Citi upgrades FedEx to a buy as shipping giant focuses on controlling costs

Published Thu, Feb 2 20237:57 AM ESTUpdated Thu, Feb 2 20238:47 AM EST

After the mishaps of 2022, FedEx is "getting serious" about reducing and controlling its costs and that should bode well for the shipping giant, according to Citi. Given this reset, analyst Christian Wetherbee upgraded shares to buy from neutral, citing increasing confidence in FedEx's cost cutting capabilities, including plans to reduce headcount among officers and managers by 10% . "So with some progress on cost cutting and a major reset of expectations, we think the upside case is very straight forward," he wrote, lifting his price target to $240 from $190 a share, which implies about 19% upside from Wednesday's close. Shares gained more than 2% before the bell. FDX YTD mountain FedEx shares are up nearly 17% in 2023. FedEx said in December it plans to cut costs by $1 billion in 2023 by closing offices and parking planes as demand softens and global volumes declines. It built on those plans Wednesday when it announced the round of layoffs. The headcount reductions should lead to an estimated $60 million in savings in 2023, and $500 million slightly longer term, while providing a 40 cent tailwind to quarterly earnings per share, according to Bank of America analyst Ken Hoexter. The analyst also upgraded FedEx to buy and lifted the his price target to $233 from $204 a share, citing increasing confidence in the company's outlook. "With steps to remove $560 million in costs, the path toward efficiency gains, true earnings/cash flow step up, and the potential for Network 2.0 to become a reality (blending Ground and Express facilities, as it has completed in Alaska, and soon in Hawaii) become a realistic potential driver for process improvements on the horizon," he wrote in a Thursday note to clients. FedEx shares have jumped nearly 17% in 2023 after a 33% decline in 2022. Given this pullback and a 30% to 40% comedown in expectations for the 2023 and 2024 fiscal years, Citi's Wetherbee views negativity as priced in. "This doesn't mean there is no risk to estimates, as we're 5% below consensus in F24, but the remaining risk seems marginal compared to the big cuts we've seen," he said. — CNBC's Michael Bloom contributed reporting