (NYSE:UPS), JB Hunt (NASDAQ:JBHT), and CH Robinson (NASDAQ:CHRW).