Shares of FedEx Corp. rose Thursday after Stifel Nicolaus analyst Bruce Chan boldly urged investors to buy just before the package delivery company reports earnings, saying there is “too much opportunity” for investors to ignore.
rose 1% in morning trading, after closing Wednesday at a six-week low.
FedEx is scheduled to report fiscal third-quarter results after the closing bell. For the second quarter, the company beat profit expectations but missed on revenue by a wide margin.
Stifel’s Chan said that while there are still “material risks” related to a continued slowdown in economic activity this year, he believes an increase in expectations for an inventory bottom and early signs the company is executing on its “significant” cost cutting initiatives presents a “compelling investment opportunity at the current, deeply-discounted valuation.”
He raised his rating to buy, after being at hold for the past six months, and lifted his stock price target to $222 from $171.
“There is still plenty of wood to chop, in our view, but pull forward of some of the cost savings measures and news flow around early progress on some of these initiatives gives us a baseline level of comfort that the management is serious about making things happen,” Chan wrote in a note to clients.
The upgrade before earnings is a bold move for Chan. His previous downgrade to hold on Sept. 16, 2022, came after FedEx issued a profit and revenue warning that sent the stock plunging a record 21.4% that day.
Analysts surveyed by FactSet expect adjusted earnings per share of $2.71, down from $4.59 a year ago, and expects revenue to decline 3.7% to $22.72 billion. Among the company’s business segments, FedEx Express revenue is expected to decline 8.7% to $10.49 billion, FedEx Ground revenue is increasing 0.4% to $8.77 billion and FedEx Freight revenue is projected to rise 8.1% to $2.26 billion.
For FedEx’s second quarter, the company beat profit expectations but fell short on revenue, with its Express, Ground and Freight segments all missing expectations.
The stock has run up 14.8% over the past three months, but had dropped 12.7% over the past 12 months. In comparison, the Dow Jones Industrial Average
has lost 7% and the S&P 500 index
has declined 10.9%.
“There’s still a market uncertainty and management still has work to do, but at current valuation levels, we believe the risk/reward offers upside potential for FDX shares, which could grow as more progress is made with productivity initiatives,” Chan wrote.