FedEx Corporation (NYSE: FDX) has decided to stop Sunday deliveries to certain low-density parts of the U.S. to curb the rising cost of contractors and increase efficiency.
A bulk of FedEx’s home deliveries are handled by contractors, which reach nearly 80% of the American populace on Sundays. The delivery curb is scheduled to start on August 15. FDX stock closed at $227.66 on July 21.
Contractors Demand Higher Compensation
A few of FedEx’s independent contractors are demanding higher compensation as they skirt rising fuel prices, labor shortages, and vehicle maintenance costs. Moreover, FedEx has been experiencing lower package volumes in recent months as customers have cut back on spending due to the high inflationary environment.
This move will help FedEx to handle both the contractor problems and increase the efficiency of the ground staff. “We accelerated the rollout of Sunday residential delivery coverage to nearly 95% of the U.S. population. As economic conditions have shifted, we are making operational adjustments to suspend Sunday delivery operations,” a Reuters report quoted.
The pandemic-triggered overload of home deliveries had generated a huge demand for FedEx’s services. FedEx had started the Sunday delivery slots to meet the boom in demand. However, the current lull in orders has resulted in a reverse scenario. And so, now the company has decided to go back to its previous model and halt Sunday deliveries in low-demand areas.
FDX’s Target Price
The Wall Street community is extremely bullish on the logistics giant. FDX stock commands a Strong Buy consensus rating based on 16 Buys and four Holds. The average FedEx price target of $294.26 implies 29.2% upside potential to current levels. Meanwhile, the stock has lost 11.2% so far this year.
Insiders Are Bullish about FedEx
TipRanks’ Insider Trading Activity shows that Insider Signal is currently Positive on FedEx, with corporate insiders buying $14.8 million worth of FedEx shares in the last quarter.
FedEx’s decision to halt Sunday deliveries may improve efficiencies for the logistics giant as expected by the management. Companies across sectors are undertaking strategic steps to counter the current macroeconomic headwinds. Despite this, the company’s long-term outlook remains optimistic, with both analysts and corporate insiders showing strength in the company. Furthermore, the company pays a regular quarterly common dividend of $1.15 per share reflecting a current yield of 1.49%, making for an attractive investment case.