Zacks Analyst Blog: FedEx, United Parcel Service and Air Transport
Zacks Equity Research
Monday, September 16, 2024, at 5:10 AM, read in 6 minutes
The article includes:
FDX
UPS
Instant Reports
Chicago, Illinois – September 16, 2024 – Zacks.com has released the list of stocks mentioned in the analyst blog. Every day, Zacks Equity Research analysts discuss the latest news and events affecting stocks and financial markets. The recent stocks mentioned in the blog include FedEx Corporation (FDX), United Parcel Service (UPS), and Air Transport Services Group (ATSG).
Highlights from Monday’s Analyst Blog:
To Buy FDX Shares Before Earnings?
FedEx Corporation will release its Q1 FY2025 results for the period ending August 31, 2024, after market close on September 19, 2024.
Some investors may be considering whether to buy shares of this logistics giant before September 19 or wait for a better entry point.
The Zacks consensus estimate for Q1 FY2025 earnings has been revised down over the past 60 days to $4.87 per share. Additionally, the consensus indicates a year-over-year growth of 7%. The revenue forecast for Q1 FY2025 is $22.12 billion, representing a 2% increase from the actuals.
FDX has an impressive history of exceeding earnings expectations.
Demand Decline May Impact FDX’s First Quarter Performance
Due to post-COVID normalization in volume and pricing trends, FDX continues to struggle. Geopolitical uncertainties and high inflation have dampened consumer confidence and growth forecasts, particularly in Asia and Europe. Weak parcel volumes are expected to negatively impact FedEx’s revenue for the quarter.
The Express unit, FDX’s largest division, may be affected by volume weakness due to declining demand. We expect Express unit revenues to decrease 1.1% from Q4 FY2024 actuals.
Cost Cuts Benefit FDX Performance
In response to post-COVID business adjustments, FedEx is realigning costs through a company-wide initiative called DRIVE. Cost-cutting efforts by FDX may contribute positively to the quarter’s bottom line performance under discussion.
The cost-cutting measures include reducing flight frequencies, grounding aircraft, and layoffs. We are impressed with FDX’s ability to control costs amid ongoing revenue weakness. We anticipate that compensation and benefits expenses for Q1 FY2025 will decrease 2.6% from Q1 FY2024 actuals.
What Zacks Model Reveals
Our validated model does not definitively predict an earnings beat for FDX this time around. A positive EPS Surprise and a combination of Zacks Ratings 1 (Strong Buy), 2 (Buy), or 3 (Hold) would increase the likelihood of an earnings beat. This is currently not the case, as FedEx’s EPS Surprise stands at -3.24% (the most accurate estimate being $4.71 per share, 16 cents below Zacks consensus).
FDX’s Strong Price Performance
Driven by cost-cutting initiatives, FDX has seen its stock price rise 11.9% over the past six months while the industry as a whole declined 7.5%. Although FDX outperformed its competitor United Parcel Service, it lagged behind another industry player, Air Transport Services Group.
Fundamentals Remain Strong
For long-term investors, the performance of a single quarter is less significant. They are more inclined to make investment decisions based on fundamentals.
The comprehensive DRIVE program aims to enhance the company’s long-term profitability. Through technology-driven integration and efficiency improvements, the program is expected to save $4 billion in costs by FY2025.
Management continues to pay dividends and repurchase shares, highlighting financial superiority. The company announced a 10% increase in its quarterly dividend to $1.38 per share in June 2024.
FDX is also active in share buybacks. Despite revenue concerns, the company expects to repurchase $2.5 billion of common stock and pay out $1.3 billion in dividends for FY2025.
FedEx’s Impressive Growth Prospects
Zacks consensus forecasts indicate an EPS expectation of $20.82 for FY2025, representing a 1.4% increase from FY2024. The EPS forecast for FY2026 is expected to grow by 3.7% compared to FY2025. The company’s long-term (3-5 years) earnings growth rate expectation stands at 13.2%, exceeding the industry’s growth rate of 11.5%.
Wait for a Better Entry Point
While FDX has strong long-term potential, current market conditions and challenges suggest that now may not be the best time to buy more shares. The industry is experiencing an uncertain period due to supply chain issues and demand fluctuations.
Taking all these factors into account, we advise investors not to rush into purchasing FDX before September 19. Instead, they should closely monitor stock performance for a better entry point.
Stay informed about upcoming earnings announcements through the Zacks Earnings Calendar.
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Past performance is not indicative of future results. Any investment carries the risk of loss. This material is provided for informational purposes only and does not constitute an offer to buy or sell, or a solicitation of any offer to buy or sell, any security in any jurisdiction where such an offer or solicitation would be illegal. No recommendation or advice is intended to indicate that any particular investment is suitable for a specific investor. It should not be assumed that investments mentioned are or will be profitable. All information is current as of the date of this document and may change without notice. Any views or opinions expressed do not necessarily reflect those of the company as a whole. Zacks Investment Research does not engage in any investment banking, market making, or asset management activities related to securities. These returns are from hypothetical portfolios consisting of stocks with a Zacks Rank of 1, rebalanced monthly and without transaction costs. They are not actual stock portfolio returns. The S&P 500 is an unmanaged index. For more information on the performance figures mentioned in this document, visit https://www.zacks.com/performance.
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United Parcel Service, Inc. (UPS): Free Stock Analysis Report
FedEx Corporation (FDX): Free Stock Analysis Report
Air Transport Services Group, Inc (ATSG): Free Stock Analysis Report
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