On Wednesday, JPMorgan upgraded FedEx Corporation (NYSE:FDX) stock from Neutral to Overweight, adjusting the price target upward to $359 from the previous $296. The upgrade follows FedEx's announcement that it is exploring strategic options for its Freight segment. This move is seen as a potential catalyst for the company's value, with the Freight division currently trading at a multiple that is roughly half that of its peers.
The analyst pointed out that FedEx's Freight segment is valued at 6.7 times the next twelve months (NTM) enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), compared to 13.3 times for similar standalone companies. A spin-off could benefit both FedEx and the less-than-truckload (LTL) industry, given Freight's strong focus on yield management and margin performance.
While FedEx management has not provided extensive details on the possible outcomes of their strategic review, the market's reaction was notable, with shares moving approximately 14% after-hours. The positive momentum is expected to continue, bolstered by recent changes to fuel surcharge tables and a stable initial impact from the loss of a U.S. Postal Service contract.
Despite some risks remaining, such as the need to mitigate the USPS contract loss and execute savings through the DRIVE initiative, the transformation at FedEx appears to be gaining traction. The strategic developments with the Freight segment are particularly significant and are expected to lend support to the stock over the next six months as the review progresses.
The analyst also noted that while general sentiment towards the parcel subsector is neutral to negative and cyclical challenges persist, the specific strategic changes at FedEx provide a compelling reason to pay attention to the stock. The new price target suggests an additional 11% upside if the strategic actions regarding the Freight segment unfold as anticipated.
In other recent news, FedEx Corporation has reported an adjusted fourth-quarter earnings per share (EPS) of $5.41 for fiscal year 2024, slightly surpassing analysts' expectations. This was mainly attributed to the stronger-than-expected performance of the company's Freight segment and a slightly higher Ground margin.
The company also set a fiscal 2025 earnings target between $20 to $22 per share, which surpasses Wall Street's expectations, indicating the company's focus on cost-cutting measures to enhance margins.
Evercore ISI raised its price target for FedEx to $339.00, maintaining an Outperform rating on the shares. The firm's stance was influenced by FedEx's ongoing execution of its DRIVE savings program and the successful consolidation of its Ground and Express operations.
Meanwhile, TD Cowen maintained a Buy rating on FedEx, with a price target of $320.00, while Wells Fargo initiated an Equal Weight rating, citing uncertainties surrounding the company's fiscal 2025 guidance and the recent loss of a USPS contract.
In other recent developments, FedEx announced plans to cut between 1,700 and 2,000 jobs in Europe over the next 18 months as part of a broader cost-saving strategy. The company expects these job reductions to result in annual savings of $125 million to $175 million starting in fiscal year 2027.
InvestingPro Insights
Following the upgrade by JPMorgan, a closer look at FedEx Corporation (NYSE:FDX) through InvestingPro data shows the company's robust financial health and investment attractiveness. With a market capitalization of $63.09 billion and a strong P/E ratio of 14.57, which adjusts to an even more appealing 12.94 when considering the last twelve months as of Q3 2024, FedEx stands out in the market. Additionally, the company's dividend yield as of mid-2024 is at 2.15%, reflecting a significant 20.0% dividend growth from the previous year. This is aligned with one of the InvestingPro Tips highlighting that FedEx has not only raised its dividend for 3 consecutive years but has also maintained dividend payments for 23 consecutive years, underscoring its commitment to shareholder returns.
Moreover, analysts predict the company will remain profitable this year, which is corroborated by the basic and diluted EPS from continuing operations standing at $17.59 and $17.37 respectively. The stability of FedEx is also evident in its low price volatility, making it a potentially attractive option for investors seeking steady performance. For those interested in further insights, InvestingPro offers additional tips on FedEx, which can be explored for a deeper dive into the company's prospects. To enhance your investment research, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro, where six more tips are waiting to guide your investment decisions.
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