FedEx earnings show labor inflation can be managed. Now the stock looks cheap.

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FedEx reported strong earnings and raised its forecast. The shares are going up. Fears about labor force inflation and its impact on the profit margin have not materialized.

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Giant of maritime transport


FedEx

reported better-than-expected earnings and on Thursday raised its earnings guidance for fiscal 2022. Shares are rising. Investors’ worst fears about workforce inflation and its impact on profit margins have not materialized.

FedEx stock (ticker: FDX) is up 7.2% at the start of Friday’s session. the


S&P 500

and


Dow Jones Industrial Average

are down 1.0% and 1.4% respectively.

The company earned $ 4.83 per share in its fiscal second quarter. Wall Street was looking for EPS of around $ 4.27. Additionally, the company’s full-year EPS forecast fell to a midpoint of $ 21, down from a previous midpoint of $ 20.38 provided in September.

In September, FedEx management took a cautious tone on profit margins as it battled higher labor rates. The earlier forecast really scared investors: From the day FedEx provided a second quarter fiscal forecast until Thursday’s session, FedEx shares tracked the market by around 12 percentage points.

Thursday’s results showed it just wasn’t as bad as feared. JP Morgan analyst Brian Ossenbeck maintained his bullish stance despite the recent underperformance. “The key element of our thesis was with FedEx getting ahead of workforce availability issues, which will help increase volumes faster than expected and support our consensus above. [second half] vue, ”the analyst wrote in a report Friday.

He is pricing FedEx stocks at Buy with a price target of $ 312. Ossenbeck topped its price target of $ 305 after Thursday’s earnings report. Stifel analyst J. Bruce Chan is also pricing FedEx stocks at Buy with a price target of $ 288. He increased it by $ 283 after the earnings report.

Like Ossenbeck, Chan thought the recent stock market performance didn’t make much sense. “We postulated that a strong [pricing] the environment, significant growth in e-commerce and a coagulating European market position were potent opportunities for a title that was pummeled after significant (but fixable) headwinds, ”Chan wrote in a research report Thursday evening. Workers’ fears are in the rearview mirror, and Chan says there’s a lot to like about the action, including a new $ 5 billion share buyback program announced Thursday.

Oppenheimer analyst Scott Schneeberger isn’t as optimistic as these two. It rates FedEx at Hold without a price target. A Hold rating for him basically means that the stock should keep pace with the overall market.

Schneeberger was “relieved” to see profit forecasts for the year increase, but added in a research report that “we are still cautious about the work environment and the pace of margin expansion as the business can generate and maintain ”. He is not convinced that the labor problems have completely disappeared just yet.

It’s a more cautious take, but overall Wall Street is positive on FedEx stocks. About 74% of analysts covering the company rate the shares of Buy. The average purchase rating ratio for S&P 500 stocks is approximately 55%.

Analysts’ average price target is now around $ 304 per share, up more than 25% from recent levels. The average price target is up about $ 4 after the FedEx earnings report.

FedEx stock was trading at around 11 times its estimated earnings for fiscal 2022 on Friday. In recent years, FedEx stock has traded at around 13 to 14 times next year’s estimated earnings.

Write to Al Root at [email protected]

Lee J. Murillo