Key points
- FedEx stock is in the eye of the storm as the transportation sector continues to push expansion numbers this quarter.
- The courier and delivery driver segment took nearly 10% of all jobs in February, and Wall Street took notice.
- Insiders are buying, analysts are raising prices and markets are seeing a discount they can’t refuse.
- 5 stocks we like better than FedEx
Wall Street analysts tend not to take unnecessary risks when evaluating and valuing stocks. If they become overly bearish or bullish and their predictions turn out to be wrong, that’s a bonus they won’t get and they even risk losing their job.
Now that analysts at several investment banks are rushing to raise price targets FedEx Co. New York Stock Exchange: FDX, something big is in the works for the title. After all, it’s not just one bank that improves its ratings. Analyst updates can create a self-fulfilling prophecy as more and more market participants follow the price action, so you can safely assume that momentum will be on your side.
However, investing based on assumptions can be risky, so stick around to find out why a good chunk of the market action could be headed towards transportation stocks. Far from operating in a bubble, you will also answer the question “Why FedEx” and not other colleagues XPO Inc. New York Stock Exchange: XPO or also Saia Inc. NASDAQ: SAIA.
FedEx is in the eye of the storm
A significant change is coming to the transportation sector, a trend that you too can spot by analyzing the latest quarter ISM PMI data. Within manufacturing PMIs, executives responded to a survey by stating, “We expect the remainder of 2024 to be strong. We could increase our growth projections.”
If that doesn’t seem like a clear indication to start building your bull case, you may be missing the boat altogether. Similarly, the transportation sector expanded in January and February, following a contraction in December. Does it catch the bottom a lot?
If you look at the services PMIs, you will see a similar trend in the transportation and warehousing sector, with expansion readings accelerating for the December to February period.
Considering that FedEx will release its quarterly earnings soon, three months of bullish data for the industry will put the odds in your favor for a potential earnings improvement.
The icing on the cake is found in the latest jobs report, in which the US economy created 275,000 jobs in February. 17,300 jobs were allocated to the transport and warehousing sector, in particular to the courier and delivery service segment.
Representing nearly 10% of all jobs created in the month that’s no peanuts; Both Wall Street analysts and hiring managers expect to see a surge of activity in the sector soon.
A discount you can’t refuse
FedEx is the second-largest name in the industry as a whole; remember this because it is a critical factor in the next information.
Analysts expect the stock to grow its earnings per share (EPS) by up to 20% over the next 12 months. This projection is in line with Saia’s projection for 19% and lags behind XPO’s more aggressive 37%. However, FedEx’s $64 billion market cap makes a difference.
Its size would mean that a 20% increase in EPS would increase current EPS from $17.6 to $21.1, an increase of $3.4. If you multiply the $3.4 increase by FedEx’s current P/E valuation of 14x, you could expect a rally to $48 per share!
Bank of America Co. NYSE:BAC raised its price target on FedEx to $334 per share, predicting a 31% rally. Their price targets are even higher than the implied rally of $48. FedEx’s valuation today is the lowest in the industry, so EPS growth will need to be accompanied by valuation expansion.
A P/E of 36x means XPO stock is now 150% more expensive than FedEx, so analysts see a downside of up to 15% in a $105.8 price target today. Saia, on its industry-leading EPS growth rate, trades at a 150% higher price than FedEx with its 36x P/E, all while analysts think the stock could fall 17% given their stock price target of $482.
Knowing what you know now, it would be surprising to learn that analysts a JP Morgan Chase & Co. New York Stock Exchange: JPM AND Barclays New York Stock Exchange: BCS also raised FedEx’s price targets to $305 and $310 per share, respectively? The biggest names on Wall Street recognize the discount in stocks today, and you should, too.
One last statement before we go: Insiders have been buying shares since December. Remember that the industry (according to PMI trends) bottomed in December, making it a clear indication of the best that is yet to come; The history of insider trading at FedEx shows more than $300,000 of shares purchased by company directors.
Before you consider FedEx, you’ll want to hear this.
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