FedEx Can Boost Margins Even In Soft Economy, Barclays Says

In a report published Thursday, Barclays analyst Brandon R. Oglenski maintained an Equal-Weight rating on FedEx Corporation FDX, with a price target of $180. "Yesterday's negative reaction to FedEx's fourth quarter earnings and FY16 guidance is emblematic of apprehension across transports this year," analyst Brandon R. Oglenski said. FedEx guided to more than 20 percent growth in FY16. However, the company's operating earnings improved less than 5 percent in 4Q and the start of FY16 unlikely to be as bright as was expected earlier, many investors may be taking "a wait and see approach on FedEx's ability to continue delivering improved profitability." FedEx reported its FY4Q15 adjusted EPS at $2.66, in-line with the Barclays estimate but marginally short of the consensus of $2.68. Revenue missed by 2 percent on account of softer volumes and mixed pricing outcomes. "While operating income is not directly comparable to our prior estimates due to the mark-to-market pension accounting change, Express margins were strong at nearly 9%. Below the line, the effect of lower other income was partially offset by higher share repurchases, resulting in an in-line quarter," the report mentioned. While expressing concern regarding slower North American industrial growth, Oglenski said it was encouraging to see the Express segment's 4Q margins and "management's clear commitment to delivering on earnings guidance, especially in the back half of FY16." Oglenski added, "FedEx shares are likely to remain relatively inexpensive as the market awaits acceleration in earnings beyond the next two quarters."