FedEx Corp.’s cost-cutting plans have been welcomed by analysts, but they warn that the parcel-delivery service still has plenty of challenges ahead.
The company reported softer-than-expected second-quarter results after the market closed on Tuesday and outlined plans to slash an extra $1 billion in costs beyond what it mapped out in September, as management cited a “weaker demand environment.”
Analysts welcomed the cost cuts. In a note released Wednesday, Stifel maintained its hold rating for FedEx
but lowered its price target to $167 from $181. “The company has stemmed the bleeding after a difficult [first quarter of fiscal 2023] print and identified an incremental $1 [billion] in savings opportunity, there is still a lot of work ahead with cost takeout, post-TNT optimization, evolving commercial strategy, and plenty of market and environmental challenges to navigate,” wrote Stifel analyst J. Bruce Chan.
BMO analyst Fadi Chamoun said that while demand is worse, FedEx is showing “good momentum” on the cost-savings front. In a note released Wednesday, he wrote: “[FedEx’s second quarter of fiscal 2023] results underscored two key factors: (1) underlying demand trends have weakened at a faster than expected pace across all market segments; and (2) a positive step up in cost savings.”
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The parcel-delivery service’s stock rose 6.2% before market open Wednesday, as investors focused on FedEx’s profit forecast. FedEx’s stock has fallen 36.5% this year, outpacing the S&P 500’s
decline of 19.8%.
Susquehanna maintained its neutral rating for FedEx but raised its price target to $170 from $165.
“Yesterday’s results and outlook more convincingly support a cycle [earnings-per-share] floor of at least $13.00, with investor focus gradually shifting from downside risk to cyclical opportunity deeper into 2023,” wrote Bascome Majors, an analyst at Susquehanna Financial Group, in a note on Wednesday.
On Tuesday, FedEx said its internationally focused Express segment suffered a 64% decline in operating income as global package volumes fell. However, sales per package rose 8%.
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“In the coming months, we expect global macroeconomic concerns and Express’s historically high operating leverage to continue to weigh on [FedEx’s] multiple,” wrote Majors. “But longer term, $13.00 looks increasingly like a base of earnings [FedEx] can build from, with investors gaining greater conviction in that view as calendar year 2023 progresses.”
Of 32 analysts surveyed by FactSet, 15 have an overweight or buy rating for FedEx, and 17 have a hold rating.