FedEx Corporation FDX shares sold off 4.5 percent on Wednesday following a disappointing earnings report. However, Deutsche Bank analyst Robert Salmon believes investors should be buying the dip.
The market saw FexEx’s guidance as a bit light, and Deutsche Bank agrees. However, despite lowering its for fiscal 2017/2018 from $12.46/$13.78 to $12.08/$13.34, the firm still sees a lot of value in the stock at current prices.
“We reiterate our Buy-rating as we continue to see a favorable risk/reward amidst self-help tailwinds, and Ground upside potential (savings from SmartPost integration, GENCO revenue synergies, and secular e-commerce growth),” Salmon explained.
Deutsche Bank believes FedEx will continue to ride the wave of expanding margins into 2017. Last quarter, the company’s Express segment registered an impressive 2.3 percent year-over-year operating margin expansion to reach 11.6 percent.
Ground margins, which fell 1.5 percent year-over-year due to changes in SmartPost revenue reporting, will continue to be pressured by the company’s heavy investing in the segment.
Despite cutting earnings estimates, Deutsche Bank raised its price target for the stock from $190 to $198. The new price target represents about 25 percent upside from Thursday’s trading price.
The markets seem to agree with Salmon’s “buy the dip” argument. FedEx’s stock is up 1.1 percent in early Thursday afternoon trading.
Disclosure: The author holds no position in the stocks mentioned.
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