Bernstein analyst David Vernon maintained a Hold rating on FedEx yesterday and set a price target of $250.00.
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David Vernon has given his Hold rating due to a combination of factors tied to both FedEx’s strong execution and lingering uncertainties. He acknowledges that FedEx delivered a notably strong quarter, with revenue, operating income, and earnings per share all rising at a healthy pace, supported by improving pricing and early signs of operating leverage in the Express small-package business. He also views the moderation of corporate overhead growth and the company’s ability to maintain revenue quality as positive indicators that management is making operational progress.
At the same time, Vernon is cautious because the company’s full-year earnings guidance increased only modestly despite the sizable quarterly beat, implying softer profitability in the second half than the market had anticipated. Management’s list of headwinds—including aircraft-related costs tied to the MD-11 fleet, higher incentive compensation, continued pressure in the LTL freight segment, and only limited margin expansion from its major network integration program—tempers the upside case. While he is somewhat more confident that FedEx can leverage e-commerce–driven growth, he remains concerned that the anticipated benefits of the network transformation may not fully translate into earnings, leading him to maintain a neutral, Hold stance on the stock.
In another report released today, Wells Fargo also maintained a Hold rating on the stock with a $295.00 price target.