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Why a Majority of FedEx’s Analysts Recommend Buying the Stock

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Analysts’ recommendations

The mix of analysts’ recommendations on FedEx Corporation’s (FDX) stock didn’t change after its fiscal 1Q17 results. Out of total 25 analysts covering FDX, 17 analysts (or 68%) have a “buy” opinion, while eight analysts (or 32%) recommend that investors “hold” FedEx shares. There were no “sell” recommendations among the Wall Street analysts.

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Peer group recommendations

Although FDX doesn’t have any “sell” recommendation from Wall Street analysts, its archrival United Parcel Service (UPS) has one “sell” recommendation. UPS has 67% of analysts advising investors to “hold” its common stock.

Another major LTL company, Old Dominion Freight Line (ODFL), has 37.5% of analysts recommending a “buy” on ODFL’s stock.

XPO Logistics, (XPO), the acquisitions king of 2015, has 89.4% of analysts recommending a “buy” for its common stock.

Why are analysts bullish on FedEx?

On September 21, 2016, FedEx (FDX) stock closed up nearly 7% on the day after its fiscal 1Q17 earnings announcement. Looking through the fiscal 1Q17 conference notes, we can see that FedEx is targeting $750.0 million in annual synergies from the TNT Express integration.

FDX expects to close the integration within four years ending in fiscal 2020. However, the company expects the aggregate integration expenses in the next four years to range from $700.0 million–$800.0 million. FDX expects TNT to be EPS-accretive in fiscal 2018, exclusive of integration and restructuring costs.

The change in the dimensional weight divisor from 166 to 139 in major segments like FedEx Express and FedEx Ground will increase the billable dimensional weight, measured in pounds. In turn, this should boost the overall revenues of the company going forward.

Starting in February 2017, the decision to revise the fuel surcharges on a weekly basis in the above-mentioned segments is likely to improve the fuel surcharge revenues. Of course, this is in expectation of a rise in crude oil price in the fourth quarter of 2016 and thereafter.

ETF investments

Investors who prefer the transportation and logistics sector can consider the iShares US Industrials ETF (IYJ). Major railroads and airlines make up ~4.1% and 6.6%, respectively, of the portfolio holdings of IYJ.

In the final part of this series, we’ll look at FedEx’s management’s expectations in fiscal 2017.

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