Citi: FedEx Is 'In The Driver's Seat'

In a recent report, analysts at Citi Research gave their take on Buy-rated FedEx Corporation (NYSE: FDX). According to analysts, FedEx is currently in an "enviable position" in the small package market.

In The Driver's Seat

Operations and fundamentals for FedEx are extremely strong and suggest the potential for earnings and guidance upside. Analysts highlight that the company's cash levels are at an all-time high. In addition, holiday stumbles by United Parcel Service, Inc. (NYSE: UPS) placed FedEx in a good light in the eyes of many disappointed UPS customers.

No Longer Lagging In Free Cash Flow

Analysts believe that the company's free cash flow has been a source of frustration for FedEx shareholders in the past. However, as the company has executed its plan of improving the profitability of Express and growing Ground, free cash flow (FCF) has benefited. Analysts believe FedEx is now in position to match the FCF yield of UPS through 2016.

Analysts expect a ramp-up in capex coming soon as the company addresses capacity and production increases. Both FedEx and UPS are currently trading at about 4.6 percent FCF yields based on 2016 estimates, but analysts believe that FedEx's growth profile justifies the stock trading at a premium to UPS.

$1 Billion In Cash On The Books

Now that FedEx's acquisition of Genco is fully funded, analysts believe the company will likely find other uses for its $1 billion in over-capitalization. "We believe FedEx could surprise with a faster buyback or potentially another acquisition of size," analysts explained in the report.

Citi currently has a Buy rating on FedEx and a $210.00 price target on the stock.