The conflicting guidance of FedEx, as noted by Morgan Stanley on Wednesday, indicates a "lack of earnings visibility," with the fiscal Q3 commentary emphasizing a "challenging" Q4.
The organization published its fiscal Q3 non-GAAP diluted earnings of $3.99 per share in its report, an increase from $3.18 per share in the prior year. However, the revenue dropped from $22.8 billion to $22.2 billion. Moreover, FedEx projected further revenue decline in the low-single digits as a percentage for the entire fiscal year, which contradicts its previous estimate.
Morgan Stanley On FDX‘Lack of Earnings Visibility’
As per the assessment of Morgan Stanley, the fiscal Q2 earnings failed to meet expectations, highlighting the challenges that arise from the interaction between revenues and expenses. The investment firm underscored the notion that revenue pressure could influence the ongoing cost-cutting program. In contrast to market perceptions, Morgan Stanley suggested that FedEx's revenue challenges are unique to the organization and not exclusively attributable to cost dynamics.
The company stated that the cost-cutting resulting from the DRIVE program has already been incorporated into the consensus on the street. It further emphasized that the factor that will likely determine whether estimates are met or not is revenue.
FedEx Stock Recovery Needs Time
Additionally, FedEx's estimate of 4.5 billion in cost escalation was emphasized by Morgan Stanley. The expeditious realization of the recovery in FedEx's Express division might be delayed, as reported by Raymond James analyst Patrick Tyler Brown.
Brown stated that Express has "under-impressed" on a consistent basis and could only break even in the following quarter. He expects Express to experience a protracted turnaround in fiscal year 2025 and beyond. Moreover, FedEx is confronted with the difficulty of renegotiating a contract with USPS, which further compounded the company's difficulties.
FedEx Stock (FDX) Technical Analysis
In the daily chart of FDX stock, the recent crash came with a strong bullish liquidity sweep with a Change of Character (CHoCH) formation above the crucial weekly resistance.
The sharp crash took the price below the dynamic 20-day EMA support with a daily close, signaling further selling ahead. However, the long-term upward trendline support is still protected with the 224.69 static level.
Primarily, a downside pressure at the trendline support is possible, and a bullish rejection from the 240.00 to 224.00 area could offer a primary bullish signal. However, a bearish pressure with an immediate rebound from the 224.69 level could be another long opportunity, where the main target would be the 285.00 high.
However, a daily close below the 224.00 level with a range formation could signal additional loss toward the 190.92 support level.