FedEx will benefit from hundreds of millions of vaccine doses that will need delivery, Citi says

Published Thu, Aug 13 202010:00 AM EDTUpdated Thu, Aug 13 20204:47 PM EDT

(This story is for CNBC PRO subscribers only.) Once a Covid-19 vaccine hits the market it will need to be widely distributed, and companies like FedEx stand to benefit, Citi said Thursday while reiterating its buy rating on the stock. In a note to clients titled "stars aligning" the firm raised its price target on the stock to a Street high of $235, which is about 17% above where the stock currently trades. The firm's prior forecast was $170. "What we didn't predict...was that the stars were beginning to align for what could be a more powerful than expected fundamental backdrop," Citi analyst Christian Wetherbee said. Pharmaceutical companies around the world are racing to develop a vaccine for Covid-19, and once one has been approved "there are likely to be hundreds of millions of doses ... which will need to be distributed globally later this year and early next," Wetherbee said. He noted that FedEx "appears positioned to benefit from the distribution of vaccines given the current dynamics in the air cargo market." FedEx has reportedly been adding specialized equipment including freezers to its transportation network, so that it is prepared to ship a vaccine once one becomes available. This comes within the backdrop of an already tight global airfreight market, which means rates could be pushed higher for FedEx and other carriers too. Wetherbee also pointed to pricing power as an upside catalyst for FedEx. UPS recently announced residential peak surcharges on large shippers, and he believes FedEx will follow suit. "We believe it's more important to grasp the importance of these surcharges than to quantify the EPS impact, as they suggest the carriers are confident enough, have enough volume, and have little enough in-store retail competition to push to the boundaries of what's possible with price," he said. Given the number of tailwinds behind FedEx, as well as easing trade-related headwinds, Citi raised its 2021 and 2022 full-year earnings estimates to $10.70 and $12.50, respectively, up from $10.50 and $11.65. "We see an ecommerce volume surge, nascent price improvement, new industry leadership and the optionality of an urgent vaccine trade all coming together to provide a potentially sharp positive tailwind for FedEx and UPS," Wetherbee said. Shares of FedEx are up 33% this year, and gained 0.94% during Thursday's session. - CNBC's Michael Bloom contributed reporting.

(This story is for CNBC PRO subscribers only.)

A FedEx delivery truck is seen on August 07, 2019 in Fort Lauderdale, Florida.

Joe Raedle | Getty Images

Once a Covid-19 vaccine hits the market it will need to be widely distributed, and companies like FedEx stand to benefit, Citi said Thursday while reiterating its buy rating on the stock.

In a note to clients titled "stars aligning" the firm raised its price target on the stock to a Street high of $235, which is about 17% above where the stock currently trades. The firm's prior forecast was $170.