Shares of FedEx were bludgeoned in premarket trading Monday, in the first reaction to news that China intends to launch an investigation into the company as part of Beijing’s counteroffensive aimed at punishing foreign firms complicit in the Trump administration’s Huawei ban.
“FedEx will fully cooperate with any regulatory investigation into how we serve our customers”, the company said meekly, in a response to the Chinese probe.
Spoiler alert: There’s nothing FedEx can do to placate Beijing, because this isn’t about FedEx. This is about Huawei and, more to the point, the Trump administration. FedEx is accused (basically) of undermining Huawei by diverting packages addressed to the company to the US without its permission.
Read more: Congratulations FedEx! You Will Now Join ‘Great Patriot Farmers’ On The Frontlines Of The Trade War
Amusingly, Ma Junsheng, head of China’s State Post Bureau, didn’t name Huawei when explaining the FedEx probe. In fact, he didn’t mention the trade war at all. “The investigation into FedEx can help maintain order in the Chinese delivery industry, safeguard Chinese customers’ legitimate rights, and help to ensure the safety and economic security of China’s national postal service”, Ma said, during an interview with CCTV.
Shares of China’s largest courier surged as much as 7% in mainland trading on Monday. Ultimately, SF Holding would pare gains, but the initial knee-jerk is indicative of the expected read-through from scrutiny on FedEx.
The Global Times (i.e., the Party) isn’t necessarily buying the idea that the misdirected packages incident was a coincidence. “Regardless of whether this is intentional or accidental, the conduct of FedEx has clearly threatened the security of a Chinese company and violated Chinese regulations on delivery,” an editorial that ran on Sunday said.
As noted over the weekend, FedEx has already suffered mightily as a result of the trade war. Last year was egregious for the shares.
On Monday, UBS cut its target price to just $136, the lowest on the street. “We believe it is reasonable to anticipate pressure on FDX’s business with a portion of its China outbound customers which adds to the current backdrop of weak international airfreight activity”, the bank wrote, reiterating a Sell.
UBS cites a possible 10% hit to the company’s China-related business, or, a roughly $450 million/ 63 cents/share, stumble. The bank cut its FY2020 estimate to $15/share, a country mile below consensus ($16.75).
