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Analysts at Wells Fargo and Bernstein believe that investors are leaving value on the table when it comes to FedEx . Both investment firms upgraded the transportation stock to overweight from prior ratings of equal-weight and market-perform. Wells Fargo’s $380 price target, raised from $295, implies that FedEx could add 13% from here. Bernstein’s new target price of $427, hiked from $306, corresponds to a 27% rally. Shares of FedEx have surged 36% in the past 12 months. FDX 1Y mountain FDX 1Y chart “The stock has been working, and can continue to work as improving parcel fundamentals and the freight spin make the stock uniquely attractive in a market looking for cyclical exposure,” wrote Bernstein analyst David Vernon. Both firms highlighted FedEx’s investor day next week as a near-term catalyst for the stock. Vernon and Wells Fargo analyst Christian Wetherbee both said that it is likely the company reveals upside for profits in its Express business. Wetherbee estimated “a path to potentially as much as ~$30 in earnings for the combined company through F29” and said it is likely that the company will “outline solid multi-year targets.” Vernon added that FedEx should also speak to continuing market share gains in small packages and wrote that this could show earnings power of between $21 to $27. “If we assume that trades at a low to mid-teens multiple — which we see as conservative given the markets appetite for relatively attractively priced cyclical exposure — then the current valuation doesn’t reflect the full value of the LTL Freight business,” Vernon added. “LTL stocks have a ton of operating leverage to expanding PMIs and pricing leverage to higher truck rates.” LTL, or less-than-truckload shipping, refers to operations where a single trailer carries packages from different shippers. Vernon and Wetherbee also pointed out that FedEx is getting serious about international opportunities, specifically in Europe. “Last week FedEx announced the reorganization of its French operations as part of a broader push to improve European profitability,” Wetherbee wrote. “Assuming ~$6.5b in revenue and LSD margins currently, we see ~$600m of additional profit improvement in Europe.”
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