What’s Next For FedEx Stock After A Dismal Q1?

FedEx stock (NYSE: FDX) saw a 13% fall in after-market hours on Thursday, September 19, after it reported Q1’25 results (fiscal ends in May) far worse than the street estimates. FDX stock is up 7% year-to-date, compared to -15% returns for its peer – UPS stock (NYSE:UPS). FedEx reported revenue of $21.6 billion and adjusted earnings of $3.60 per share, well below our estimates of $22.1 billion, and $4.90, respectively. The company’s results were also lower than the consensus estimates of $22.0 billion and $4.83, respectively. Not only did FedEx report a downbeat quarter, it cut its full-year outlook, weighing on its stock.

Overall, the performance of FDX stock with respect to the index has been quite volatile in recent years. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could FDX face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months — or will it see a strong jump? We now estimate FedEx’s Valuation to be $285 per share, reflecting just 9% upside from its levels of around $260. Our forecast is based on a 14x forward expected adjusted earnings of $20.85, broadly aligning with the stock’s average P/E ratio over the last five years.

FedEx’s Revenue fell 0.5% y-o-y to $21.6 billion in Q1, due to lower express and freight segment sales. The average daily volume was flat y-o-y for the express segment, but the average daily shipments were down 3% for the freight segment. FedEx also saw its adjusted operating margin contract by 170 bps to 5.6% in Q1’25. This resulted in its bottom line of $3.60 on an adjusted basis, down 21% y-o-y. This dismal performance by FedEx can be attributed to continued weakness in shipping demand. With continued price increases, consumers have become more cautious and are opting for lower priced services. FedEx will also lose the U.S. Postal Service as its client, likely resulting in around a $500 million headwind for the company.

Looking forward, FedEx expects a low single-digit rise in total revenues for fiscal 2025, slightly more cautious than its prior outlook of a low to mid-single-digit rise. Although, its focus on cost-cutting initiatives should bode well for the bottom-line growth. FedEx is in the midst of its $4 billion cost-saving efforts by the end of fiscal 2025. Still, it lowered its earnings outlook to now be in the range of $20 and $21 per share, versus $20 and $22 per share earlier. We now forecast the 2025 revenue to be around $89.7 billion, reflecting a 2% y-o-y rise, and adjusted earnings to be $20.85, versus $17.80 in fiscal 2024. While FedEx will likely benefit from its focus on improving margins, the company faces headwinds amid soft demand, which may continue to weigh on its stock performance in the near term.