On Wednesday, BofA Securities made a slight adjustment to the stock price target for FedEx Corporation (NYSE:FDX), bringing it down to $345 from the previous target of $347, while maintaining a Buy rating on the stock. The adjustment comes ahead of FedEx's expected financial results for the first quarter of fiscal year 2025, set to be announced on Thursday, September 19.
The firm's analyst cited sub-seasonal demand as the reason for reducing the estimated earnings per share (EPS) for the quarter by 9% to $4.76. Despite the lower demand backdrop, the analyst highlighted FedEx's ongoing efforts to achieve substantial cost savings. The company's DRIVE initiative is expected to result in $2.2 billion in structural cost savings in fiscal 2025, with an additional $2 billion in savings from its Network (LON:NETW) 2.0 strategy between fiscal years 2025 and 2027.
FedEx has recently restructured its reporting segments, combining its Express, Ground, and Services units into the new Federal Express segment. This segment, which accounts for 85% of the company's revenues, is anticipated to show a slight year-over-year volume improvement, especially as it precedes the loss of its USPS contract on October 1. The operating margin for Federal Express in the first quarter is expected to remain flat year-over-year at 7.3%.
For the combined Express and Ground businesses, now operating under the Federal Express name, the analyst forecasts that they will be the main contributors to the company's adjusted earnings before interest and taxes (EBIT) and margin improvement in fiscal 2025, with an estimated operating margin of 7.7%, up from 7.0% in the previous fiscal year.
Turning to FedEx Freight, the firm projects a first-quarter operating margin of 21.3%, which represents a 10 basis points sequential gain but falls short of the historical fourth-quarter to first-quarter improvement rate of 210 basis points. This is attributed to less-than-ideal seasonal demand, a subdued industrial economy, and the recent closure of Yellow (OTC:YELLQ) on July 28, 2023.
For fiscal 2025, FedEx aims for modest Freight margin improvement, driven by stronger yields and volumes, with the firm's analyst estimating a 19.6% operating margin, reflecting a 30 basis points increase year-over-year.
In light of these considerations, BofA Securities has set its fiscal 2025 EPS estimate for FedEx at $20.25, which is at the lower end of the company's guidance range of $20.00 to $22.00.
In other recent news, FedEx Corporation has been the focus of several noteworthy developments. BMO Capital maintained its Market Perform rating on FedEx, forecasting revenue growth in the low to mid-single digits and earnings per share between $20 and $22 for fiscal year 2025. The firm's updated forecast factors in the company's recent reporting changes and a softer macroeconomic environment.
In addition, Baird maintained its Outperform rating on FedEx, despite adjustments to the company's first and second-quarter estimates due to various challenges. The firm remains optimistic about FedEx's fiscal year 2025 guidance and its DRIVE savings initiative.
Furthermore, FedEx has announced potential service disruptions in Louisiana due to the anticipated impact of Storm Francine, affecting its pickup and delivery services in parts of the state. The company also resumed its international priority inbound and outbound services in Ukraine and reinstated its international delivery services in and out of Israel. TD Cowen also noted ongoing adjustments both UPS and FedEx are making post-COVID, with a cautious optimism surrounding the upcoming peak season.
Lastly, FedEx, along with UPS, is planning significant job cuts as part of a broader trend of cost-cutting and restructuring across various industries. The company is also currently facing significant network disruptions due to a global IT outage caused by a third-party software vendor, which could lead to delivery delays. These are recent developments that investors should keep in mind.
InvestingPro Insights
As FedEx Corporation (NYSE:FDX) approaches its first-quarter financial results for fiscal year 2025, InvestingPro data and tips provide additional context for investors. The company's market capitalization stands at a robust $72.84 billion, reflecting its significant presence in the industry.
Despite recent adjustments to earnings estimates, FedEx has been recognized for its strong performance over the last three months, with a price total return of 21.1%, and maintaining a dividend growth of 9.52% over the last twelve months as of Q4 2024. This is indicative of the company's ability to generate shareholder value, even in challenging economic conditions.
InvestingPro Tips highlight that FedEx has raised its dividend for three consecutive years and has maintained dividend payments for 23 consecutive years, showcasing its commitment to returning value to shareholders. Moreover, analysts predict the company will be profitable this year, which aligns with the positive sentiment expressed by BofA Securities. However, it is noted that the company is trading at a high P/E ratio of 17.02 relative to near-term earnings growth, which may warrant caution for value-focused investors.
For those interested in digging deeper, there are additional InvestingPro Tips available for FedEx at https://www.investing.com/pro/FDX, providing a comprehensive analysis of the company's financial health and market position. This additional information could be crucial for investors making informed decisions in the lead-up to the earnings announcement.
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