Will FedEx’s share price hit Bank of America’s bullish target?

FedEx’s [FDX] share price got a boost from Bank of America at the end of June. BoA analyst Ken Hoexter put the Memphis-based logistics company on its US1 top pick list, while Union Pacific got scratched from the list.

Hoexter’s decision is a value play, noting that FedEx is “one of the few large cap stocks in our coverage trading at a discount to its historical average.”

 

What’s happening with FedEx’s share price

Investors seem to have taken notice of BoA’s backing with FedEx’s share price ending last week up 2.3% to trade at $299.38. So far this year, FedEx’s share price has climbed circa 13%  (as of 6 July’s close), hitting a high of around $315 at the back end of May.

June saw the stock drop 7.5% and some might wonder whether there really is any more upside left - after all, over 12 months FedEx’s share price has climbed a mammoth 89%, driven by an upswing in e-commerce sales. Hoexter, however, reckons there’s still plenty of mileage left in FedEx's share price, writing:

“We see significant tailwinds for FDX, led by pricing gains, margin improvement (including TNT integration), continued e-commerce growth, and the return of B2B volumes.”

“We see significant tailwinds for FDX, led by pricing gains, margin improvement (including TNT integration), continued e-commerce growth, and the return of B2B volumes” - BoA analyst Ken Hoexter

 

The analyst pinned a $372 price target on FedEx’s share price - one of the more bullish on Wall Street and representing a 27% upside on Tuesday’s closing price.

 

Strong quarterly numbers from FedEx

Hoexter’s upbeat assessment follows FedEx posting strong earnings for the fourth quarter of fiscal 2022 in June. Earnings per share came in at $5.01 on $22bn in revenue. Both figures topped analyst expectations and the previous year’s results.

CNBC’s Emily McCormick notes that FedEx’s sales grew by 30% over last year, the fastest rate since 2010, based on Bloomberg data. Driving growth was e-commerce and a return of business and international shipping. Operating margins for 2021 grew to 7.4% on an adjusted basis for 2021, well up on the 4.5% in 2020.

Still, FedEx’s share price dropped post-earnings as the delivery giant said fuel and labour costs could rise, with capital spending forecasts raised to $7.2bn for 2022 compared to $5.7bn in 2021.

 

Where next?

Expectations are FedEx will deliver earnings of $21.26 a share for fiscal year 2022 on revenue of $91.02bn. For fiscal year 2023, earnings are pegged at $23.82 a share on earnings of $95.54bn. FedEx itself is guiding for earnings of between $20.5 and $21.5 for the fiscal year 2022.

On CNBC’s “Fast Money Halftime report” pundits mulled over what the impact of rising oil and gas prices would be on FedEx and rival UPS. Analyst Jon Najarian said that FedEx would have no problem passing these costs on to the consumer as demand for overseas goods coming into the US is incredibly strong right now due to the backlog caused by the Suez Canal and Port of Los Angeles closures.

“My problem with [FedEx] is that you don’t really know what their strategy is” - Stephanie Link

 

Stephanie Link, chief investment strategist and portfolio manager at Hightower, said on the show “My problem with [FedEx] is that you don’t really know what their strategy is,” adding that it was unclear what “synergies” the acquisition of TNT added. Link, who had previously owned both stocks, said at the moment UPS was the one she’d prefer, even if its forward P/E was ‘a little bit rich’.

FedEx’s share price is trading at a forward 12.37X price to earnings multiple, cheaper than rival UPS’s 18.29X multiple. UPS is also trading near its average analyst price target of $218.23. FedEx’s share price has an average $345.63 price target from the analysts tracking the stock on Yahoo Finance - hitting this would see a 17% upside on Tuesday’s close.