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FedEx Positioned for Multi-Year Earnings Growth Despite Freight Spin-Off, UBS Says

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FedEx Positioned for Multi-Year Earnings Growth Despite Freight Spin-Off, UBS Says

FedEx (FDX) may face near-term pressure from the recent spin-off of its freight business and a transition to calendar-year reporting, but the company remains positioned for multi-year earnings growth driven by margin expansion and pricing strength, UBS said in a note Wednesday.

FedEx reported fiscal fourth-quarter adjusted EPS of $6.31, topping the FactSet consensus estimate of $5.96, while revenue rose 13% year over year to $25 billion, exceeding expectations. Also, FedEx's freight business was spun off into an independent public company earlier this month, leaving the company focused on its parcel delivery operations.

"Looking beyond some of the noise from the move to (calendar year) reporting and the Freight spin out, we continue to believe a multi-year margin improvement opportunity supports (earnings per share) growth and upside potential for FDX stock," analyst Thomas Wadewitz said in the note.

UBS lowered its estimates to reflect the completed freight spin-off and now forecasts calendar 2026 EPS of $17.86 and calendar 2027 EPS of $20.59, implying about 15% year-over-year growth. The firm continues to value FedEx at 17 times its calendar 2027 earnings estimate.

FedEx's newly issued calendar 2026 adjusted EPS guidance of $16.90 to $18.10 creates a "new framework" for earnings following the separation of FedEx Freight and the company's move to a December year-end reporting cycle.

UBS noted that the fourth-quarter Federal Express operating margin of 8.9% was modestly below its forecast, reflecting higher incentive compensation costs and the impact of elevated fuel surcharge revenue.

However, domestic express, international export and ground yields each increased between 9% and 11% from a year earlier, highlighting continued pricing strength.

UBS maintained its Buy rating on FedEx and lowered its price target to $350 from $445.

Looking ahead, UBS expects FedEx's cost-transformation initiatives, improving package volumes and favorable pricing trends to support margin expansion.

The brokerage models ground volume growth of 3.5% and express volume growth of 3.4% in calendar 2026, with further profitability improvement in 2027.

Price: $313.27, Change: $-3.98, Percent Change: -1.25%

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