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FedEx: Looking Beyond Near-Term Challenges

Shares of the transportation and logistics giant FedEx (FDX) have underperformed the broader markets this year. Higher operating costs amid a constrained labor market took a toll on its profitability in Q1, and dragged the stock down. I maintain a bullish outlook on FedEx stock. 

Uncertainty related to the pandemic continues to pose challenges, though. Notably, FedEx stock is down 9.6% year-to-date. (See FedEx stock charts on TipRanks)  

Furthermore, TipRanks’ Hedge Fund Trading Activity tool shows that hedge fund managers reduced their cumulative holdings in FDX by 1.2 million shares in the last quarter. Further, insiders sold shares worth $9.6 million in the past three months.

While FedEx is grappling with network inefficiencies and higher wage rates due to labor constraints, J. Bruce Chan of Stifel Nicolaus sees this as a short-term drag on the company’s financials. 

Chan remains upbeat on strong e-commerce demand, and maintained a Buy rating on FedEx stock. However, he lowered his price target to $283 (23.6% upside potential) from $344 to account for the labor cost inflation. 

FedEx’s differentiated portfolio positions it well to capitalize on the growing e-commerce market. The company stated that it continues to strategically invest in its network amid higher e-commerce demand. These investments will likely boost its package volume capacity, enhance speed and service capabilities, and increase efficiency. 

While the easing of stay-at-home mandates led to a shift toward in-store shopping, FedEx expects secular e-commerce trends to drive parcel market growth. Further, the increase in shipping rates will help FedEx mitigate the increased costs.

Overall, on TipRanks, FDX stock has an analyst rating consensus of Moderate Buy, based on 18 Buys, five Holds, and one Sells. The average FedEx price target of $311.62 implies 36.1% upside potential to current levels. 

Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.

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