Delivery giant FedEx Corp. (FDX) has shed about $25 billion in market value over the past year as its stock plunged roughly 40%. But the losses may not be over. FedEx's stock is likely to slide even further amid strong headwinds including the ongoing U.S.–China trade conflict, a slowing global and U.S. economy, and the recent severing of ties with e-commerce giant Inc. (AMZN).

Key Takeaways

  • FedEx stock down roughly 40% over past year.
  • Reduced shipments due to trade war and weaker global economy.
  • Recently severed business relationship with Amazon.
  • FedEx stock is underperforming close rival UPS.

What it Means for Investors

The most immediate news creating the gloomy outlook is FedEx's recent lowering of its annual profit forecast, citing a number of factors, according to a Wall Street Journal story on the company's challenges as detailed below. The company is facing higher costs and lower revenues amid a struggling global economy negatively impacted by a trade war between the world’s two largest economies. Industrial production in China, a major market for FedEx, grew at its slowest pace in 17 years in August. The U.S. economy is facing its own set of headwinds, forcing FedEx to take steps to reduce capacity

The weakness in the global economy appears to be exacerbating FedEx's cold turkey breakup of its relationship with Amazon. As of June, FedEx was only planning on severing the air-delivery portion of its business, FedEx Express, from its ties with the world's largest online retailer. But the delivery company let its contract expire with Amazon at the end of August and decided not to renew it. 

While Amazon wasn’t the most lucrative client and represented just over 1% of total revenue last year, analysts point out that the breakup means FedEx is missing out on a huge potential growth market: Amazon still spends more than $31 billion on shipping costs every year. That’s a big client to lose. Of course, the ending of the contract doesn’t mean FedEx won’t deliver for Amazon ever again, but it does highlight the fact that Amazon is being perceived less and less as just another customer and more and more as a formidable rival.

In just the past two years Amazon has expanded the number of its delivery facilities in the U.S. from 258 to 426, according to consulting firm MWPVL, as reported by the Journal. Many of its facilities have been strategically built near city centers in order to be as close to customers as possible. That allows Amazon the ability to cater to the demand of online consumers for ever-faster delivery times.

Looking Ahead

While FedEx is struggling, analysts say rival United Parcel Service Inc. (UPS) has done a much better job in navigating the changes in the delivery service business. CEO David Abney's three-year, $20 billion investment plan has helped boost profit margins and the stock, which has strongly outpaced FedEx this year.