FedEx Stock (FDX) Whipsaws as Robust Q2 is Nullified by Future Outlook
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Amid headwinds such as tariffs and an expiring relationship with the US Postal Service (USPS), FedEx is emphasizing cost reductions and optimized operations, with revenue growth expectations ranging from zero to 2% in the first quarter. However, its conservative valuation appears to fully account for these struggles, making me only cautiously Bullish on FDX stock.
Disappointing Outlook Sparks Investor Jitters
FedEx delivered generally strong results for its fiscal fourth quarter. FDX reported revenue of $22.2 billion, surpassing the consensus estimate of $21.8 billion, and earnings per share (EPS) of $6.07, exceeding the expected $5.86.
However, upon closer examination of the report, investors expressed some concern regarding the company's outlook. FedEx's guidance for fiscal Q1 EPS, projected between $3.40 and $4.00, came in below the consensus estimate of $4.06. Additionally, the absence of full-year fiscal 2026 EPS guidance suggests a degree of uncertainty surrounding the company's long-term earnings trajectory.
FedEx's fiscal Q4 earnings per share (EPS) outperformance was primarily driven by successful cost-reduction initiatives. Through its DRIVE program, which includes measures such as structural cost optimization, workforce adjustments, and facility consolidation, the company achieved approximately $2.2 billion in savings during fiscal year 2025. FedEx aims to realize an additional $1 billion in savings in fiscal 2026.
However, these internal efficiencies have not fully offset the impact of several external headwinds. Like many U.S.-based companies, FedEx is contending with the effects of tariffs. These trade policies can lead to reduced shipping volumes, increased costs for customers, supply chain disruptions, and heightened procedural and compliance complexities—factors that collectively introduce operational challenges and delays. Main Street Data indicates that FDX's operating expenses have risen above $20 billion in the past two quarters.
In addition to broader macroeconomic pressures, FedEx recently experienced a significant shift in its business relationship with the United States Postal Service (USPS). Under a longstanding agreement, FedEx Express served as the primary air carrier for USPS, a partnership that generated up to $2 billion in annual revenue at its peak.
This contract officially concluded in September 2024, and FedEx has begun to absorb the estimated $500 million financial impact in fiscal year 2025. Compounding this development, USPS subsequently awarded a similar contract to FedEx's key competitor, United Parcel Service (UPS), further intensifying competitive pressures in the air cargo space.
Strategic Realignments for Long-Term Resilience
FedEx is actively pursuing long-term strategic initiatives aimed at strengthening its business and positioning itself for future growth. One key development is its new partnership with Amazon (AMZN), which enables FedEx to handle large, heavy-package deliveries—a growing segment of the logistics market. Simultaneously, the company continues to enhance its e-commerce capabilities by expanding its network of drop-off locations and introducing more flexible delivery solutions.
FedEx's high-margin healthcare segment is showing strong momentum, generating $9 billion in revenue for fiscal year 2025. As part of a broader strategic realignment toward higher-margin business lines, the company has also announced plans to spin off its Freight services. Additionally, the FedEx Rewards loyalty program, targeted at small and medium-sized businesses, achieved an 8% year-over-year increase in U.S. enrollment, underscoring growing customer engagement.
From a valuation standpoint, much of the negative sentiment around FedEx appears to be already reflected in its stock price. The company's forward price-to-earnings (P/E) ratio under GAAP stands at 13.21, representing a 43% discount relative to the Industrials sector average. By comparison, United Parcel Service (UPS) trades at a P/E of 14.54 despite exhibiting similar revenue growth. Notably, even amid revenue headwinds, FedEx has demonstrated earnings resilience driven by improved profit margins.
Is FedEx a Buy, Sell, or Hold?
On Wall Street, FDX boasts a Strong Buy consensus rating, based on 17 Buy, three Hold, and one Sell ratings over the past three months. FDX's average stock price target of $273.43 implies a 23% upside potential over the next twelve months.
While Wall Street remains bullish on FDX, the outlook is growing dimmer. For instance, BofA analyst Ken Hoexter lowered his price target on FDX from $270 to $245 while maintaining a Buy rating. The analyst noted that FedEx's FQ1 EPS target fell 'below the firm's prior $4.08 forecast and implies EPS down 6% to up 11% year-over-year.' Moreover, he noted that FedEx's lack of FY26 EPS outlook suggests 'uncertainty on trade policy and macro developments, marking the first time since 2020 it withheld a full-year outlook.'
On the other side of the aisle, Ravi Shanker from Morgan Stanley has a Sell rating on FDX with a price target of $200. He expressed caution over FedEx's earnings report, citing 'a mixed performance, with adjusted earnings slightly surpassing expectations but largely due to a one-time gain from asset sales. This raises concerns about the sustainability of earnings quality, as the GAAP earnings were significantly lower than the adjusted figures.'
Cost Discipline Prepares FDX for Long-Term Upside
In summary, while FedEx continues to navigate several challenges—including tariffs, increased competition, the expiration of its USPS contract, and revenue pressures—the company appears to be taking meaningful steps in the right direction, particularly with a long-term focus.
Looking ahead, investors would be well-served to monitor FedEx's profitability metrics as the fiscal year progresses. The company's commitment to achieving $1 billion in additional cost savings, combined with its momentum in high-margin areas such as healthcare, could help create a more efficient and resilient organization over time.
For investors with a long-term outlook and a tolerance for short-term volatility, FedEx's current valuation, coupled with a solid 2.53% dividend yield, may offer an attractive opportunity.
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