Analysts: FedEx Still Poised to Deliver Growth, But Not Overnight

FedEx Corporation FDX should continue to deliver above-average growth along with packages over the long-term, sell-side analysts said Wednesday, brushing aside warnings in its near-term guidance.

The package shipping giant reported better-than-expected earnings Tuesday, but highlighted some headwinds the company anticipates in 2020, guiding that year’s earnings in the mid-single-digit percent range.

The Analysts

Credit Suisse analyst Allison Landry maintained an Outperform rating with a $184 price target. 

Raymond James analyst Patrick Tyler Brown lowered the price target from $200 to $190 but reiterated an Outperform rating.

BMO Capital Markets analyst Fadi Chamoun maintained at Outperform with a $190 target price.

UBS Research analyst Thomas Wadewitz maintained a Sell rating on FedEx with a $136 price target.

The Takeaways 

Memphis-based FedEx is in the midst of a delivery revolution, with e-commerce transforming the landscape. In the long run, FedEx is in a good place to benefit from the evolving parcel market, Credit Suisse’s Landry said in a Tuesday note. 

“We view its alignment with large, traditional retailers — such as Walmart Inc WMT and Target Corporation TGT — that are looking for ways to compete with Amazon.com, Inc. AMZN as a positive in the long run,” the analyst said. 

It's difficult to see high margins, Landry said. 

“The problem with the parcel stocks … in general is that there always seems to be more and more costs...and negative mix (and mix within the mix)." 

The move to e-commerce is part of what’s keeping UBS’s Wadewitz bearish.

While the shift may be inevitable, and likely will bring volume growth, it’s less clear what it will do for FedEx’s medium-term financial performance, the analyst said. 

E-commerce has historically been a lower-margin business for FDX and its competitors, and it is likely to create a margin headwind from lower delivery point density, Wadewitz said.

Automation, Integration

The company’s work to lower costs through automation and to integrate its network with recently acquired TNT Express could provide some upside.

“We believe that ongoing investments in automation and ground network infrastructure alongside TNT integration benefits support above-average growth over the medium term,” BMO’s Chamoun said in a Tuesday note. 

Raymond James also remains optimistic about the long-term outlook for FedEx Ground and said its freight business could also continue to drive earnings growth.

"While we admittedly remain somewhat unclear on the timeline, we still believe, at full integration, TNT's road-network can provide substantial cost savings in Europe,” Brown said in a Wednesday note. 

Price Action

FedEx shares were up 3.28% at $161.09 at the time of publication Wednesday. 

Related Links:

FedEx Reports Mixed Q4 Earnings

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