On Thursday, BMO Capital Markets maintained a Market Perform rating on FedEx Corporation (NYSE:FDX) and increased its stock price target to $325 from $310. The adjustment follows FedEx's recent financial results, which met market expectations, and the company's forward-looking earnings per share (EPS) guidance for fiscal year 2025, projected to be between $20.00 and $22.00.
The company's announcement of a strategic review of its FedEx Freight less-than-truckload (LTL) operations has been identified as a potential catalyst for increasing shareholder value. According to BMO Capital, there could be substantial benefits if the LTL segment is either spun off or sold.
In the valuation of FedEx, BMO Capital employs a sum of the parts approach, suggesting that assigning a low to mid-teen enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple to the LTL business could yield a share value of $310 to $338 based on fiscal year 2025 projections.
Looking further ahead, the valuation could rise to between $377 and $408 per share for fiscal year 2026, contingent on the outcomes of the strategic review and subsequent actions taken by FedEx management.
The strategic review is part of FedEx's ongoing efforts to optimize its operations and enhance its financial performance. The company's guidance aligns with prior consensus forecasts, indicating stability in its business outlook and adherence to market expectations. The potential reconfiguration of the FedEx Freight segment signifies a pivotal moment for the company as it explores avenues to maximize its financial structure and shareholder returns.
In other recent news, FedEx Corporation has been making significant strides in its operations and financial performance. The company recently exceeded its annual profit forecast, leading to a surge in its shares. This positive outlook is attributed to cost-saving measures that are expected to result in $2.2 billion in savings.
Furthermore, FedEx is exploring strategic options for its less-than-truckload business, a move that analysts, including Bernstein's David Vernon and Jefferies' Stephanie Moore, believe could substantially benefit shareholders.
FedEx has also reported strong fourth-quarter earnings for the fiscal year 2024, surpassing its target for capital intensity reduction and returning nearly $4 billion to shareholders. Despite lower-than-expected revenue, the company delivered earnings towards the higher end of its projections and continues its strategic network transformation. FedEx is also on track to realize $4 billion in cost savings by FY 2025 through its DRIVE initiative.
In addition to these developments, Argus has adjusted its outlook on FedEx, increasing the price target to $335 from the previous $325, while reaffirming a Buy rating on the shares. This revised price target is based on a forecasted price-to-earnings (P/E) multiple of 14 times the estimated earnings per share (EPS) for the fiscal year 2026. These recent developments highlight FedEx's commitment to enhancing shareholder value and operational efficiency.
InvestingPro Insights
Following BMO Capital Markets' updated outlook on FedEx Corporation (NYSE:FDX), InvestingPro data and tips offer additional insights into the company's performance and stock potential. With a market capitalization of $71.07 billion and a P/E ratio standing at 17.21, FedEx is trading at a value that reflects its strong position in the market. Notably, the company has a PEG ratio of just 0.33 over the last twelve months as of Q4 2024, suggesting that its stock price is modest relative to its earnings growth rate.
An InvestingPro Tip highlights that FedEx has raised its dividend for three consecutive years and has maintained dividend payments for 23 consecutive years, which may be attractive to income-focused investors. Moreover, its significant return over the last week, with a 1-week total price return of 17.94%, underscores the positive momentum the stock has recently experienced. Analysts have revised their earnings upwards for the upcoming period, further indicating a bullish outlook.
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