3 Analysts Offer Mixed Views On FedEx's Q3 Results

FedEx Corporation FDX reported FYQ3 revenue of $21.5 billion, up 23% year-over-year. The company recorded $3.47 in adjusted per-share earnings, above the market expectations of $3.20 in per-share earnings and considerably higher than the $1.41 a share from one year ago.

Fedex credited its quarterly results primarily to its U.S. domestic residential package and FedEx International Priority services and to pricing initiatives across all of its transportation segments. It acknowledged the severe winter weather in February — particularly at its hubs in Memphis, Indianapolis and North Texas — impaired operations and resulted in a $350 million dent to its operating income.

FedEx Analysts React: Patrick Tyler Brown, managing director of equity research at Raymond James, provided the most positive of the analyst reports.

“While we are cognizant of lingering macro risk, we see mounting tailwinds in the residential parcel delivery complex anchored by a pronounced e-commerce acceleration and seemingly positively evolving pricing landscape,” he wrote.

Brown said increased e-commerce activity coupled with a tighter industry capacity “are affording outsized yield opportunities,” which combined with the company’s internal initiatives could result in building momentum for its ground services.

“Despite overwhelming macroeconomic uncertainty, we believe FDX is well-positioned to drive idiosyncratic growth opportunities on the heels of the recent TNT acquisition, e-commerce tailwinds in its Domestic Ground business and LTL network advantages through freight cycles,” he wrote. “Moreover, as the TNT integration begins to take shape, we surmise FedEx will garner substantial cost savings in its international business.”

Todd C. Fowler, managing director and equity research analyst at KeyBanc Capital Markets, viewed the quarter’s results with more cautious optimism. He wrote the quarter’s results will be viewed “favorably relative to expectations, with implied F4Q21 guidance impacted by incentive compensation and an elevated tax rate.”

Fowler observed that the “current environment is highly conducive to NT results, and we are encouraged with strengthening Ground yields.” While acknowledging that near-term air cargo capacity “remains constricted,” he stated the “potential of restoration of international flights may reduce surcharges and related yield opportunities.” Still, he considered FedEx’s post-COVID-19 pandemic future not easy to predict.

“Our sense is it is somewhat challenging to determine how much of recent strength is attributable to improved execution vs. a highly conducive operating environment, with comparisons becoming undoubtedly more challenging in coming quarters,” he wrote.

A less sanguine analysis was provided by Ravi Shanker, equity analyst at Morgan Stanley, who viewed FedEx’s earnings report as a “messy quarter” and questioned what the near-term future held.

“If the unprecedented pricing and volume gains during the pandemic did not drive operating leverage in the business in FY21, what happens when these tailwinds normalize/reverse in FY22?” he wrote.

Shanker noted that CEO Fred Smith insisted concerns raised over a post-COVID-19 pandemic impact on FedEx returns were overblown, but he wondered where the company was heading.

“Until we see this play out, it is hard to tell what normalized EPS here will be — it is likely not as low as FY20’s ~$10 number but FY21’s ~$18 number certainly looks peak-ish,” he wrote.

FDX Ratings, Price Targets: Fowler maintained Sector Weight and a $263.51 price target.

Brown reiterated Outperform, with a price target of $310, up from $305.

Shanker maintained Equal-weight and a $250 price target.

FDX Price Action: FDX shares were at $278.65, trading up 5.75% on Friday afternoon.