Despite a decline in FedEx stock following a downbeat revenue outlook, Wall Street analysts remain optimistic about the company’s turnaround plan, which has driven the stock to significant gains over the past year.
Disappointing Earnings Impact Stock
FedEx experienced a 9.5% drop in premarket trading, settling at $253.31, after releasing its second-quarter earnings report on Tuesday. This decline is expected to erase a month’s worth of gains for the shares. Nevertheless, it’s important to note that FedEx had witnessed a remarkable 62% increase in stock value throughout the year.
Promising Cost-Cutting Efforts
The impressive rally is primarily attributed to the company’s dedicated cost-cutting initiatives. Despite the disappointment surrounding the lowered revenue guidance, analysts acknowledge FedEx’s ability to drive down costs. The company successfully improved its operating profit margin to 6.4%, surpassing the same period from the previous year by over 1 percentage point.
Positive Outlook for Growth
Analyst Patrick Tyler Brown from Raymond James believes that recent changes outlined during FedEx’s DRIVE event will lead to improved margins, earnings, and free cash flow in future years. This positive sentiment is underscored by the potential boost to FedEx’s freight business following the bankruptcy of delivery peer Yellow earlier this year. Additionally, FedEx CEO Raj Subramaniam confirmed that the company has retained the majority of the market share gained from Yellow and competitor United Parcel Service over the summer.
In conclusion, despite the setback caused by a disappointing revenue outlook, FedEx’s cost-cutting efforts and strategic advantages position the company for continued growth and success in the future.
FedEx Stock: Analysts Offer Differing Views on Target Price
Analysts are divided over the outlook for FedEx stock, with one lowering the target price but maintaining an Outperform rating, while another remains optimistic about future results.
Lowered Target Price, But Positive Outlook
Brown, an analyst at an investment firm, has revised his target price for FedEx stock to $275, down from $279. Despite the decrease, he still maintains an Outperform rating for the stock. The target price is based on a projected earnings multiple of 16 times FedEx’s forecast fiscal 2024 earnings per share.
Concerns about FedEx’s Express Business
One area of concern is the performance of FedEx’s internationally focused Express business, which primarily ships goods via air routes. The volume of shipments through this division has been steadily declining. In the last quarter, the operating margin for the Express business was only 1.3%, in stark contrast to the FedEx Ground division’s operating margin of 10.4%. This division delivers items domestically in the U.S. and Canada using trucks.
Cyclicality and Future Potential
Varying Target Prices
While Brown adjusts his target price to $275, Wetherbee maintains his target price at $300, signaling his confidence in the stock’s long-term potential. He also maintains a Buy rating for FedEx stock.
Impact on Other Delivery Companies
The concerns surrounding FedEx seem to have affected other delivery companies as well. UPS experienced a 2.9% drop in premarket trading, while XPO saw a 0.5% decline.
