FedEx Gets Upgrade On Increased Barriers To Entry, Express-Ground Integration

Amazon.com, Inc’s AMZN recent decision to pause its Shipping with Amazon (SWA) third-party delivery business underlines the barriers to entry into the delivery business.

Moreover, the integration of FedEx Corporation’s FDX Express and Ground networks is a positive for the company, according to BofA Securities.

The FedEx Analyst

Ken Hoexter upgraded FedEx from Neutral to Buy, raising the price target from $117 to $140.

The FedEx Thesis

Calls with FedEx’s Investor Relations highlighted that only around 20% of the company’s revenues are generated by business-to-consumer delivery, Hoexter said in the note.

While growth in business-to-consumer or e-commerce delivery remains robust, as most of the country is under shelter-in-place orders, the majority of FedEx’s revenues are generated by business-to-business deliveries, which are severely impacted by shutdowns.

See Also: FedEX, UPS Shares Surge As Amazon To Suspend Delivery Service For Third-Party Sellers Due To Increased Demand

He said, however, that this was offset partially by medical and health care shipments for pandemic efforts, packages for essential businesses and a decline in competition from other delivery services. Also, the company is witnessing a return of demand in Asia.

Referring to the integration of FedEx’s Express and Ground businesses, Hoexter said this could help lower network costs. He enumerated other positives as “its deployment of dynamic routing software at Ground, the conversion of SmartPost packages into Ground, and the shutdown of belly space, which is aiding airfreight rates.”

FDX Price Action

Shares of FedEx were trading higher by 1.1% at $123.64 at time of publication Monday.