FedEx’s (NYSE:FDX) latest quarterly results and outlook delivered mixed messages, but overall the parcel delivery giant has had a “good start” to its new fiscal year, Morgan Stanley said Thursday.
Late Wednesday, the company posted fiscal first-quarter earnings that topped Wall Street’s estimates, while revenue fell more than expected. Morgan Stanley raised its price target on the FedEx stock to $205 from $200 and maintained its equal-weight rating, saying it’s one of the “best performing” stocks in the firm’s coverage.
The company’s results had something for both the bulls and the bears, the firm said. “Bulls will like the magnitude of the beat despite an in-line revenue, which shows good execution on the DRIVE cost story,” the brokerage wrote. “Bears will point out that despite unusual gains from competitors in the quarter, revenue was unable to beat, Express continues to languish and Freight did not deliver the kind of uplift priced into (less-than-truckload) expectations.”
Although the company outlined that its DRIVE transformation initiative is impacting every facet of the business, it likely “skews heavily” toward ground operations, Morgan Stanley said. FedEx expects to meet its $1.8 billion cost-save target this year, but projects it to be “slightly back-end loaded, which is surprising given that costs clearly drove the beat (versus) expectations,” the brokerage said. The company expects to be able to maintain the majority of the volumes gained from United Parcel Service (UPS), according to the note.