Market Overview

FedEx Move To 7-Day Ground Delivery Will Have Costs Before Revenue Gains

Share:
FedEx Move To 7-Day Ground Delivery Will Have Costs Before Revenue Gains

The boom in online buying is again forcing a big shipper to expand its service, and that's going to mean more cost.

FedEx Corporation (NYSE: FDX) announced on Thursday ground-parcel delivery unit FedEx Ground will add Sunday delivery, starting in January. The move comes just months after FedEx added Saturday delivery.

But it will cost money before it boosts the bottom line, analysts say, and FedEx competitor United Parcel Service, Inc. (NYSE: UPS) may have to match the move.

FedEx also said it will speed up its effort to move last-mile delivery into its own network, rather than outsourcing that final part of the delivery to the Postal Service.

'Necessary Steps'

"There is no doubt in our mind that FDX (and UPS) and their customers will need to invest in expanding their service capabilities to keep up with Amazon.com, Inc. (NASDAQ: AMZN) raising the bar on eCommerce delivery expectations,” Morgan Stanley’s Ravi Shanker wrote in a note. “We believe these are necessary steps to remain competitive but note that costs will weigh on results before any potential revenue gains show up.”

Up to now, FedEx Ground had only done seven-day delivery during the peak Christmas delivery season.

The extra cost of adding Sunday delivery will kick in just as FedEx is lapping the extra cost it took on when expanding from five to six-day-a-week delivery this past January.

Shanker has an Equal-Weight rating and $143 price target on FedEx.

Macro Worries

Countering the additional shipping needs of the online buying shift are uncertainties over trade and the global economy, warned Bank of America Merrill Lynch analyst Ken Hoexter. He said the bank's transportation conference in mid-May that consensus estimates for 10 percent growth at FedEx may be at risk given global trade worries.

Hoexter lowered EPS estimates for the fourth quarter of 2019, and full year 2020 and 2021, accounting for the slowing macro backdrop, and the seven-day startup costs.

Hoexter reiterated a Neutral rating on FedEx, lowering the price target from $188 to $173.

Price Action

FedEx's stock was down 1.8 percent to $155.14 per share on Friday.

Related Links:

Air Cargo Needs An Upgrade For 2019

FedEx To Launch Sunday Ground Deliveries

Latest Ratings for FDX

DateFirmActionFromTo
Dec 2019MaintainsEqual-Weight
Dec 2019UpgradesSellNeutral
Oct 2019Initiates Coverage OnOutperform

View More Analyst Ratings for FDX
View the Latest Analyst Ratings

Posted-In: Bank of America Merrill Lynch Ken Hoexter Morgan Stanley Ravi ShankerAnalyst Color Price Target Top Stories Analyst Ratings Best of Benzinga

 

Related Articles (AMZN + FDX)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
VIACJP MorganReinstates50.0
NUVASVB LeerinkMaintains92.0
SRPTCantor FitzgeraldMaintains211.0
SRPTPiperJaffrayMaintains210.0
LULUGoldman SachsMaintains219.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

Options Trader Making Aggressive Bearish Play On Finisar

Steve DeAngelo's Cannabis Dispensary Chain Harborside To Trade On CSE