Shares of FedEx (NYSE:FDX) closed 2.62% lower yesterday as investors were digesting updates from the company’s Investor Day.
New CEO Raj Subramaniam presented a new strategic plan, as well as new 2025 financial targets. The company is aiming to deliver 18–22% annualized TSR through fiscal 2025, based on the following projections:
- 4–6% compound annual revenue growth through fiscal 2025;
- 10% adjusted consolidated operating margin;
- Adjusted dividend payout ratio of at least 25%;
- Compound annual growth rate for adjusted EPS of 14–19% through fiscal 2025.
"As we enter the next phase of FedEx, we will unlock value from this foundation to deliver outstanding returns to all of our stakeholders. Our strategy is focused on driving yields, expanding margins, and elevating returns through profitable growth and capital efficiency. We have tremendous momentum and a committed leadership team focused on delivering today, while innovating for tomorrow,” Subramaniam said in the press release.
Here are comments from 5 FedEx analysts who attended the event.
KeyBanc’s Todd Fowler (price target raised to $325): “We reiterate our Overweight. In our view, management adequately addressed key areas of concern (margins, returns, capital deployment, network integration) and established a reasonable path to earnings exceeding $30/sh by FY25. Additionally, we would not overlook a raised dividend payout ratio and lower capex targets supporting improved free cash and capital deployment. While we share macro concerns and acknowledge historically inconsistent execution, levers around operational efficiencies and network integration, as well as reduced cost headwinds, should help support margin improvement somewhat independent of macro trends, with valuation compelling.”
Wells Fargo’s Allison Poliniak-Cusic: “FDX's Investor Day targets were likely what investors wanted, but the details provided did not give investors the confidence they craved. Collectively the targets likely support a $300-325 share price. However, the issue, and larger driver of share upside, remains execution, in our view. Given the economic sensitivity, there is understandable skepticism about what can be accomplished if the environment becomes even more challenging.”
Morgan Stanley’s Ravi Shanker: “FDX’s 2022 Investors Meeting made it clear that this is the start of a new era for the company and ambitious new targets for FY25 set a relatively high bar. However, the market may wait and watch on execution, as the path to get there seems evolutionary rather than revolutionary.”
BofA’s Ken Hoexter (price target raised to $287.00): “We remain economically conservative in our outlook, yet add multiple credit for its revenue quality focus and self-help earnings potential, along with its renewed focus on total shareholder returns.”
Goldman Sachs’ Jordan Alliger: “We have always said margins should be better for FedEx and efforts on cost reduction, revenue management, and better operating efficiency should be steps in right direction. Execution of course is to be determined but directionally what was said appears achievable. We leave our FY 2023 and FY 2024 estimates unchanged, based on previously incorporating a slower pace of economic growth ahead, into our outlook. We remain Buy rated on the shares due to long term margin potential and current inexpensive valuation.”
By Senad Karaahmetovic