Investors Bought FedEx Stock Ahead Of Earnings

As Bruce Chan, an analyst at Stifel Nicolaus, sees too many opportunities for FedEx to ignore, it's time for FedEx to fly

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A stock analyst from Stifel Nicolaus urged investors to invest in FedEx Corp. on Thursday, saying there is "too much opportunity" for investors to ignore just before the package delivery company reports earnings, and the stock rose as a result.

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There was an increase of 1% in morning trading in the stock FDX, 3.90% after it closed at its lowest price in almost a year on Wednesday.

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For its second quarter, FedEx outperformed profit expectations but missed revenue estimates by a wide margin. For the third quarter, FedEx is expected to report results after the closing bell.

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Despite the fact that there are still many “material risks” related to a continued slowdown in economic activity, Chan, a director of Stifel Investments, believes the company's current, deeply discounted valuation presents a compelling investment opportunity at the current, deeply discounted price as expectations have been raised for an inventory bottom. In addition, Chan believes the company's early signs of executing its “significant” cost-cutting initiatives are making it a compelling investment prospect.

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The analyst raised his rating from hold to buy after being on hold for the past six months, and he raised the price target on the stock from $171 to $222 over the next six months.

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“Our view is that there is still a lot of wood to chop,” Chan wrote in a note to clients, “but the move forward of some cost-saving measures as well as the news flow that some of these initiatives are in the process of being implemented gives us a sense of comfort that the management is serious about making things happen.

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Chan has made a bold move by upgrading the stock before earnings. On September 16, 2022, he downgraded FedEx to hold from buy after the company issued a profit warning that sent the share price plunging a record 21.4% that day after FedEx issued a profit and revenue warning.

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As reported by FactSet, analysts predict adjusted earnings per share of $2.71, down from $4.59 a year ago, as well as a 3.7% decline in revenue to $22.72 billion. Among the company’s business segments, FedEx Express revenue is expected to decline 8.7% to $10.49 billion, FedEx Ground revenue is increasing 0.4% to $8.77 billion and FedEx Freight revenue is projected to rise 8.1% to $2.26 billion.

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Its Express, Ground, and Freight segments missed revenue expectations in FedEx's second quarter, beating profit expectations but falling short on profits.

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Within the last three months, the stock has grown 14.8% but has fallen 12.7% over the past year. S&P 500 index SPX, 1.57%, has declined 10.9%, while the Dow Jones Industrial Average DJIA, 1.07%, has lost 7%.

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FDX shares could grow as more progress is made with productivity initiatives as the market continues to be uncertain. At current valuations, we believe the risk/reward for FDX shares is attractive at current valuation levels.