Was FedEx's Q4 'Good Enough' For The Bulls?

Reviewing FedEx Corporation FDX's fourth-quarter results released after Tuesday's close, Deutsche Bank said the results, though not perfect, were good enough

Analysts Amit Mehrotra and Kenya Watson noted that the company reported in line earnings per share for the quarter, with ground margins hitting 15 percent. The analysts also noted that the mid-point of the guidance for 2018 exceeded the consensus estimate.

On the other hand, the analysts see the 30-cent tailwind from tax suggested by the 2018 EPS guidance and the more-than-expected capital expenditure guidance as negatives. The analysts highlighted the fact that bears have been harping on the company's lack of capex discipline.

"We would also like to see mgmt. provide more granular/quantitative color on margin puts and takes- lack of transparency in this regard makes it more difficult to have high conviction in near-term earnings and cash trajectory," the analysts said.

Bulls to Win Ultimately

Meanwhile, Deutsche Bank believes the bulls will ultimately win, as the lower tax rate is sustainable, the guidance implies expansion in operating margin and the higher-than-expected capex estimated for 2018 offsets the lower-than-expected spending in 2017.

As such, Deutsche Bank maintained its Buy rating on FedEx, while lifting its price target for shares from $210 to $235, reflecting mainly a rolling forward to its earnings, rather than any major change to its earnings and cash flow estimates.

"Ultimately we see good upside potential beyond this under a DCF framework, though that is entirely predicated on capex coming down to 7% of sales over the long-term vs. 9% currently," the firm said.

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