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Raymond James is optimistic on FedEx after the shipping giant announced Wednesday a cost-cutting restructuring plan. Analyst Patrick Tyler Brown upgraded shares to outperform from market perform. He retained his price target of $285 per share, which implies almost 24% upside from Wednesday’s close price. “We believe that undeniable change is afoot post the company’s recent DRIVE event in NYC that provided better visibility into key transformational changes that are likely set to drive better margins, earnings, and FCF in out years,” Brown wrote in a Thursday note. DRIVE is FedEx’s comprehensive $4 billion cost-cutting plan which includes consolidating FedEx Ground, FedEx Express and other operating companies into FedEx Services. “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 (backbone of its DRIVE initiatives), enhanced capital allocation scrutiny, and a more shareholder-friendly capital return program, all set the stage to drive improved shareholder returns in time,” the analyst added. FedEx’s management is looking to further trim $2 billion in costs through its “Network 2.0” initiatives, which the company said is a “multi-year effort to improve the efficiency with which FedEx picks up, transports, and delivers packages in the U.S. and Canada.” Brown said that, “while FDX’s cost-cutting initiatives and margins goals are not necessarily new, the company’s watershed announcement to consolidate its Express & Ground units into a single network was.” “Simply, in our view, [management’s] willingness to reimagine its network, scrutinize capex, and include [return on invested capital] in its compensation plans all point to a different feeling FedEx. While we again appreciate that words can take a company only so far, mgmt. appears to have a tangible plan of attack,” he continued. “With the shares trading at only ~8x our hypothetical EPS (assuming success) we see limited downside in the shares as even modest success in achieving these goals can drive significant upside.” Analysts from other firms also expressed enthusiasm for FedEx’s restructuring. Barclays analyst Brandon Oglenski called FedEx’s consolidation plans “a monumental event that could herald an era of material profit improvements and substantial shareholder returns.” Oglenski has an overweight rating on FedEx and anticipates shares rallying 21.8%. UBS said that the company’s DRIVE announcement on Wednesday “highlights the long runway [and] attractive potential for FDX stock,” noting its per-share earnings potential is significant even before considering the $2 billion in cost savings from its Network 2.0 initiative. Analyst Thomas Wadewitz has a buy rating on shares and sees the stock rising 13%. FedEx shares were up 1.3% Thursday before the bell. The stock has surged 32.7% year to date. —CNBC’s Michael Bloom contributed to this report.
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