FedEx Shares Could Rise Nearly 15% Over The Next Year

Aegis Capital’s Jeffrey Kauffman believes FedEx Corporation (NYSE: FDX) “is a meaningful beneficiary of the move toward eCommerce,” and when combined with a consistent acquisition strategy over the past few years, the company was expected to deliver above-trend EPS growth.

Kauffman initiated coverage of the company with a Buy rating and price target of $215.

Well Positioned

The analyst mentioned that FedEx was a dominant global brand, with “structural advantages that no new competitor can erode in any short-term time frame.”

According to the figures released by Forrester Research, online retail sales in the U.S. were expected to be about $373 billion in 2016, growing to $500 billion by 2020, representing a CAGR of 7.6 percent.

Although there is a greater focus on holiday shopping in the business-to-consumer space and FedEx handles a large chunk of these deliveries, the U.S. Business to Business (B2B) e-commerce was worth much more, at about $830 billion.

Forrester Research expects the B2B space to grow to almost $1.2 trillion by 2020, with FedEx being a “significant participant.”

EPS Acceleration

However, Kauffman believes “FedEx is going through a much needed overhaul of its infrastructure, and its recent acquisition of TNT Express and heavy expansion investment in its FedEx Ground network will result in higher spending and restructuring expenses in 2017 and 2018, but lays the groundwork for faster EPS acceleration beginning in 2018.”

=In fact, the analyst expects free cash flow entering 2019/2020 to be the strongest in FedEx’s history, approaching $10–$14 per share.

Image Credit: By Thomas R Machnitzki (Own work) [GFDL or CC BY 3.0], via Wikimedia Commons