A stunning earnings warning by FedEx (FDX), which sank the stock more than 24% intraday, send Wall Street scrambling for answers Friday. After revealing that FedEx Ground revenue was approximately $300 million below its own forecasts, the company said the results “were adversely impacted by global volume softness that accelerated in the final weeks of the quarter.”
The company also withdrew its full-year guidance, but said that it has begun a series of cost-cutting measures to offset weakness in global shipment volumes as the global economy “significantly worsened.” FedEx and other transportation stocks are often seen as a gauge of global economic activity. If the company is seeing softness in shipments, that’s seen as a leading indicator for the stock market as well as the economy.
One of the main questions analysts are likely asking today has to be, has there been any pickup in demand since the quarter ended? FedEx’s bombshell arrives days after inflation numbers were released on Tuesday which suggests that the so-called “peak inflation” might not have already arrived, which means Federal Reserve can still remain hawkish. That sentiment caused a 1200-point plunge in the Dow. As for FedEx, was it a wise move to provide the bad news today and not wait for Thursday?
Investors weren’t waiting for a response and punished the stock to a new 52-week low. As a Dow component, FedEx contributed to 0.45% decline in the blue-chip index which ended the day down 139.40 points and closed at 30,821.76. Among the Dow’s notable decliners were Apple (AAPL), Salesforce (CRM), Microsoft (MSFT) and Walt Disney (DIS). The S&P 500 index lost 28.02 points, or 0.72%, finishing at 3,873.33. Tech-heavy Nasdaq Composite was also under pressure, falling 103.95 points, or 0.90%, to close at 11,448.40.
For the week, the S&P 500 dropped 3.8%, while the Dow and Nasdaq each fell 4.7% and 6.2%, respectively. For the Nasdaq, this was its worst weekly loss in three months. This week’s wild swings in stocks suggests the market is becoming more selective about picking its battles. But we have seen this story before. But unlike previous cycles, dip-buyers didn’t come save the day. However, at some point, the bottom has to be reached and dip-buying investors with long-term views will be the ones to benefit. Here are the stocks I’ll be watching this week.
Accenture (ACN) – Reports before the open, Thursday, Sep 22.
Wall Street expects Accenture to earn $2.58 per share on revenue of $15.4 billion. This compares to the year-ago quarter when earnings came to $1.95 per share on revenue of $11.9 billion.
What to watch: Despite firing on all cylinders with revenues and profits which have risen strongly over the past several quarters, Accenture stock hasn’t avoided the punishment that has ravaged the software sector. The stock has fallen 16% over the past thirty days, while falling 17% in six months. Now down 36% year to date, compared to 18% decline in the S&P 500 index, investors want to know if it’s time to establish a long-term position. A leading specialist in the IT consulting and outsourcing space, Accenture has a business that has benefited immensely from the rapid growing demand not only for IT services, but also from increased cloud adoption and digital transition. And this growth will continue through 2025, according to research firm Gartner, which predicts organizations will “increase their reliance on external consultants.” In the most-recent quarter, its revenue grew 22% year over year, while adjusted EPS grew 25% year over year. The company’s guidance on Thursday will be looked upon to assess not only Accenture’s stock valuation, but also whether (and how soon) Gartner’s prediction will prove true.
Costco (COST) – Reports after the close, Thursday, Sep 22.
Wall Street expects Costco to earn $4.16 per share on revenue of $72.06 billion. This compares to the year-ago quarter when earnings came to $3.90 per share on revenue of $62.67 billion.
What to watch: The retail sector has been under pressure over the past several months as investors digest the impact of rising inflation at a time when the Federal Reserve is also raising interest rates. Despite this scenario, Costco is still expected to deliver a year-over-year increases in earnings on higher revenues when it reports results. The company recently reported its comparable sales growth for August, revealing a 10.1% rise, while net revenue of $17.55 billion rose 11.4% year-over-year. Just as impressive, comparable sales, excluding impacts from changes in gasoline prices and forex, rose 8.7%, while e-commerce comparable sales grew 3.9%. Even with these strong results, the stock is down 11 year-to-date, including 6% this past week alone. Investors continue to weigh the potential impact on consumer spending that rate increases will have, and perhaps worse, a recession. The company on Thursday will need to talk positively about its growth prospects and the macro impact on its customers. That said, with membership renewal rates consistently above/around 90%, Costco’s stock won’t remain stagnant very long. The company’s profit margin guidance on Thursday must also reflect that confidence.
FedEx (FDX) – Reports after the close, Thursday, Sep. 22.
Wall Street expects FedEx to earn $5.14 per share on revenue of $23.58 billion. This compares to the year-ago quarter when earnings came to $4.37 per share on revenue of $21.93 billion.
What to watch: When will FedEx stock finally reach its bottom? That’s one of the key questions investors are hoping to get an answer to in the next few weeks. Shares of the transportation giant plunged some 22% Friday after the company released preliminary earnings results that were not only significantly below analyst expectations, but also the management pulled its guidance for fiscal 2023. “Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the US,” CEO RaSubramaniam explained. “We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations.” The magnitude of the Q1 miss is noteworthy. The company expects first quarter adjusted EPS to be $3.44, which is more than 30% below the $5.10 analysts expected. Wall Street analysts from KeyBanc, J.P. Morgan, Stifel, and Bank of America wasted no time downgrading the stock and slashing earnings projections. On Thursday FedEx will have to figure out how to regain the market’s confidence, particularly as it relates to profitability improvements among the company’s various business segments.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.