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 FDX,
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 SPX,
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.