FedEx Stock: Why Wells Fargo Has a Different View

A prominent Wall Street analyst is considering buying FedEx (FDX) stock right now. Wells Fargo’s Allison Poliniak-Cusic initiated coverage on the delivery giant yesterday with an “outperform” rating. The analyst’s target price of $189 on FedEx depicts a return of nearly 20% over the next year.

Poliniak-Cusic’s “outperform” rating on FedEx is surprising, as several other analysts have downgraded or reduced their target prices in recent months. Most recently, Bernstein analyst David Vernon lowered his rating on the stock to “market perform” from “outperform.” He also cut the target price on FedEx stock to $153 from $201.

Over the last month, analysts from Stifel Nicolaus, Edward Jones, BMO Capital, and KeyBanc Capital have lowered their ratings. All four research companies now have “neutral” or equivalent recommendations from their earlier “buy” recommendations.

At the beginning of 2019, 80% of the 30 analysts covering the stock had bullish stances. However, that proportion has fallen to 52% as of October 30. The average target price on the stock has plunged to $171.81 from $231.37 on January 1. Its current target price reflects a potential return of 8.7% over the next year.

Why is Wells Fargo bullish on FedEx?

FedEx has been one of the most battered stocks in the logistics industry over the last 12 months. The stock has lost 25%—nearly $14 billion—in market cap over the last year. Back-to-back dismal quarterly performance reports have kept analysts increasingly cautious about FedEx’s growth prospects.

Declining revenue from FedEx’s international business, or Express division, is hurting its overall financial results. Softer trade and negative manufacturing output in Germany are affecting the Express division.

However, Poliniak-Cusic expects a strong revival in the Express division next year, according to an October 29 Benzinga report. The analyst assumes that TNT integration and continued investment in Express will help FedEx operate the business more efficiently.

Furthermore, Poliniak-Cusic is optimistic that FedEx is positioned well to benefit from rapidly expanding e-commerce package volumes. As per the Benzinga report, the analyst forecasts that overall e-commerce package volumes will double by 2026.

To expand its foothold across the e-commerce delivery space, FedEx is cutting its ties with Amazon (AMZN). So far this year, FedEx hasn’t renewed two delivery contracts with the e-commerce giant. As per the company, the strategy could help it free up resources to focus on the broader e-commerce delivery market.

Poliniak-Cusic is also optimistic that pricing reacceleration, infrastructure investments, and a seven-day delivery initiative will benefit its Ground business in the long run.

The analyst is also bullish on FedEx’s rival United Parcel Service (UPS) and has an “outperform” rating on its stock. The target price of $138 reflects a return of approximately 18% over the next year.