FedEx 'Showing Signs Of A Maturing Value Company,' Barclays Upgrades To Overweight

FedEx Corporation FDX shares are down 4 percent since May 5, 2015. Barclays’ Brandon R. Oglenski upgraded the rating for the company from Equal-Weight to Overweight, while raising the price target from $175 to $205.

FedEx has been exhibiting signs of a “maturing value company,” which lends significant upside to shares, analyst Brandon Oglenski said. He added that the stock had “struggled with the transition from a growth valuation over the past decade.”

What Seems To Have Changed

FedEx has significant operating leverage to macro growth, while persistently weak transport data posed a risk to the economy outlook. “However, the lone bright spot in our universe remains package volume growth, driven by meaningful global e-commerce expansion,” Oglenski wrote.

The analyst mentioned that FedEx finally seems to be addressing the longstanding issue of overcapacity in its legacy Express business. Although cash flow continues to be relatively weak, management actions seem to be resulting in a significant improvement in financial returns, “giving some credence to high levels of spending.”

“We think the combination of solid package market dynamics, a management team more focused on margins over growth and a relatively 'cheap' valuation should support meaningful appreciation for long-term investors,” Oglenski commented.

The EPS estimates for the next fiscal year has been raised from $12.10 to $12.15.