FedEx stock tumbles after rating downgrade

Bank of America Merrill Lynch said it dropped the parcel carrier’s rating due to the “surprising” departure of the Express segment’s CEO.

FedEx stock tumbles after rating downgrade

Bank of America Merrill Lynch said it dropped the parcel carrier’s rating due to the “surprising” departure of the Express segment’s CEO.

FedEx stock tumbles after rating downgrade

Bank of America Merrill Lynch said it dropped the parcel carrier’s rating due to the “surprising” departure of the Express segment’s CEO.

 
FedEx Corp. stock has lost more than 16 percent of its value in the last week following the abrupt retirement of the chief executive officer of the parcel carrier’s air and express delivery division.
    Memphis-based FedEx announced on Friday that David L. Cunningham, president and CEO of FedEx Express, would retire from his post, effective Dec. 31. Cunningham will be succeeded by current FedEx Corp. Executive Vice President, Chief Marketing and Communications Officer Raj Subramaniam, who will himself be replaced by Brie Carere, who has been with the company for more than 17 years.
    Wall Street investors found the timing of the move curious, given that it came during the holiday shipping season, the busiest time of the year for FedEx.
    Stock in the company had been fairly stable over the course of the previous month, ranging from around $220 per share to $295.95 per share, but by the end of market trading on Friday, the day of the announcement, shares had fallen to $201.35.
    Adding fuel to the selloff, investment analysts at Bank of America Merrill Lynch on Monday reportedly downgraded their rating and price target for FedEx shares as a result of Cunningham’s retirement.
   BAML lowered its rating on FedEx stock from “neutral” to “buy,” while cutting its price target from $304 to $220, causing shares to tumble at close of trading on Monday another 4.2 percent to $192.93, its lowest price since May of 2017.
    “The company made a surprising change to its Express CEO, which we believe could signal a reduction or delay in its profit improvement target,” analyst Ken Hoexter wrote in a widely circulated client advisory note.
    “This is a rapid and, in our view, out-of-character change for a company that is still operated by its founder, chairman and CEO Fred Smith,” he said. “Given Mr. Cunningham, who is 57 years old, had run the company’s Asia-Pacific Region and was on the company’s Strategic Management Committee, the unexpected retirement could indicate a potential miss on Express operational targets.”
    According to company figures, FedEx Express accounted for 55 percent ($36.2 billion) of $65.5 billion in overall revenues for its fiscal 2018 year.
The fear of U.S. tariffs pushed short-term demand and air freight rates in the transpacific this peak season, but rates have also been remarkably strong in the transatlantic and Europe-to-Asia routes this year.
Spot container rates from Shanghai to the U.S. West Coast stood at $1,895 per FEU as of Jan. 11, while rates from Shanghai to the U.S. East Coast totaled $3,040 per FEU, down 2 percent and 2.5 percent, respectively, from a week prior, according to the Shanghai Containerized Freight Index.
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