Analyst Says Buy FedEx Stock Amid Amazon Last-Mile Concern

It’s another one of those “don’t judge an article by its title” moments.

FedEx Corporation FDX plunged 2 percent Thursday on “overstated” headlines reporting increased competition from Amazon.com, Inc. AMZN, and Bank of America Merrill Lynch advised investors to buy the undue dip.

Analysts Ken Hoexter and Ariel Rosa see 11-percent upside to FedEx, according to their Friday note.

What Happened?

A Thursday Bloomberg headline suggested Amazon would soon test a delivery service to compete with FedEx and United Parcel Service, Inc. UPS.

However, more nuanced reports explained Amazon merely seeks control over last-mile shipping decisions for third-party sellers. Amazon clarified that it would continue using traditional delivery partners — UPS, FedEx and U.S. Postal Service — for its Seller Flex program and does not intend to launch rival services.

The initial market fear piqued the defenses of both UPS and FedEx. The former expressed an expectation to expand its relationship with Amazon, while the latter assured that, even if the extent of misinterpreted reports ever came to fruition, its operations would be largely undisturbed. Amazon deliveries represent just a fraction of FedEx’s global services.

Still No Joke

Although the market exaggerated the report’s significance, Amazon’s move is still noteworthy.

“By moving farther into the supply chain decision making, Amazon continues to disrupt the retail market,” Hoexter and Rosa wrote. “While some customers may be wary of giving Amazon additional knowledge of customer volumes, routing and inventory, third-party sellers may prefer further outsourcing of distribution to gain larger volume discounts accorded to Amazon.”

The result may be an increased dependence on USPS for most of Amazon’s last-mile deliveries. The analysts noted that experiments with Amazon Flex, independent delivery contractors and Prime Now compound any long-term risks to shippers.

Merrill Lynch raised its FedEx price target from $240 to $247 and, although maintaining a Neutral rating on UPS, increased its target from $117 to $124. At the time of publication, FedEx was trading at $221.47 and UPS at $118.29.

Related Links:

Amazon Sell-Offs On Margin Weakness Are A Gift

A Guide To Guessing Where Amazon Is Going

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