FedEx Shares Drop 13% Amid Weak Demand for Priority Deliveries

20 Sep

FedEx Corp (NYSE: FDX) witnessed a significant 13.28% tumble in its stock price as weak demand for high-margin priority delivery services led the company to slash its annual revenue forecast. This drop has raised concerns among investors, highlighting challenges faced by the global logistics giant. But is this decline a buying opportunity? Let’s break down both the fundamental and technical aspects of the situation.

Weak Demand and Forecast Downgrades
FedEx (NYSE: FDX), often seen as a bellwether for global trade, has struggled with declining demand for its priority shipping services, particularly between businesses, as companies look to cut expenses. CEO Raj Subramaniam cited weaker-than-expected industrial demand as a primary reason for the reduced profits, signaling a slowdown in global economic activity.

Key challenges that have impacted FedEx's financials include:
- Lower Revenue Forecast: The company downgraded its revenue growth forecast for fiscal 2025 to low single digits, compared to the previous expectation of low-to-mid single-digit growth.
- Profit Decline: FedEx also reduced the upper range of its full-year adjusted earnings per share (EPS) forecast to $20-$21, down from the previously projected $20-$22, reflecting a more competitive pricing environment and ongoing economic challenges.
- Contract Loss: The winding down of its contract with the U.S. Postal Service (USPS), FedEx's largest client, is expected to result in a $500 million hit to revenue in the current fiscal year. This is another significant blow as it reduces a critical revenue stream for the company.

However, amidst these difficulties, FedEx (NYSE: FDX) is undergoing a major restructuring with its **DRIVE program**, aimed at cutting billions in overhead costs and improving operational efficiencies. While the program’s savings are expected to accelerate over the coming quarters, analysts remain cautious about the near-term outlook, noting that FedEx's pricing power is constrained, especially in the competitive logistics market.

Despite these challenges, some analysts see a silver lining. JP Morgan’s Brian P. Ossenbeck mentioned there is “room for optimism” as cost savings from the DRIVE initiative take effect, particularly during the upcoming peak holiday season.

Technical Outlook: Gap Down Pattern and Potential Buy Zone
From a technical standpoint, FedEx’s sharp 13% drop has created an interesting setup for investors. The stock was already showing signs of exhaustion after its recent rally, and with this premarket decline, FedEx (NYSE: FDX) is entering oversold territory.

Key Technical Indicators:
As of yesterday, FedEx had an RSI of 64.97, placing it in the upper range but still not yet overbought. However, with the sharp premarket drop, the RSI will now head towards a sell zone, indicating potential overselling pressure. Also, FedEx's stock chart has exhibited multiple gap-up patterns that have remained unfilled since December 2023, March, and June 2024. With the current gap down in premarket trading, these unfilled gaps are now being addressed. Historically, gap patterns tend to be filled, suggesting that a rebound may occur once this downward gap is complete.

FedEx (NYSE: FDX) is now approaching a key technical support level formed in June 2024, around the $265-$270 range. This level could act as a floor, providing some price stabilization and potentially a buying opportunity for long-term investors.

Buying Opportunity?
With FedEx (NYSE: FDX) now approaching a significant gap down pattern and entering oversold conditions, it could be an opportune time for investors looking for a potential bounce. As the saying goes, "everything that goes up must come down and vice versa," and with FedEx (NYSE: FDX) filling these long-standing gap-up patterns, a reversal might be in the cards.

However, caution is warranted as market sentiment will likely remain fragile in the near term, especially as FedEx (NYSE: FDX) grapples with weak industrial demand and the upcoming USPS contract loss. That said, the DRIVE initiative’s cost-cutting efforts, coupled with a possible rebound in demand during the peak shipping season, may help FedEx recover.

Conclusion:
FedEx’s sharp 13% drop reflects deeper concerns about weakening demand and competitive pressures, but the company’s restructuring efforts and cost-cutting initiatives provide a glimmer of hope. On the technical side, the stock is approaching oversold conditions, and the filling of gap patterns suggests that a bounce could occur. For long-term investors, this dip may present a buying opportunity, especially if FedEx (NYSE: FDX) can successfully execute its DRIVE program and regain pricing power in the quarters ahead.