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Why Analysts Strongly Recommend a ‘Buy’ on FedEx

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Analysts’ recommendations for FedEx

29 analysts cover FedEx (FDX), according to Thomson Reuters. For the last four months, there haven’t been any changes in analysts’ views towards the global parcel delivery giant. In fact, after FedEx’s third-quarter earnings, analysts became more positive on FedEx as per Reuters’ data. 11 analysts have given the stock a “strong buy” recommendation. 14 analysts have given it a “buy” rating. Three analysts are recommending a “hold.” Only one analyst has a “strong sell” recommendation on FedEx’s common stock.

Analysts’ target price for FedEx and peers

FedEx has a consensus rating of 1.8, indicating a “buy” from analysts. Analysts’ consensus 12-month target price is $289.32 per share. On June 20, FDX stock closed on $251.43, down ~3% from the previous day’s close. The stock has a return potential of 15% over the next 12 months based on the closing price on June 20. The company’s peers have the following target prices and return potentials:

  • United Parcel Service (UPS): $124.36 per share with a return potential of 9.4%
  • XPO Logistics (XPO): $116.94 per share with a return potential of 3%
  • Old Dominion Freight Lines (ODFL): $149.15 per share with a return potential of -6.5%
  • Saia (SAIA): $79.33 per share with a return potential of -1.3%

Investors who are optimistic about transportation and logistics stocks can consider investing in the Industrial Select Sector SPDR ETF (XLI). Major US airlines and railroad companies together form 21.5% of XLI’s portfolio.

Behind analysts’ bullish views on FedEx

FedEx, a global parcel delivery giant, has managed to report double-digit revenue growth in the fourth quarter. The financial position of companies like FedEx and UPS speak a lot about the overall economic condition. US economic growth is gaining momentum, which is evident from the lower unemployment rate and an upward revision in the interest rate.

The worldwide courier giant raised its quarterly dividends by a whopping 30% to $0.65 per share. Plus, the company has plans to buy back stock going forward. These tailwinds should have a more positive impact on FedEx stock going forward. However, the current US-China trade and tariff related tensions also weigh negatively on consumer-centric stocks such as FedEx and UPS. Plus, rising oil prices could also have a negative effect on FedEx’s operating margins.

In the last part, we’ll compare FedEx’s valuation with the less-than-truckload service providers.

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