FedEx - HSBC Forecasts Dips In CapEx Intensity And Strong Growth In Small Parcels & Freight

HSBC analysts Parash Jain, Deepak Maurya and Bruce Chu initiated coverage on FedEx Corp FDX with a Buy rating and a price target of $330. 

The analysts are bullish on the company's effort to lower costs and believe even partial success can be highly rewarding for shareholders and accelerate adjusted operating margins to 8.4% by FY26.

In particular, FedEx expects to curb expenses by $6 billion by FY27 by deploying One FedEx, Drive, and Network 2.0 cost-saving initiatives.

They estimate FedEx to decrease the EBIT margin gap with its peer, United Parcel Service Inc UPS, by integrating ground and express delivery networks.

According to the analysts, the capital expenditure intensity is projected to decline to below 6.5% of revenue from 8% earlier as aircraft fleet renewal is nearing completion and ground capacity is sufficient for coming years. 

The analysts estimate that FY24 adjusted EPS of $17.26 is below the mid-point of the company's guidance range of $17.0-$18.5, with consensus above the mid-point at $18.02. 

Also Read: How FedEx Made 'A Solid Start to FY24': Analysts Dive Deeper Into Print, Guidance

They estimate adjusted EPS of $22.25 (consensus: $22.10) for FY25 and $25.37 (vs. $25.06 street view) for FY26. 

Also, they see an adjusted operating profit CAGR of 15% in FY23-FY26, led by volume improvements and market share gains in small parcels and freight business.

Also Read: Fed Holds But Signals Hawkish Path Ahead, Treasury Yields Rise: The Week In The Markets

Price Action: FDX shares are trading lower by 0.50% at $263.60 on the last check Monday.