FedEx investors face 'numerous risks,' Argus says in downgrade

Published Tue, Dec 24 20198:39 AM ESTUpdated Tue, Dec 24 20191:04 PM EST

Shares of FedEx are down 23.9% from their 52-week high, with losses accelerating after the company reported disappointing second quarter results last week, and one firm thinks there may be more pain ahead. Argus Research downgraded the stock on Tuesday to hold, based on the "numerous" risks investors face, including declining revenue and narrowing margins. For the second quarter, the company reported earnings of $2.51, well below the $2.76 analysts surveyed by Refinitiv had been expecting. Revenue was also light — $17.32 billion compared with the expected $17.58 billion — and the shipping giant once again lowered its full-year earnings outlook. Following the disappointing quarter and based on ongoing "weaker international economic conditions and margin pressures," Argus lowered its 2020 full-year diluted earnings-per-share estimate to $10.75 from $12.80, and its full-year 2021 EPS estimate to $12 from $13.95. While FedEx's management has plans to reduce costs, Argus said it has "little confidence in the company's near-term earnings power." Shares of FedEx have shed 6% this year — the S & P 500 has gained 28% — and have lost nearly 24% since hitting a 52-week high on April 18. They were 0.5% lower in Tuesday's premarket. "Investors in FedEx face numerous risks," Argus said, including exposure to trade tensions and "tariff tweets." Argus also noted that the company is highly sensitive to overall economic health. FedEx is also facing ongoing pressure from Amazon as the tech giant explores taking greater control over its shipping operations, which would include cutting its reliance on UPS , FedEx and the U.S. Postal Service. Ahead of the holidays, Amazon temporarily restricted third-party sellers from using FedEx's ground and home delivery shipping for Prime orders . And earlier this year, FedEx ended its ground-delivery and domestic express shipping contracts with Amazon. "The company faces the risk of increased competition as rivals – and even former customers, such as Amazon.com — seek to gain market share in a business that is highly sensitive to price and quality of service," Argus said. Shares of FedEx shed 0.6% on Tuesday. - CNBC's Michael Bloom contributed reporting.

Argus Research downgraded the stock on Tuesday to hold, based on the "numerous" risks investors face, including declining revenue and narrowing margins.