Morgan Stanley Sees Strong Q1 Performance From FedEx Amid Industry Turbulence

Morgan Stanley analyst Ravi Shanker reiterated an Equal-weight rating on the shares of FedEx Corp FDX and raised the price target from $186 to $200.

The analyst expects F1Q24 to come in just above consensus at the EBIT level and estimated an adjusted EPS of $3.69, in line with consensus of $3.70.

The analyst is 1% above cons. for overall EBIT in 1Q, driven by beats in Ground and Freight offsetting a miss in Express.

Both the segment beat, according to the analyst, would reflect expectations for FDX to make hay of several disruptive events in the quarter, namely United Parcel Service, Inc. UPS labor negotiations and the Yellow Chapter 11 filing. 

However, the analyst does not believe the parcel environment has accelerated materially, as many of the key macro data points continued to move sideways this quarter.

The analyst is relatively in-line for FDX's 1Q24 EPS as continued pressure in Express is offset by gains from UPS's challenges in Ground and gains from YELL's challenges in LTL.

In Freight/ LTL, the analyst believes FDX is likely a direct beneficiary of some spillover Yellow volumes and pricing that seemed to materialize in August.

Also Read: Shipping Rates Take A Hike: FedEx Announces Major Price Hike Effective January 2024

It remains to be seen how sustainable these gains will be, but the sequential comp could get tougher from here, noted the analyst.

All in, the analyst believes the quarter will come in-line with expectations but on the back of a bailout of several disruptive events and easy comps on DRIVE, meaning FY24 could get off to a faster start than expected.

While the analyst continues to see risk to the full-year outlook, there will be no impact on FY guidance this quarter.

The company will release Q1 earnings on September 20.

Price Action: FDX shares are trading higher by 0.98% at $255.80 on the last check Monday.