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Is FDX Stock a Smart Investment Option for the New Year?
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Despite the weakness in package volumes, FedEx Corporation (FDX - Free Report) shares gained in double digits in 2024, outperforming its industry. To combat the resultant top-line weakness, FDX has been cutting costs. Driven by its cost-cut initiatives, FDX shares gained 11.2% in 2024 in contrast to its industry’s and rival United Parcel Service’s (UPS - Free Report) 11% and 19.8% decline, respectively.
Price Performance in 2024
Image Source: Zacks Investment Research
Given the stock’s outperformance and the company’s continued cost reduction efforts to drive bottom-line growth, investors might wonder if they should buy FDX stock as we enter 2025. Let us delve deeper to answer the question.
Weak Demand Hurts FDX’s Q2 Results, Outlook Trimmed Again
Last month, FedEx reported lower-than-expected revenues for the second quarter of fiscal 2025 (ended Nov. 30, 2025), highlighting its struggle due to sustained weakness in U.S. industrial production. Revenues also declined on a year-over-year basis. Average daily shipments fell 8% year over year.
Due to the continued uncertainty around the demand environment, FDX trimmed its earnings per share outlook for fiscal 2025. The company also predicts adjusted earnings per share of $19-$20 compared with the prior forecast of $20-$21. This was the second time in three months that FDX had trimmed its fiscal 2025 earnings per share outlook.
While releasing its second-quarter fiscal 2025 results, FDX also lowered its fiscal 2025 revenue growth outlook as the company continues to struggle due to the normalization of volume and pricing trends in the post-COVID scenario. FDX now expects revenues to be flat year over year compared with the prior view of low single-digit percentage growth.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
Due to weak shipping demand, earnings estimates have moved south for FDX stock.
Image Source: Zacks Investment Research
FDX Looking to Cut Costs to Drive Bottom Line
In view of the top-line struggles as highlighted above, FDX is aggressively slashing expenses. FedEx is realigning its costs under a companywide initiative called DRIVE. Driven by the initiatives (that include reducing flight frequencies, parking aircraft and cutting staff), FDX delivered a sequential improvement in savings in the fiscal second quarter versus the first.
Mainly due to the cost cuts, FDX reported better-than-expected earnings per share in the second quarter of fiscal 2025. The bottom line also improved on a year-over-year basis. DRIVE resulted in cost reductions of $1.8 billion in fiscal 2024, with a further $2.2 billion expected by fiscal 2025-end versus the fiscal 2023 base line.
FDX to Spin Off Freight Unit
FDX’s Freight division has been struggling for quite some time and has contributed to the company’s top line struggle. In the first half of fiscal 2025, segmental revenues declined 7% year over year. Weakness pertaining to U.S. industrial production continues to hurt less-than-truckload industry demand.
Given this top-line weakness, FDX recently announced that it intends to spin off its freight trucking division into a separate company. The move will help it focus on its core delivery business as it restructures operations. The separation will create two independent publicly listed companies.
Both companies will pursue their growth strategies and will maintain the strategic advantages of cooperation on key commercial, operational and technology initiatives. Customers of both businesses will continue to enjoy the same superior service, speed and coverage as before.
After the spin-off, scheduled to take place within the next 18 months, FedEx Freight will keep operating under its current name. Freight was undervalued within FedEx, according to many market watchers and so the decision to make it an independent company via the spin-off is likely to create value for shareholders. The separation is likely to help FDX achieve a premium valuation for its Freight operations like Old Dominion Freight Line (ODFL - Free Report) and other key operators in the less-than-load space. The announcement of the plan to spin off its freight business found favor with investors.
Favorable Valuation Picture for FDX Stock
Going by the forward 12-month price/earnings ratio, the company’s shares are currently trading at levels lower than its industry. FDX currently has a Value Score of A.
Image Source: Zacks Investment Research
What Should Investors Do With FDX Shares?
The company’s efforts to reward its shareholders are commendable. In June 2024, FedEx raised its quarterly dividend by 10% to $1.38 per share (or $5.52 annually). Dividend stocks like FDX are generally safe bets for creating wealth, as these payouts act as a hedge against economic uncertainty. FDX is also active on the buyback front. Despite near-term challenges, it is worth noting that the company has the brand and the network to continue generating steady cash flows in the long run.
Amid the positives and the optimism surrounding the announcement of the spin-off of FDX’s freight division, we note that since the process is likely to take 18 months to complete, any near-term impact of the transaction on the stock is unlikely. There is no clarity on how the financials of the independent entity will shape up.
Other headwinds like below-par shipping demand also lead us to believe that it is not at all advisable to buy this Zacks Rank #3 (Hold) stock currently. Declining earnings estimates also do not help matters. Investors should monitor the company’s developments closely for an appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s current Zacks Rank supports our thesis.
Image: Bigstock
Is FDX Stock a Smart Investment Option for the New Year?
Despite the weakness in package volumes, FedEx Corporation (FDX - Free Report) shares gained in double digits in 2024, outperforming its industry. To combat the resultant top-line weakness, FDX has been cutting costs. Driven by its cost-cut initiatives, FDX shares gained 11.2% in 2024 in contrast to its industry’s and rival United Parcel Service’s (UPS - Free Report) 11% and 19.8% decline, respectively.
Price Performance in 2024
Given the stock’s outperformance and the company’s continued cost reduction efforts to drive bottom-line growth, investors might wonder if they should buy FDX stock as we enter 2025. Let us delve deeper to answer the question.
Weak Demand Hurts FDX’s Q2 Results, Outlook Trimmed Again
Last month, FedEx reported lower-than-expected revenues for the second quarter of fiscal 2025 (ended Nov. 30, 2025), highlighting its struggle due to sustained weakness in U.S. industrial production. Revenues also declined on a year-over-year basis. Average daily shipments fell 8% year over year.
Due to the continued uncertainty around the demand environment, FDX trimmed its earnings per share outlook for fiscal 2025. The company also predicts adjusted earnings per share of $19-$20 compared with the prior forecast of $20-$21. This was the second time in three months that FDX had trimmed its fiscal 2025 earnings per share outlook.
While releasing its second-quarter fiscal 2025 results, FDX also lowered its fiscal 2025 revenue growth outlook as the company continues to struggle due to the normalization of volume and pricing trends in the post-COVID scenario. FDX now expects revenues to be flat year over year compared with the prior view of low single-digit percentage growth.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
Due to weak shipping demand, earnings estimates have moved south for FDX stock.
FDX Looking to Cut Costs to Drive Bottom Line
In view of the top-line struggles as highlighted above, FDX is aggressively slashing expenses. FedEx is realigning its costs under a companywide initiative called DRIVE. Driven by the initiatives (that include reducing flight frequencies, parking aircraft and cutting staff), FDX delivered a sequential improvement in savings in the fiscal second quarter versus the first.
Mainly due to the cost cuts, FDX reported better-than-expected earnings per share in the second quarter of fiscal 2025. The bottom line also improved on a year-over-year basis. DRIVE resulted in cost reductions of $1.8 billion in fiscal 2024, with a further $2.2 billion expected by fiscal 2025-end versus the fiscal 2023 base line.
FDX to Spin Off Freight Unit
FDX’s Freight division has been struggling for quite some time and has contributed to the company’s top line struggle. In the first half of fiscal 2025, segmental revenues declined 7% year over year. Weakness pertaining to U.S. industrial production continues to hurt less-than-truckload industry demand.
Given this top-line weakness, FDX recently announced that it intends to spin off its freight trucking division into a separate company. The move will help it focus on its core delivery business as it restructures operations. The separation will create two independent publicly listed companies.
Both companies will pursue their growth strategies and will maintain the strategic advantages of cooperation on key commercial, operational and technology initiatives. Customers of both businesses will continue to enjoy the same superior service, speed and coverage as before.
After the spin-off, scheduled to take place within the next 18 months, FedEx Freight will keep operating under its current name. Freight was undervalued within FedEx, according to many market watchers and so the decision to make it an independent company via the spin-off is likely to create value for shareholders. The separation is likely to help FDX achieve a premium valuation for its Freight operations like Old Dominion Freight Line (ODFL - Free Report) and other key operators in the less-than-load space. The announcement of the plan to spin off its freight business found favor with investors.
Favorable Valuation Picture for FDX Stock
Going by the forward 12-month price/earnings ratio, the company’s shares are currently trading at levels lower than its industry. FDX currently has a Value Score of A.
What Should Investors Do With FDX Shares?
The company’s efforts to reward its shareholders are commendable. In June 2024, FedEx raised its quarterly dividend by 10% to $1.38 per share (or $5.52 annually). Dividend stocks like FDX are generally safe bets for creating wealth, as these payouts act as a hedge against economic uncertainty. FDX is also active on the buyback front. Despite near-term challenges, it is worth noting that the company has the brand and the network to continue generating steady cash flows in the long run.
Amid the positives and the optimism surrounding the announcement of the spin-off of FDX’s freight division, we note that since the process is likely to take 18 months to complete, any near-term impact of the transaction on the stock is unlikely. There is no clarity on how the financials of the independent entity will shape up.
Other headwinds like below-par shipping demand also lead us to believe that it is not at all advisable to buy this Zacks Rank #3 (Hold) stock currently. Declining earnings estimates also do not help matters. Investors should monitor the company’s developments closely for an appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s current Zacks Rank supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.