FedEx is likely to report a guidance cut for its 2020 figures during its 3QFY20 results on March 17, due to the ongoing impact of Covid 19, said analysts Cowen in report.
In an analyst note Cowen said that China is starting to recover which puts a three to four month timeline for the virus to play itself out, and as a result it expects FedEx to issue a full year 2020 guidance cut. However, the analyst said that the firm’s recovery commentary was key.
“We are lowering our estimates ahead of the print due to the expected impact of COVID-19 on volumes and constraints on supply chains. China is broadly through the downturn and industry participants have consistently talked about a recovery being underway.
In the near-term we expect management to temper expectations given several unknowns associated with the spreading of the virus and the potential fallout for what it could mean for the economy, but a view on a recovery timeline could calm fears,” said Cowen.
“The biggest focus into earnings is the impact of the spread of COVID-19 on the underlying business. FedEx is the largest air freight provider in the world and demand was challenged in February when China essentially shut down.
With the spreading of the virus from China to other parts of the world like the EU and now increasingly in the US, we expect demand to come under material pressure. If the Chinese PMI result in February is any indication what to expect for the EU and the US in March & April FedEx should expect some challenges in the near-term,” said Cowen.
Despite this Cowen is reiterating its outperform rating on the FedEx’s shares due to the expectation it would benefit from increased e-commerce growth and global expansion related to their TNT acquisition.
“US Express is solid, and in fact, should show margin improvement due to the elimination of the low-yielding Amazon business. We expect overall segment margins to contract in the current fiscal year as TNT issues linger amid an uncertain economic growth outlook,” said Cowen.