By Gokul Pisharody, Ananta Agarwal and Lisa Baertlein
(Reuters) -FedEx shares jumped as much as 15% on Wednesday after the delivery giant reassured investors with a bullish annual profit forecast and said it is weighing whether to sell or spin-off its freight trucking business that one analyst valued at $30 billion.
On Tuesday, the company projected fiscal 2025 earnings of $20 to $22 per share - the midpoint of which was slightly above analysts' estimates. CEO Raj Subramaniam said the company benefited from combining its air and land-based delivery units, slashing jobs, shuttering buildings and parking planes, and it would continue through this fiscal year ending in May 2025.
FedEx (NYSE:FDX)'s massive restructuring aims to improve profitability, which was lagging that of unionized rival United Parcel Service (NYSE:UPS), while also girding against competition from Amazon.com (NASDAQ:AMZN)'s fast-growing logistics service.
As the Memphis-based company enters the next phase of its strategic plan, it is reviewing its FedEx Freight trucking business referred to as LTL, or less-than-truckload. That business is the largest in North America. It generated $2.3 billion in revenue and results-boosting margin in the latest quarter despite a stubborn two-year slump in the U.S. trucking market.
"The division has quietly grown from the family outcast to the most profitable division in the portfolio, and with peer valuations at nearly double that of FedEx," Stifel analyst Bruce Chan said in a client note.
"There's still a lot of wood to chop, but we feel even better about being on this ride," Chan said of FedEx's corporate makeover.
Jefferies analyst Stephanie Moore pegged the value of the Freight business at $30 billion.
"We would expect a significant re-rating of valuation higher should FDX Freight trade as a standalone company or be sold," BMO Capital Markets analyst Fadi Chamoun said in a client note.
UPS sold its freight business to TFI International (NYSE:TFII) for $800 million in 2021, before the trucking market downturn. This week, UPS announced the sale of its Coyote freight brokerage that matches drivers with loads to RXO for just over $1 billion - nearly $800,000 less than it paid to buy the business about a decade ago.
Fedx's shares touched a session and 52-week high of $294.75 and were up 14% at midday on Wednesday. Shares of rival United Parcel Service were up 2.6%. .
At the close of trading on Tuesday, FedEx shares had notched a 12-month gain of 10%, versus the 20% decline for UPS.
Morgan Stanley analyst Ravi Shanker said Wednesday's share gain may have been amplified by buying to cover bets that FedEx shares would fall after Tuesday's earnings announcement.
It is likely that the Freight business review is "driving short-covering of the stock," he said.