On Friday, JPMorgan adjusted its outlook on FedEx Corp (NYSE:FDX), reducing the price target to $296 from the previous $301 while maintaining a Neutral rating on the stock. The firm cites the upcoming earnings release on June 25 and the potential for a more positive perspective after the fiscal year 2025 guidance.
The adjustment follows FedEx's loss of its largest customer to rival UPS, an event expected to have a significant impact on the company's second-quarter fiscal year 2025 results due to stranded costs within its network.
The analyst from JPMorgan noted that the recent United States Postal Service (USPS) contract, initially seen as a positive for operating income leading into FY25, is now one of several factors that may dilute the benefits from FedEx's $2.2 billion DRIVE savings initiative.
The firm anticipates that FedEx's FY25 guidance will likely align with current consensus estimates but suggests a subdued growth outlook for the coming year, given the existing fundamental challenges and macroeconomic uncertainties.
According to JPMorgan, once FedEx adjusts its Express network to account for the loss of the USPS contract, there may be potential for upside factors to emerge in the next year's financials. However, the firm prefers to wait for a clearer picture of the situation before adopting a more optimistic view.
The report also mentions that the overall sentiment towards the parcel delivery sector remains weak, with the belief that the company with the best self-help strategy will prevail in an industry grappling with increased competition and diminishing pricing power.
The detailed questions presented by JPMorgan for FedEx's fourth-quarter fiscal year 2024 earnings call include inquiries about the impact of the USPS contract loss, the components of the FY25 financial bridge, and the potential upside of the DRIVE program in Europe. The report also highlights top themes for consideration, such as new surcharges, airfreight and express volume trends, and competitive concerns.
InvestingPro Insights
As investors and analysts look ahead to FedEx's upcoming earnings release, it's important to consider the company's recent financial performance and market position. According to real-time data from InvestingPro, FedEx boasts a market capitalization of $61.35 billion, with a P/E ratio of 14.09, reflecting a valuation that may attract investors seeking potentially undervalued stocks. Notably, the company's P/E ratio adjusted for the last twelve months as of Q3 2024 stands at 12.58, suggesting a lower valuation compared to its current earnings.
One of the InvestingPro Tips highlights that FedEx has raised its dividend for 3 consecutive years, demonstrating a commitment to shareholder returns. Additionally, the stock is currently in oversold territory based on the Relative Strength Index (RSI), which could indicate a potential buying opportunity for contrarian investors. With a dividend yield of 2.02% and a dividend growth of 9.57% in the last twelve months as of Q3 2024, FedEx shows a promising combination of income and growth potential.
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