FedEx: Strong Quarter Masked by Unsustainable Tailwinds and Rising Cost Headwinds, Justifying Continued Sell Rating

Analyst Ravi Shanker from Morgan Stanley maintained a Sell rating on FedEx and increased the price target to $210.00 from $200.00.

Ravi Shanker has given his Sell rating due to a combination of factors related to FedEx’s earnings quality and future risk profile. While the latest quarter materially exceeded expectations, with operating profit significantly above both his model and the Street, the outperformance was heavily driven by Express strength, seasonal B2B momentum, and peak-related tailwinds rather than clearly sustainable, structural improvements. Management’s commentary also suggested that some of this upside may reflect timing and seasonality, making it difficult to confidently gauge the company’s true normalized earnings capacity.

Shanker also underscores that upcoming cost pressures could erode some of the recent gains, including sizable headwinds from the accelerated MD-11 fleet actions and higher variable expenses in the second half of the fiscal year. In his view, these cost drags, combined with ongoing softness in international volumes and underperformance in Freight, limit the degree to which recent beats can translate into durable margin and EPS expansion. Finally, with the market likely to reset expectations and valuation multiples at the upcoming investor events, he sees an unfavorable risk/reward skew at current levels, supporting the decision to maintain an Underweight (Sell) stance on the stock.

According to TipRanks, Shanker is an analyst with an average return of -0.9% and a 48.07% success rate. Shanker covers the Industrials sector, focusing on stocks such as CH Robinson, Delta Air Lines, and Knight Transportation.