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.
