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March 20, 2023

Anthony Deruijter is dovish on FedEx stock despite raised guidance

FedEx Corp (NYSE: FDX) jumped more than 12% in extended trading after reporting better-than-expected earnings for its fiscal third quarter.

FedEx stock up on raised guidance

The stock gained also because the package delivery company raised its profit forecast for the full year.

FedEx is now calling for $14.60 a share to $15.20 a share in earnings versus up to $14 it had guided for earlier. Still, Anthony Deruijter – Senior Analyst at Third Bridge said on Yahoo Finance Live:

Demand issue could persist through this year and that could hit FedEx. They’re talking about mid to high single digits drop on the volume side. [Plus], a lot of the cost cuts they’re talking about may not be that easy to pull off.

FedEx stock is now up 30% versus the start of 2023.

Analyst picks UPS over FedEx stock

FedEx Express continued to struggle with waning demand in the recent quarter but cost cuts and an 11% increase in per-package revenue helped the ground-shipping unit in the United States and Canada.

Still, Deruijter prefers peer UPS over FedEx stock that’s now up 30% versus the start of 2023. Explaining why, he said:

In last 12 months, UPS has had roughly 700 bps advantage on EBITDA margin over FedEx [since] they’ve got this integrated network where they share resources. They’ve got a density benefit, a service advantage over FedEx.

FedEx third-quarter financial highlights

Net income printed at $771 million versus the year-ago $1.11 billion Per-share earnings also declined significantly from $4.20 to $3.05 Adjusted for cost cuts, EPS printed at $3.41 as per the press release Revenue slipped 6.0% on a year-over-year basis to $22.2 billion Consensus was $2.71 of adjusted EPS on $22.72 billion in revenue

FedEx has committed to trimming over $4.0 billion in costs but the Third Bridge analyst says it has to clarify where that’s going to come from. He added:

[Cost cuts are] short-term P&L benefit but how would it impact FedEx over the next two to three years? Our experts are worried about what this means for productivity and culture hit. It may not necessarily be the bad talent that’s leaving.

FedEx stock is now trading well above Wall Street’s average price target.

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