FedEx (FDX) - Huawei Spat Continues: More Turbulence Ahead?

Zacks Equity Research

On Jun 23, FedEx Corporation FDX said that due to an “operational error” it was unable to deliver a Huawei Technologies’ parcel to the United States. Consequently, the Huawei package was returned to the shipper. FedEx stated that it can “accept and transport all Huawei products except for any shipments to listed Huawei entities on the US Entity list.”

However, the Chinese telecoms gear maker lambasted FedEx for the incident calling its action as a “vendetta”. Notably, Huawei is exposed to the trade dispute between two of the largest economies in the world. In fact, in May, the Trump administration put Huawei products on a blacklist owing to concerns related national security. Given this backdrop, the Chinese company’s decision to slam FedEx for the latest incident is not surprising.

We remind investors, the above incident is not the only one involving the two companies where FedExhas faltered. Last month, Huawei had accused the Memphis, TN-based company of diverting two parcels destined for addresses in Huawei to the United States and attempting to reroute two others. Currently, the Chinese company is reviewing its relationship with FedEx after the May incident. The latest incident is expected to cause further turbulence in the relationship between FedEx and Huawei.

Consequently, investor focus is likely to be on updates pertaining to this burning issue going forward. We also expect FedEx to shed light on its ongoing row with Huawei on the fourth-quarter fiscal 2019 conference call, scheduled to be held on Jun 25.

Apart from the spat with Huawei, other factors like high operating expenses are hurting FedEx as is evident from the disappointing price performance (down 29.5%) of this Zacks Rank #4 (Sell) stock over the past year.

 

Stocks to Consider

Some better-ranked stocks in the broader Transportation sector are Air China Ltd. AIRYY, SkyWest, Inc. SKYW and Radiant Logistics RLGT. While Air China sports a Zacks Rank #1 (Strong Buy), SkyWest and Radiant Logistics carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Air China and SkyWest have rallied more than 12% and 35%, respectively, over the past six months. Meanwhile, Radiant Logistics has an encouraging earnings history, having trumped the Zacks Consensus Estimate in each of the trailing four quarters, the average being 37.6%.

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