FedEx Valuation Could Rise If Freight Business Spun Off or Sold

FedEx’s review of its freight business could unlock significant value, says BMO Capital Markets analyst Fadi Chamoun, in a research note. FedEx on Tuesday said management and the board are conducting an assessment of FedEx Freight and potential steps to further unlock shareholder value. The division is the largest less-than-truckload business and has an operating ratio of 80% that is second only to Old Dominion Freight Line. Chamoun says that given FedEx has historically traded at 8.5x EV/EBITDA and that peers including Saia and XPO Logistics, which have higher operating ratios, trade in the low to mid-teens, they expect a significant re-rating of valuation higher should FedEx Freight trade as a standalone company or be sold. Shares jump 15% to $293.98, boosted in part by modest improvement in 4Q revenue that reversed six straight quarters of declines.

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