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Stocks slip as rally takes step back

FedEx (FDX) shares fell as much as 10% early Wednesday after the company’s disappointing forecast offered late Tuesday.

The shipping giant now expects revenues to decline by a low-single-digit percentage next year after having previously forecast revenues to stay flat.

The company mentioned in its earnings call a “difficult demand environment.” Given the company’s reach across industries and geographies, there may be some read-through for some investors on the state of the global economic recovery.

But for years now, the struggles at FedEx have been mostly about FedEx itself.

Over the last six years, the stock has gone nowhere while the S&P 500 has gained 75%.

The current challenges at FedEx mostly center on the company’s push to integrate its Express, Ground, and other business units into a single org. Back in 2016, the company spent $5 billion to acquire TNT Express to expand its global reach. Nearly eight years later, the transformations promised by this deal continue to be worked out.

“Throughout this year, there has been a lot of talk of cost actions taken to rightsize the business for the current demand, but despite this, Express margin has remained near trough levels for over a year,” Jefferies analyst Stephanie Moore wrote in a client note on Wednesday.

Moore and her team have a Hold rating and a $280 price target on the stock. With Wednesday’s move lower, FedEx shares were trading at closer to $252.

“Investors have been underwriting a structural change at Express and right now we think there is more doubt than ever if that structural change is really there or if the cost structure at Express is simply too high,” Moore added. “Waiting for volumes to return to see the benefits of the cost actions isn’t enough for investors, especially when considering this volume inflection may come as the company is simultaneously integrating Express and Ground and pulling off one of the largest corporate restructurings in the company’s history. We continue to be less optimistic than the Street on this front.”

For any company, every quarterly update offers two lenses through which investors can primarily judge these results — the operating environment and the business’s strategy.

For FedEx, the latter matters much more than the former right now.

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