FedEx (FDX) released results on September 19 that disappointed many investors. Yet, as the market turns pessimistic, FedEx shares could be more attractive to value investors. Sure, FedEx’s data and forward guidance weren’t great, but I am bullish on FDX stock because the company’s valuation is reasonable and FedEx pays a decent dividend.
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FedEx is a well-known package-delivery service. Some commentators might claim that FedEx is a bellwether of America’s economy in general, since it’s a bad sign if people aren’t ordering products and having them delivered.
Granted, restrictive central-bank policy has had a dampening effect on business activity generally, and in particular on FedEx. This undoubtedly impacted the company’s recently-published bottom-line results but, all things considered, FDX stock just might be the ultimate contrarian play now.
FedEx Stock Pessimism Runs Hot
Pessimism is definitely running hot when it comes to FedEx stock. For instance, Bank of America (BAC) analyst Ken Hoexter called FedEx’s first-quarter Fiscal Year 2025 report a “disappointing print” and stated that FDX shares “are likely in a credibility penalty box.” The pessimism surrounding Fedex might actually support my bullish stance, however. Much advice directs investors to buy on extreme pessimism and sell on extreme optimism.
Bank of America Global Research analysts slashed their price target on FedEx stock by $37 to $308. Investors dumped FDX shares on Friday, the first day of trading following the quarterly results, sending the stock price down 15.23% to $254.64. Don’t be surprised if pessimism leads to more pessimism and if Wall Street analysts follow Bank of America Global Research and cut their price targets.
I’m not suggesting shareholders shouldn’t feel somewhat disappointed with FedEx. Below, we’ll summarize FedEx’s first-quarter Fiscal Year 2025 results and forward guidance. You’ll see that FedEx didn’t deliver a package of terrific data points, but investors will likely also view that FedEx isn’t falling apart at the seams.
The World Isn’t Ending for FedEx
The worst part of FedEx’s Q1-FY2025 results were the company’s adjusted earnings of $3.60 per share. The company earned $4.55 per share in the year-earlier quarter, and the analysts’ consensus estimate called for FedEx to earn $4.40 per share in the recent quarter. On the other hand, not every part of FedEx’s quarterly report was terrible. This supports my bullish outlook; the world isn’t ending for FedEx, even if the market’s sharply negative reaction suggests that the company is collapsing.
FedEx’s Q1-FY2025 revenue certainly didn’t collapse, as it came in at $21.6 billion, which isn’t much different from the $21.7 billion that FedEx generated in the year-earlier quarter. Given this fact, contrarian investors might wonder whether FedEx truly deserves to be put into the penalty box.
Moreover, FedEx’s full-year earnings outlook isn’t drastically different from what it was previously. Specifically, FedEx revised its Fiscal Year 2025 adjusted earnings guidance from a range of $20 to $22 per share (with the midpoint being $21 per share), to a new range of $20 to $21 per share (with the midpoint being $20.5 per share). This isn’t a vastly downward-revised guidance range, and I’m not convinced that FedEx should b viewed with great pessimism.
FedEx Stock’s Lower Price Adds Appeal
There are actually positive consequences of deeply negative sentiment and new, lower prices for FedEx shares. The company’s valuation is more attractive, and FedEx offers a decent dividend yield above 2% now. This can help to shore up support for the stock.
On the topic of FedEx’s valuation, the company’s trailing 12-month price-to-earnings (P/E) ratio can be calculated at 15.1X, which equals $254.64 (the stock’s closing price on Friday) divided by ($3.99 + $3.86 + $5.41 + $3.60). That’s lower than the sector median P/E ratio of 20.58x, so it looks like there’s comparatively good value here.
FedEx pays a forward annual dividend yield of 2.168%, which equals ($1.38 x 4) divided by $254.64. This may be quite appealing to income-focused investors compared to the Industrial Goods Sector average dividend yield of 1.73%.
Is FedEx Stock a Buy, According to Analysts?
On TipRanks, FDX comes in as a Moderate Buy based on 15 Buys, six Holds, and one Sell rating assigned by analysts in the past three months. The average FedEx stock price target is $312.50, implying about 22% potential upside.
If you’re wondering which analyst you should follow if you want to buy and sell FDX stock, the most profitable analyst covering the stock (on a one-year timeframe) is Jordan Alliger of Goldman Sachs, with an average return of 18.21% per rating and a 64% success rate. Click on the image below to learn more.
Conclusion: Should You Consider FedEx Stock?
FedEx might be in the “penalty box” among investors and some analysts, but you should form your own conclusions based on a deeper study. FedEx’s quarterly report wasn’t great, but it wasn’t entirely dismal either, especially considering the dampening effects of restrictive central-bank policy.
Furthermore, FedEx now offers an enticing dividend and trades at a comparatively reasonable valuation multiple. Therefore, the recent share-price sell-off isn’t necessarily a valid reason to panic. As a contrarian value seeker and income collector, I would consider buying FDX stock today.
