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On Friday, Morgan Stanley (NYSE:MS) reaffirmed its Underweight rating on FedEx (NYSE:FDX) shares, maintaining a price target of $200.00. The stock, currently trading at $246.21, sits near its 52-week low of $239.50, while InvestingPro data shows analyst targets ranging from $200 to $370, reflecting diverse market opinions about the logistics giant’s future. The firm’s analysts pointed to a combination of factors that have negatively impacted the company’s earnings, highlighting that the revenue net of cost inflation is now over $1 billion worse than the initial forecast at the beginning of the year. This aligns with InvestingPro data showing revenue decline of 0.63% over the last twelve months, though the company maintains strong fundamentals with $87.39 billion in revenue and an EBITDA of $10.87 billion.
The analysts at Morgan Stanley emphasized the difficulty in discerning whether the earnings pressure is due to cyclical macroeconomic factors or structural changes within the eCommerce sector. They suggest that structural market forces, such as the regionalization of eCommerce parcel delivery networks and increased competition from Amazon (NASDAQ:AMZN), the United States Postal Service, and a revitalized UPS, are more significant drivers of the current earnings pressure than many in the market may believe.
Furthermore, the analysts noted that the transition from FedEx’s DRIVE initiative to its Network 2.0 strategy carries substantial execution risks. Management’s early projections for fiscal year 2026 indicate a more complex financial picture than some sell-side analysts may have accounted for, with expectations of earnings increasing from approximately $18 to $24. However, Morgan Stanley’s stance is that normalized earnings per share (EPS) are likely to be closer to $15 rather than $25.
According to the analysts, the structural concerns regarding earnings, along with high earnings volatility and low earnings quality, do not justify a price-to-earnings (PE) multiple above 12 times. This assessment comes despite management’s indication that the majority of savings from the ongoing strategic changes are expected to materialize in fiscal year 2027.
Morgan Stanley’s analysis suggests caution for investors considering FedEx stock, as the firm sees more challenges ahead for the logistics giant than the potential for a significant earnings ramp-up in the near term. Currently trading at a P/E ratio of 15.47x with a dividend yield of 2.24%, FedEx shows mixed signals. For deeper insights into FedEx’s valuation and growth prospects, including exclusive financial health scores and additional ProTips, investors can access the comprehensive Pro Research Report available on InvestingPro.
In other recent news, FedEx Corporation reported mixed financial results for its third quarter of fiscal year 2025. The company announced earnings per share of $4.51, which fell short of analysts’ expectations of $4.61. However, FedEx’s revenue for the quarter exceeded forecasts, reaching $22.2 billion against the anticipated $21.92 billion. Despite the revenue beat, FedEx lowered its earnings guidance for the fiscal year to a range of $18 to $18.60 per share, down from the previous $19 to $20 range. The company achieved $600 million in cost savings during the quarter through its DRIVE initiative, which aims to reduce structural costs significantly.
FedEx also announced plans to purchase eight new Boeing (NYSE:BA) 777 freighter aircraft and two used ones, which will be integrated into their fleet over the next few years. These acquisitions are part of FedEx’s strategy to modernize its fleet with more fuel-efficient aircraft. Additionally, FedEx is in the process of separating its FedEx Freight division, establishing a separation management office to ensure a smooth transition. The company remains focused on cost management and operational efficiency despite ongoing challenges such as a weak industrial economy and inflationary pressures.
In the analyst community, there have been no recent upgrades or downgrades for FedEx, but the company’s performance and strategic initiatives are closely monitored. FedEx continues to emphasize its commitment to long-term value creation through transformation initiatives like Network 2.0 and its Tricolor operating model. These efforts are expected to enhance the company’s operational flexibility and efficiency in the coming years.
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