FedEx Stock (FDX) after Q3 — Not Cheap, but the Bull Case Persists

FedEx FDX -0.68% ▼ stock no longer looks as obviously cheap, especially compared to 2025 levels, but in my opinion, that’s not the right way to view the story today. The Memphis-based company has been pleasantly surprising in terms of earnings power visibility, confirmed by its latest Q3 earnings report, which included a revised upward guidance. More disciplined capital allocation and margin expansion, driven by effective cost control, are translating into solid results.

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With the Freight spin-off now in sight, I see the setup entering a phase where the turnaround is largely priced in, and the story shifts toward a re-rating that is still in motion — supporting my bullish view on FDX.

Why FedEx Now?

FedEx’s thesis today is much more about extracting efficiency from an already built base than about volume growth, especially given the strong operating leverage in the model. Profits tend to grow faster than revenues.

Historically, FedEx operated with structural inefficiencies, and through its DRIVE program, the company has been actively pursuing margin expansion by reducing overhead, rationalizing routes, and improving asset utilization. As a result, operating margins now stand at roughly 7% over the last 12 months, an improvement from 6% in full Fiscal 2025.

At the same time, FedEx has been increasing capital returns to shareholders through $3 billion in buybacks in 2025 and $1.4 billion in dividends in Fiscal 2025. Capex has declined meaningfully — from a range of $5–6.7 billion between 2022 and 2024 to about $4 billion over the last 12 months, with Fiscal 2026 guidance pointing to around $4.1 billion.

In a way, this has driven a welcome shift in how the market perceives the company — from a business that historically pursued growth at any cost to one that is now more clearly positioned as an income-driven and efficiency-focused story.

What’s Behind the Recent Outperformance?

On March 19, FedEx reported its third-quarter results and, in my view, confirmed why the market has been reacting so positively to recent developments around the company.

Starting with the numbers, revenue came in at $24 billion, up from $22.2 billion year-over-year, while adjusted earnings per share (EPS) reached $5.25 against $4.51 in the same period last year — clearly highlighting the company’s improving earnings power. Beyond that, the upward revision in guidance was also very well received. FedEx raised its adjusted EPS outlook from $17.8–$19 to $19.3–20.1, alongside expected revenue growth of 6–6.5% for Fiscal 2026.

At the midpoint, consensus now expects adjusted EPS of around $19.57, implying about 7.6% year-over-year growth. This is roughly 5% above expectations three months ago and about 8% higher than two months ago — creating room for the multiple re-rating.

However, beyond the financials, there is a more structural catalyst in the story: the FedEx Freight spin-off, which remains on track for June 1. In theory, the separation materially strengthens the FDX thesis by giving the market a cleaner way to value two very different businesses: a margin-expanding global parcel network on one side, and a cyclical Less-Than-Truckload (LTL) carrier on the other, which is the spun-off entity. While LTL is inherently more cyclical, it can also command a premium under the right conditions. Higher barriers to entry and stronger pricing power tend to support more robust margins over time.

A Re-Rating Story Still in Progress?

Even with the strong performance in FDX shares over the last several months, I still don’t think the market has fully priced in the medium-term re-rating potential. That’s because the actual upside still depends on what multiple FedEx Freight can command on its own and, just as importantly, whether the remaining FedEx can sustain margin expansion and free cash flow improvement as a simpler, more parcel-focused business.

At current prices, FDX trades at around 18x trailing non-GAAP earnings, a multiple nearly 25% above its five-year historical average. While that doesn’t exactly “scream” cheap — especially compared to the roughly 13.4x trailing non-GAAP earnings at which UPS UPS -0.07% ▼ trades — it still feels like the setup is more favorable for FedEx at this point.

That’s particularly true given the relatively healthy EPS growth the Street is expecting — arguably still conservatively — which makes me think that a mid-to-high teens multiple is quite reasonable for a company benefiting from both the spin-off catalyst and the current macro momentum behind its business.

Is FDX a Buy, Hold, or Sell, According to Wall Street Analysts?

There’s a clear bullish tilt in the analyst sentiment around FDX. Of the 23 ratings issued over the past three months, 16 are Buy, six are Hold, and only one is a Sell. The average price target sits at $401.96, with most analysts raising their targets after Q3 — implying a 12% upside from current levels.

FedEx Is Evolving in the Right Direction

While FedEx doesn’t exactly look “cheap” on a traditional valuation basis, I see the current setup more as a re-rating story driven by execution and structural change than as a deep value play. The combination of margin expansion through the DRIVE program, consistent improvement in free cash flow generation, and more disciplined capital allocation is already starting to reshape how the market views the company.

At the same time, the FedEx Freight spin-off adds a second layer of upside that, in my view, is not yet fully reflected in the price. Of course, this isn’t a risk-free setup. The multiple has already expanded meaningfully, and part of the operational improvement is clearly priced in — so any further upside depends on continued execution.

Still, I see the current moment as constructive — not because this is a classic “cheap turnaround,” but because it’s a business with improving fundamentals, upward estimate revisions, and apparent catalysts ahead. In that context, a Buy rating still feels justified.

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