Barclays Reiterates FedEx As A Top Pick Following Q1 Results

FedEx Corporation FDX reported robust Q1:17 results while providing greater details on the TNT integration.

Barclays’ Brandon R. Oglenski maintains a Neutral rating on the company with a price target of $205.

Top Pick

“For many investors, we think tonight's earnings release and disclosure of long-term TNT synergy target of $750 million should help assuage fears that the integration would be a meaningful drag on earnings,” Oglenski mentioned.

The analyst pointed out that FedEx was growing, and TNT was likely to be meaningfully accretive. With the stock trading at one of the cheapest multiples in the group, the analyst reiterated a Top Pick recommendation in FedEx.

Related Link: FedEx Q1 Beats On EPS And Revenue, Cuts Full-Year Outlook

“Sure there will be debate around management's total integration cost plan of $700–800 million, but we find the total figure to be well below similar United Parcel Service, Inc. UPS estimates of over EUR1 billion in 2012 in the later failed merger attempt,” Oglenski stated.

Capital Spend

However, the analyst expects capital expenditure to remain high in the near term, although continued traction in margin expansion at Express, along with material growth at Ground and TNT synergies were likely to help drive free cash flow improvement and turning the stock into a “true value opportunity” with favorable end market exposure.

Guidance Raised

While reporting robust Q1:17 operational results, FedEx also raised its guidance, excluding TNT integration costs.

“We think adjusted guidance for EPS growth of 10–14 percent in FY17 signals a bullish outlook for core FedEx growth and also slight accretion from TNT this year, excluding integration related expenses,” the analyst said.

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