Out of 28 analysts covering FedEx (FDX), 16 analysts, or 57%, recommend “buys” for FDX. By contrast, 12 analysts, or 43%, maintain “hold” recommendations, while no analysts have advised investors to “sell” FedEx’s stock. By comparison, FDX’s fierce contender, United Parcel Service (UPS) has one “sell” recommendation.
Analyst price targets
Wall Street analysts have a consensus 12-month target price of $178.2 on FDX’s stock. The company’s current closing price was $160.8. This represents a return potential of 10.8%, as compared to UPS’s 5.1%. Investors should note that in the past 12 months, FDX’s stock has delivered a return of -11.8%.
Based on return potential, YRC Worldwide (YRCW) tops the chart in the peer group. The company’s stock has a 122% return potential for the next 12 months. It is followed by XPO Logistics (XPO), whose return potential is 35.3% for the same time frame. Old Dominion Freight Line (ODFL) offers a decent returns prospect of 18.4% for the next year.
Among ETFs covering FDX, the iShares Transportation Average ETF (IYT) has a sizeable exposure of 12.8% to the company.
Among all financial research firms covering FDX, Brandon Oglenski of Barclays has the highest price target of $205, with an “overweight” recommendation for the company. Jack Atkins of Stephens has a price target of $195.0 for FedEx, with an “overweight” recommendation. On the lower side, Ravi Shanker of Morgan Stanley has the lowest price target of $145 for FedEx, which was updated on June 6, 2016, with “equal weight” recommendation.
Why are majority analysts advising a “buy”?
FDX’s TNT acquisition completed on May 25, 2016, is expected to boost the company’s market share in Europe to 22%, as compared to UPS’s 25%. However, this may not be very helpful because Europe is not a fast-growing market. But the combined companies’ operations in developing countries in Asia including China should allow FDX to see high growth.
FDX also enacted a number of share repurchases in 2015. Compared to its repurchases totaling $4.9 billion in 2014, the company repurchased shares worth only $1.3 billion the following year. Most companies, including FDX, are utilizing debt to repurchase shares.
Meanwhile, analysts seem to believe that Amazon.com (AMZN) which recently announced a deal with Air Transport Service Group (ATSG), will most probably pick the most profitable routes to deliver its Prime customers itself, rather than directly competing with FDX and UPS.
The logistics sector will also be watching AMZN’s moves over the next couple of months. If AMZN chooses to compete with FDX and industry honchos, it will boost FDX and UPS’s operating margins. It could be that 43% analysts are recommending a “hold” on FDX as a wait-and-watch move.
In the next and final part, we’ll look at FedEx’s valuation.