FedEx's earnings miss may be more of a speed bump than a brick wall, analyst says

By Steve Gelsi

Analysts see a potential spinoff of FedEx's freight business as a possible boost, but the stock is dropping sharply

FedEx Corp.'s big earnings-target miss may be more of a speed bump than a brick wall, one analyst said Friday, as the package deliver giant's stock fell sharply after a reduced earnings forecast and fresh cost-cutting moves from the company.

Analysts flagged a prospective spinoff of FedEx's (FDX) freight business as a potential boost to the stock. FedEx said it's studying the move initially proposed in June and will make a decision by the end of December.

FedEx's stock dropped 14.7% on Friday on the heels of first-quarter results that fell well short of Wall Street estimates.

The stock is on pace for its largest percentage drop since it fell 21.4% on Sept. 16, 2022, according to Dow Jones Market Data.

FedEx also cut its full-year profit outlook due to weaker-than-expected shipping demand as its customers remain cautious on the economy.

Evercore ISI analyst Jonathan Chappell reiterated an outperform rating and said, "Speed bump or brick wall? We stick with the former."

The earnings miss was driven by weaker-than-expected demand as well as a shortfall in planned cost savings, Chappell said.

While management remained "steadfast" that it'll achieve $2.2 billion in cost cuts in fiscal 2024, the benefit of doing so "will be even more back-end loaded [in fiscal 2025] than previously anticipated," Chappell said.

FedEx's sum-of-the-parts multiple boost for a potential freight spinoff is "even more attractive today," he said.

Evercore ISI cut its price target on FedEx's stock to $318 from $335.

JPMorgan Chase analyst Brian P. Ossenbeck stuck to an overweight ratings for FedEx and cut his price target to $350 from $359 a share.

The company's full-year earnings target range for adjusted earnings of $20 to $21 a share - a reduction from the prior range of $20 to $22 a share - implies a "steep ramp-up" in the second half of its fiscal year, he said.

Ossenbeck said he expects the projection "will be viewed with a healthy amount of skepticism" but flagged some room for optimism if the company manages to accelerate its cost savings and pricing power improves during the peak delivery season later this calendar year.

Stifel analyst J. Bruce Chan said FedEx lost some "steam" with its results but its freigh-business spinoff "could unlock significant potential."

He reiterated a buy rating on the stock and cut his price target to $321 a share from $327 a share.

Prior to Friday's trading, FedEx's stock had gained 18.8% in 2024, while the S&P 500 is up 19.8%.

-Steve Gelsi

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09-20-24 1027ET

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