Parcel delivery giant FedEx has been given a positive outlook by HSBC, which initiated the company with a buy rating. The bank believes that FedEx is better-positioned than its competitors, UPS and DHL. HSBC’s price target of $330 for FedEx shares suggests a potential upside of 26.4% from the previous day’s close. The bank cites FedEx’s “Drive and Network 2.0” transformation plan, which aims to increase efficiency by consolidating operating units, as a key factor in its positive outlook. The plan is estimated to bring $4 billion in benefits. Although both FedEx and UPS face challenges in the current macro environment, such as slower package volume growth, FedEx is considered relatively better placed due to its cost and efficiency initiatives. HSBC notes that FedEx’s international export packages have also shown positive growth since May, driven by the relaunch of international economy service in EMEA.
However, HSBC also highlights Amazon’s rapid expansion as a potential threat to FedEx and its peers. The bank believes that the e-commerce giant’s growth could lead to muted volume growth for parcel delivery companies. E-commerce is a significant driver of parcel volumes, and Amazon has already surpassed FedEx to become the third-largest parcel delivery provider in the US in 2022. Despite this, FedEx has experienced improvement in monthly volume growth trends, particularly for international export packages. Overall, HSBC expects single-digit growth in global parcel volumes over the next five years, compared to double-digit growth before the pandemic.
FedEx’s stock has performed well so far this year, rallying nearly 54%. Before the news of HSBC’s positive rating, the stock was up 0.9% on the day. HSBC’s endorsement of FedEx’s competitive positioning and growth prospects contributes to the positive sentiment around the company. However, the bank acknowledges the challenges posed by Amazon’s expansion and the macro headwinds affecting the industry. Nonetheless, FedEx appears to be taking steps to address these challenges with its cost and efficiency initiatives.