In the previous part of this series, we assessed FedEx’s (FDX) capital spending plans. In this part, we’ll look at analysts’ recommendations on FDX stock. Since we covered FedEx’s recommendations prior to its earnings release, there has been no change in analysts’ ratings. Of the 28 analysts covering the stock, 16 analysts (57%) made a “buy” recommendation, while 12 analysts (43%) recommended that investors “hold” FedEx shares. There were no “sell” recommendations.
Why are analysts bullish on FedEx?
Analysts are expecting considerable synergies with FedEx’s acquisition of TNT Express. With this acquisition, the company’s presence in international markets will grow, especially Europe. Also, on June 1, 2016, the company adjusted its policy on packages longer than 48 inches. Whereas the surcharge applied for packages longer than 60 inches, there will now be a $10.50 surcharge on items exceeding 48 inches.
Increased rates and surcharges, along with profit improvement initiatives, should expand FedEx’s margins. The company has integrated its FedEx Ground and SmartPost services, which should save expenses and improve efficiency and productivity. Growing e-commerce is expected to fuel growth in the FedEx Ground segment.
Analysts’ price target
FedEx (FDX) stock’s consensus 12-month target price has been set at $178.80. This indicates a 9.1% return potential. In the last 12 months, the company has delivered a 6.1% return. Whereas Brandon Oglenski of Barclays has the highest target price of $205 with an “overweight” recommendation, David Vernon of Bernstein has the lowest target price of $157 with a “market perform” rating.
Peers’ target prices and returns
UPS (UPS) has a consensus target price of $109 with a return potential of 3%, and Old Dominion Freight Line (ODFL) has a target price of $71 with an implied return of 18.7% for the next year. XPO Logistics (XPO) has a return potential of 47% in the next year, with a target price of $39.10.
FedEx makes up 2.3% of the Industrial Select Sector SPDR ETF (XLI). Major US airlines and railroads make up 11.6% and 7.7%, respectively, of its portfolio. In the next part of this series, we’ll look at FedEx management’s expectations for fiscal 2017.