BofA Raises FedEx Expectations, Sees Improving Airfreight Price Environment

FedEx Corporation’s (NYSE: FDX) margins and returns could expand due to the paradigm shift in the pricing environment in the airfreight sector, according to BofA Securities.

The FedEx Analyst: Ken Hoexter maintained a Buy rating on FedEx and raised the price target from $177 to $235.

The FedEx Thesis: With accelerating online consumer spending, the demand for home deliveries has surged since March, resulting in FedEx’s ground volumes growing around 25% year-on-year in the fiscal fourth quarter, Hoexter said in a Thursday note. (See his track record here.)

The airfreight sector is going through “positive structural change as it focuses on pricing,” the analyst said. 

FedEx and rival United Parcel Service, Inc. (NYSE: UPS) have already added surcharges to cover COVID-19-related costs, he said.

More recently, UPS and the U.S. Postal Service announced annual peak season surcharges, Hoexter said. 

Surprisingly, FedEx added higher surcharges than UPS in an aggressive move “to cover costs, get ahead of the U.S. election, and cover a period of potential vaccination shipments, which will absorb capacity,” the analyst said. 

Hoexter raised his FedEx earnings estimates for fiscal 2021 and 2022 by around 2% each, from $10.40 to $12.90 per share and from $10.65 to $12.70 per share, respectively, to reflect higher surcharges, although BofA has “an upward bias given the flow through potential of the surcharges.”

FDX Price Action: Shares of FedEx were trading lower by 0.26% at $207.34 at the time of publication Thursday.

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