Can FedEx Freight hit its 15% margin target? Wall Street is split.
Key takeaways
- FedEx Freight's growth strategy centers on margin gains, not just higher shipment volumes.
- Investors are watching whether FedEx Freight can turn scale and density into stronger profits.
- The company plans to expand further into healthcare and grocery freight markets.
Shares of newly standalone FedEx Freight Holding Corp. are likely to remain relatively flat in the coming months as investors watch for signs that the largest less-than-truckload carrier can improve its margins, which executives are aiming to do, several analysts said last week.
FedEx Freight completed its separation from the larger FedEx Corp. organization on June 1, listing its stock under the ticker symbol FDXF. With more than 30,000 vehicles in its fleet and a national network of some 365 facilities, the company has an LTL market share of about 17%. In the wake of its landmark move, which started with a mid-2024 review of strategic options, several investment banks issued their first formal recommendations of FedEx Freight stock.
Analysts at Bank of America were among the most upbeat, suggesting that investors buy the shares and giving them a $185 price target. (Shares of FedEx Freight finished last week on a positive note, climbing nearly 5% to $165 and change on June 5, even as the broader market registered a very red Friday.)
The BofA team said the operating targets laid out by President and CEO John Smith and his team—growing operating margins to about 15% from today’s roughly 11%—give FedEx Freight the chance to grow profits by more than 20% annually through the end of 2028.
But two other investment banks are being a bit more cautious about FedEx Freight’s mid-term prospects. At Truist Securities, analyst Lucas Servera said investors should hold the FedEx Freight shares they received from their FedEx Corp. holdings and set a $155 price target on them. Servera stated that one key to that recommendation was Smith et al. delivering “a more measured earnings and margin expansion story” than had been expected at their investor day nearly two months ago. Those comments came a few weeks after they reported a 6% drop in daily shipments during the quarter that ended Feb. 28 and added that their outlook was for even more negative numbers this spring.
Servera said the FedEx Freight story early on will be more about yield growth, driven by the company’s emphasis on growing its business with small and midsize customers and pushing further into the healthcare and grocery sectors, among other things. Because of that, he said investors should stay on the sidelines until executives can show they can substantively move the needle on profitability.
Analysts at Stifel are looking at things in a similar light. Led by Bruce Chan, they agree that the newly independent FedEx Freight can improve its numbers in the coming quarters as it lets go of legacy FedEx processes and spending it no longer needs and focuses on profitable growth over mere volumes. But they added that the company’s size and “significant structural changes, commercially and operationally,” bring with them their own set of risks, costs, and challenges.
“Scale, density, and a [roughly] 40% transit-time advantage are already in place,” the Stifel team wrote to investors June 4. “The multiple and margin gap to peers from here is execution, not infrastructure.”
Stifel also has a ‘hold’ rating on FedEx Freight shares as well as a $160 price target.
At their June 5 closing price, FedEx Freight’s market capitalization was close to $26 billion. That’s roughly the same as the equity values of J.B. Hunt and XPO and a little more than half the market cap of Old Dominion Freight Line, which investors have long given a higher valuation.
About the Author
Geert De Lombaerde
Senior Editor
A native of Belgium, Geert De Lombaerde has more than two decades of experience in business journalism. Since 2021, he has written about markets and economic trends for Endeavor Business Media publications FleetOwner, Healthcare Innovation, IndustryWeek, Oil & Gas Journal, and T&D World.
With a degree in journalism from the University of Missouri, he began his reporting career at the Business Courier in Cincinnati. He later was managing editor and editor of the Nashville Business Journal. Most recently, he oversaw the online and print products of the Nashville Post and reported primarily on Middle Tennessee’s finance sector and many of its publicly traded companies.