FedEx Corporation (NYSE:FDX) added to gains on Thursday as analysts took a positive view of the company’s cost savings plans laid out on Wednesday.
The transportation giant outlined plans to reach $4B in structural cost savings by the close of fiscal year 2025, including through a simplification of operations. The transformation is also aimed at adding another $2B in cost savings by 2027 as the company looks to match operations with demand.
Analyst reviews of the presentation were broadly positive. For example, Raymond James shifted to recommending the stock on Thursday, advising clients that “undeniable change is afoot” at FedEx under new CEO Raj Subramaniam.
“Simply, we believe that management’s palpable shift in direction toward integrating its primary Express & Ground offering, its keen focus on attacking costs across various functional buckets, enhanced capital allocation scrutiny, and a more shareholder-friendly capital return program, all set the stage to drive improved shareholder returns in time,” equity analyst Patrick Tyler Brown wrote.
He raised his rating to Outperform from a prior Market Perform and assigned the stock a $285 price target. Brown joins Bernstein and Barclays in the bull camp as both firms wrote positively about the presentation and its firmer outline of cost savings programs.
“We left the investor event a little less worried about near term execution risk, as we view G&A potential from corporate restructure and improving mix in Express network to be lower risk initiatives,” Bernstein’s David Nelson told clients. “Continued execution on that front and the dream of network 2.0 should be enough to keep the market’s attention, and we remain Outperform.”
That said, not all were convinced.
Wells Fargo analyst Allison Poliniak-Cusic remained at a Hold-equivalent rating, advising that clients should await more visibility on execution of the stated cost-savings goals. Additionally, the cost of structural reforms could be an overhang heading into a less than ideal macro environment in 2023.
“FDX is matching its cost structure to the volume outlook, but that may lower its growth profile in a recovery. The $6B in gross cost-out is substantial, but net profit improvement key,” she advised. “Gross improvements may be hard to observe as revenue declines. If FDX then faces challenges during a volume rebound, the multiple moving to the high end in a recovery would be challenging.”
Poliniak-Cusic assigned the stock a $240 price target. Shares of the Memphis-based transportation company rose about 2% in morning trading on Thursday, moving to within about $5 of that target price.
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