FedEx (NYSE:FDX) has now decided to spin off its LTL division, a move that Stifel believes could substantially unlock value and reduce the existing valuation disparity when compared to LTL industry peers. The company’s strong financial position is evidenced by its 23-year track record of consistent dividend payments and a current dividend yield of 2%. This strategic decision, Stifel suggests, positions FedEx Freight to capitalize on its market-leading status as a standalone entity.
Despite the reported earnings not meeting all estimates, Stifel noted positive developments, including a slight inflection in yields. With a current P/E ratio of 16.9x and an EBITDA of $10.9 billion in the last twelve months, FedEx maintains solid fundamentals. The company revised its annual EPS guidance downward, from the previously projected range of $20-21 to a new forecast of $19-20, prompting 10 analysts to revise their earnings estimates downward for the upcoming period, as tracked by InvestingPro. The company continues to aim for $2.2 billion in annual cost savings from its DRIVE program, suggesting a significant increase in savings anticipated in the latter half of the fiscal year.
The focal point for investors, according to Stifel’s previous analysis, hinged on the potential spin-off of FedEx’s industry-leading Less-Than-Truckload (LTL) division. Stifel had previously indicated that there was a better-than-even chance of this spin-off occurring, citing the appealing valuation gap between FedEx’s current market valuation and that of its LTL industry peers.
FedEx has now decided to spin off its LTL division, a move that Stifel believes could substantially unlock value and reduce the existing valuation disparity when compared to LTL industry peers. The company’s strong financial position is evidenced by its 23-year track record of consistent dividend payments and a current dividend yield of 2%. This strategic decision, Stifel suggests, positions FedEx Freight to capitalize on its market-leading status as a standalone entity.
In other recent news, FedEx has seen significant changes in its outlook from various financial firms. TD Cowen raised its FedEx target to $337, maintaining a Buy rating, following the announcement of FedEx’s strategic decision to spin off its freight business.
BMO Capital also increased its FedEx target to $330, citing cost reduction initiatives and plans for the less-than-truckload (LTL) segment. On the other hand, Stephens reduced its FedEx target to $345, but maintained an Overweight rating, noting stronger profitability in FedEx Express and softer earnings in the Freight segment.
Bernstein SocGen Group modestly increased FedEx’s target to $320, acknowledging challenges in the Freight segment and upcoming spinoff costs. Loop Capital, upgrading FedEx to Buy, significantly raised the target to $365, factoring in operational efficiencies and anticipated benefits from the LTL Freight business spinoff.
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