According to Citi, FedEx Corp. (FDX) is expected to experience a boost in its upcoming fiscal first-quarter results following the bankruptcy of rival company Yellow Corp. (YELLQ). Yellow recently filed for bankruptcy, attributing it to the International Brotherhood of Teamsters union.
Citi analysts suggest that FedEx has likely gained market share from both Yellow and United Parcel Service Inc. (UPS), which recently reached a new labor agreement with the Teamsters. Christian Wetherbee, an analyst at Citi, stated in a note, “While we believe that the macro environment is in line with the company’s expectations after the fiscal fourth-quarter results, FedEx most likely benefited from market share gains in its Ground division due to UPS’s Teamster negotiation and in its Freight division as a result of Yellow’s closure mid-quarter.”
Wetherbee also expressed confidence in FedEx’s future, stating, “We find the setup compelling, with the potential for FedEx to exceed fiscal first-quarter estimates and potentially even surpass its fiscal 2024 guidance.”
The current guidance for FedEx of $16.50-$18.50 does not account for any benefits from UPS or Yellow, indicating potential upside for the company. Wetherbee concluded, “While overall freight trends remain stagnant, we anticipate another successful quarter and potentially even a modest guidance increase for FedEx, which stands out positively.”
Overall, with the demise of Yellow Corp. and the market share gains from its competitors, FedEx appears to be well-positioned for growth in the coming months.
Yellow’s Bankruptcy Raises Concerns about Treasury Loan
It is worth noting that concerns have been raised about Yellow’s bankruptcy filing in relation to a $700 million pandemic loan from the Treasury. A congressman has warned that this loan may be undercollateralized, which could have implications for both Yellow Corp. and the Treasury.
As the situation unfolds, it will be crucial to monitor any developments regarding Yellow’s bankruptcy and its potential ripple effects.
Citi Raises Earnings Estimate for FedEx
Citi has recently raised its fiscal first-quarter earnings estimate for FedEx, expecting it to reach $4 per share instead of the initial estimate of $3.55. This new estimate surpasses the consensus estimate of $3.70, demonstrating a positive outlook for FedEx. Additionally, Citi has also increased its FedEx fiscal 2024 earnings estimate to $18.40 from $18, emphasizing its confidence in the company’s long-term profitability.
Analysts Predict Strong Sales for FedEx
Industry analysts surveyed by FactSet are anticipating that FedEx will report fiscal first-quarter sales of $21.7 billion, reinforcing the positive sentiment surrounding the company’s financial performance.
JPMorgan Raises Stock-Price Target for FedEx
JPMorgan has revised its stock-price target for FedEx to $305 from $251, recognizing a range of factors that have positively impacted the company’s prospects. According to analyst Brian Ossenbeck, significant improvements have been observed in key drivers over the past three months, including the aftermath of Yellow’s bankruptcy and the ongoing UPS/Teamsters negotiation. However, these improvements are projected to have a more substantial effect beyond the current quarter, while the initial quarter still faces challenges such as international export headwinds and fuel surcharges. As a result, JPMorgan maintains a neutral rating for FedEx.
Market Sentiment and Analyst Ratings
FedEx’s remarkable performance is evident from its 46.6% increase in share value throughout 2023, surpassing the S&P 500 gain of 16.6%. Among 33 analysts surveyed by FactSet, 19 have an overweight or buy rating on FedEx, while 12 have a hold rating. Only one analyst has given an underweight rating to the company.
UPS Attributes Revenue Miss to Labor Negotiations
Last month, UPS attributed its fiscal second-quarter revenue miss to ongoing labor negotiations with the Teamsters union. The company further stated that costs related to its agreement with the Teamsters are expected to rise by 3.3% over the course of the five-year contract.
These developments indicate both the positive momentum for major shipping companies like FedEx and the potential challenges they face in the form of market dynamics and labor negotiations. Nevertheless, industry experts remain optimistic about the future prospects of these companies.
Bill Peters contributed.
