Bernstein Says FedEx Could Rise To $315 In Two Years

FedEx Corporation FDX is positioned for higher valuation and earnings growth as it capitalizes on multiple tailwinds, according to Bernstein. 

The Analyst

Bernstein analyst David Vernon upgraded shares of FedEx from Market-Perform to Outperform and increased the one-year price target from $257 to $290. The analyst has a two-year price target of $315.

The Thesis

The mid-teens earnings per share growth — the highest in the company's history — and an attractive valuation prompted Bernstein to recommend a position in FedEx, Vernon said in a Friday note.

FedEx revenue should increase with a strengthening global economy and rising interest rates; the idiosyncratic growth in Express due to the integration of TNT Express in Europe; a tightening domestic transportation market; and sustained demand for B2C delivery, the analyst said. 

With the lowering of tax rates, which has pushed up returns, any doubts regarding high rates of reinvestment are less relevant now, Vernon said. The stock has pulled back on worries about disruption and exaggeration over the competition posed by crowdsourced delivery models, he said. 

Bernstein sees upside as well as downside risks for its above-consensus earnings per share estimate. The firm sees upside risks from regulatory changes on trailer length and efforts by e-retailers to "own" delivery capacity.

Amazon.com, Inc. AMZN headlines, a collapse of pricing in the air freight market and market reactions to increased spending or a more expensive TNT integration could pose downside risks, Vernon said. 

The Price Action

FedEx shares are up about 30 percent over the past year.

At the time of writing, the shares were rallying 2.52 percent to $251.67. 

Related Links:

Why Amazon Won't Be Able To Kill FedEx

Wall Street Gives FedEx A Passing Grade After Solid Earnings Report