FedEx set to benefit from Yellow's demise, analyst says

By James Rogers

Yellow announced its bankruptcy filing last month

FedEx Corp., which reports fiscal first-quarter results on Sept. 20, is set for a boost following the demise of rival Yellow Corp., according to Citi.

Last month the Nashville, Tenn.,-based trucking company announced its bankruptcy filing, which it blamed on the International Brotherhood of Teamsters union.

Citi says that FedEx (FDX) has likely made market-share gains from Yellow (YELLQ) and United Parcel Service Inc. (UPS), which recently clinched a new labor deal with the Teamsters. "While we get the sense that the macro is roughly in line with expectations the company laid out post [fiscal fourth-quarter] results, FedEx likely benefitted from some market share gains in Ground related to UPS's Teamster negotiation and in Freight from the closure of Yellow mid-quarter," Citi analyst Christian Wetherbee wrote in a note. "As such, we believe the set up is compelling with likely upside to [fiscal first-quarter] estimates and potentially some upside to [fiscal 2024] guidance."

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"FedEx's $16.50-$18.50 guidance did not include any benefits from UPS or Yellow, likely suggesting some upside, even if only an increase of the bottom end of the range," Wetherbee added. "So, while broad freight trends bounce along the bottom we see another beat and (potentially) modest guidance raise for FedEx, which stands out positively."

Set against this backdrop, Citi raised its fiscal first-quarter earnings estimate for FedEx, up to $4 from $3.55, above the consensus estimate of $3.70. Citi also increased its FedEx fiscal 2024 earnings estimate to $18.40 from $18.

Citi has a buy rating for FedEx.

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Analysts surveyed by FactSet are looking for FedEx to report fiscal first-quarter sales of $21.7 billion.

Last week, JPMorgan raised its stock-price target for FedEx to $305 from $251. "A number of key drivers improved over the last three months including the spillover from Yellow's bankruptcy and the UPS/Teamsters negotiation, but we see these as more favorable in [the second quarter of fiscal 2024] and beyond while the current quarter still faces international export headwinds and the largest -year-over-year] headwind from fuel surcharges," analyst Brian Ossenbeck wrote.

JPMorgan has a neutral rating for FedEx. Of 33 analysts surveyed by FactSet, 19 have an overweight or buy rating, 12 have a hold rating and one has an underweight rating.

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FedEx shares have risen 46.6% in 2023, outpacing the S&P 500's SPX gain of 16.6%.

Last month, UPS blamed its labor negotiations with the Teamsters union for its fiscal second-quarter revenue miss. On Monday, the company said that it expects costs related to its deal with the Teamsters to increase by 3.3% over the contract's five-year lifespan.

Bill Peters contributed.

-James Rogers

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09-12-23 1048ET

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