Proactive Investors - Analysts at UBS have lowered their price target on shipping and logistics company FedEx Corp (NYSE:FDX, ETR:FDX) ahead of its fiscal fourth quarter earnings report, pointing to multiple headwinds that will dampen the impact of its cost-cutting program in fiscal 2025.
The analysts reduced their price target to $333 to $340 on lower earnings per share (EPS) estimates but awarded the stock a ‘Buy’ rating.
FedEx shares traded hands at about $252 in the early afternoon on Tuesday.
The UBS analysts believe investors will be focused on FedEx’s guidance for fiscal 2025 rather than its Q4 performance when it reports on June 25, 2024.
“While the targeted DRIVE cost-savings of $2.2 billion is large, we also anticipate multiple offsets including from the loss of the United States Postal Service (USPS) contract, higher incentive compensation, lower international yields from falling airfreight prices, and two fewer operating days,” they wrote.
They estimate total offsets to the DRIVE savings in the range of $850 million to $1.2 billion.
“We note potential drivers of upside would be a potential improvement in freight markets either in terms of volume growth or the pace of pricing gains,” they wrote.
They believe FedEx is on track for a “solid” Q4 earnings per share (EPS).
Wall Street analysts on average expect FedEx to report earnings per share of $5.33 on revenue of $22.12 billion for Q4 and EPS of $17.69 on revenue of $87.75 billion for the full year.
The UBS analysts expect EPS above the consensus at $5.49 for Q4.
“Within our estimate, we assume only 100 basis points of sequential margin improvement in Express which is conservative compared to the 10-year average of 370 basis points of sequential improvement,” they wrote.
“We are assuming year-over-year improvement of 120 basis points in Ground margin and 186 basis points in Freight margin.”
Looking to fiscal 2025, however, they have lowered their EPS estimate from $21.72 per share to $21.10 to reflect a larger impact from headwinds.
“Although we are moderating our forecast, we still are anticipating growth in earnings before interest and taxes (EBIT) and EPS of 16% and 18%,” they wrote.
“Our new model reflects a nearly $1 billion increase in total EBIT which implies about 45% of the DRIVE savings flow through to EBIT in fiscal 2025.”