Analyst Downgrades FedEx Stock as Sell Signal Flashes

Susquehanna cited 3 key drivers behind its FDX downgrade to "neutral"

Digital Content Manager
Mar 28, 2019 at 2:56 PM
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Susquehanna this morning just downgraded FedEx Corporation (NYSE:FDX) for the first time in two years. Specifically, the brokerage firm cut the shipping stock to "neutral" from "positive," and slashed its price target to $192 from $211. Analyst Bascome Majors said the company's capital expenditure is "more likely to rise before it falls," and cited a shaky economic backdrop, as well as diminishing returns from the company's European unit, TNT Express, as additional catalysts for the cut. Plus, FDX just flashed a bear signal that, if history is any indicator, could add to the equity's troubles.

Looking at the charts, the shares have been on a slow rebound since bottoming out at a two-year intraday low on Dec. 26, and are now within one standard deviation of their overhead 80-day moving average. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, FDX has tested resistance at this trendline in a similar manner three previous times in the past three years.

One month after those prior run-ups to its 80-day, the security was negative one month later 67% of the time, averaging a 9.4% loss. At FedEx's current perch of $178.16, a drop of similar proportions would pressure the security down to $161.41 -- nearly flush with its year-to-date breakeven point of $161.33. 

FDX March 28

The possibility of additional analysts following Susquehanna's lead could mean additional headwinds for the stock. Prior to today's downgrade, 11 analysts gave FDX a "strong buy" rating, one gave it a "buy," five said "hold," and there wasn't a single "sell" to be seen. Plus, the consensus 12-month price target of $210.68 represents a premium of 18.3% higher to the equity's current perch. 

On the other hand, options traders have taken a more bearish outlook. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), FDX sports a 10-day put/call volume ratio that sits in the 91st percentile of its annual range. This indicates a much healthier-than-usual appetite for puts over calls of late. 

That said, FedEx's Schaeffer's Volatility Index (SVI) of 24% ranks higher than only 21% of all other readings for the past year. This means near-term options traders are pricing in relatively low volatility expectations. In other words, now might be the time to bet on the equity's next rejection from familiar trendline resistance while put options are still relatively cheap. 

 

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