FedEx’s Economic Warning Sank This Stock. Now It Could Be an Opportunity.
FedEx ’s unexpected profit warning may have delivered a buying opportunity for shares in Deutsche Post DHL Group .
The global package-delivery and supply-chain company’s stock (ticker: DPW.Germany) was caught up in its peer’s gloomy economic outlook, slipping to 30.51 euros ($29.29), 15% below where they were before FedEx’s warning in mid-September. Those fears may have been overdone, however, as Deutsche Post said in August that it would meet its full-year earnings forecast range under a span of economic scenarios.
CEO Frank Appel reiterated that stance in an emailed statement to Barron’s: “While much remains uncertain in the coming months, we have reconfirmed our Ebit guidance for 2022 of €8 billion (+/-5%).” He added that even if the global economy falls sharply in the coming months, the company still expects €7.6 billion to €8 billion.
In contrast, FedEx (FDX) withdrew its full-year guidance entirely as it warned that “macroeconomic trends significantly worsened” later in the June quarter.
So, despite looming concerns over the global economy, Deutsche Post’s recent decline—down 45.5% this year—means that the shares are worth another look. The stock is cheap, for starters, trading at eight times forward earnings, compared with an average of more than 11 times among its competitors.
There’s also the chance of an upside surprise for full-year earnings. If business performance is maintained at current levels in the second half, Deutsche Post said earnings would top €8.4 billion ($8.15 billion), beating its own forecasts.
Stifel analyst Johannes Braun described that tidbit as a “guidance raise in disguise.” He has a Buy rating on the stock with a target price of €70, implying a 129% gain to a recent price of €30.51. Analysts covering the stock don’t see that earnings scenario as being farfetched, forecasting earnings before interest and taxes, or Ebit, of €8.5 billion, per the FactSet consensus.
It’s worth noting that Deutsche Post expects business-to-consumer, or B2C, volumes to slow in the second half as trends normalize. In another of its scenarios for a gradual economic slowdown, earnings would still be in the upper half of its range. That wouldn’t be a disaster and doesn’t justify the stock’s recent dips.
The company also has an ace in the pack—its DHL Express unit. The business has about a 40% share of the premium cross-border deliveries market. DHL Express has a presence in more than 220 countries and territories worldwide and operates more than 320 dedicated aircraft across its network.
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The Express segment’s revenue grew 17%, to €13.4 billion, in the first half of 2022, accounting for close to 30% of total revenue. Analysts see Express’ full-year revenue reaching €24.5 billion, or 13% annual growth. The company’s air, ocean, and land freight division was the biggest revenue driver in the first half, and although the high freight rates of earlier in the year are likely to normalize, it is still on track for a strong year.
“Deutsche Post DHL remains the most structurally attractive business among the larger names,” wrote J.P. Morgan analyst Samuel Bland in a note. That’s mainly down to the Express business, he added. While the B2C part of Express will probably struggle in the next year, the long-run outlook is still positive, he said. He has a Buy rating and a target price of €52.50.
Deutsche Post is popular among analysts who cover the stock, with about 83% rating it as Buy. The average target price of €56.39, is an 85% jump from recent prices. Deutsche Bank raised its target to €43 from €40 in September, saying the stock is “one for the long term—buy any dips.”
A dip has come around and investors should take a closer look.