Barclays sees 'significant alpha opportunity' in FedEx shares for long-term investors

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Barclays analysts told investors in a note Thursday that the firm sees FedEx (NYSE:FDX) shares "affording significant alpha opportunity for long-term investors."

The analysts said this is due to the company driving a long-awaited merger between overlapping legacy Express and Ground networks.

"While we expect the operational marriage of the highly coordinated US Express and Ground operations will take time and recognize the attendant challenges associated with transportation mergers, we see potential for FedEx to reduce operational expense by over $6bn in a business that is generating just over $5bn in operating profit in FY23," wrote analysts.

"While the near-term operating environment has not been favorable for carriers such as FedEx, we see a potential cost reduction from reduced Express flight network activity to better match lower demand as a powerful incremental earnings driver for the company following recently lowered outcomes in FY2023," they added.

Analysts, who have an Overweight rating and $280 price target on FDX shares, also explained that recent flight activity data suggests FedEx Express has reduced capacity by nearly 15% in 4QFY23, which they estimate is worth roughly $4 in annual savings per share.

"Fundamentals remained weak during FedEx’s fiscal 4Q23, but unilateral cost reductions and at least temporary market share shifts could easily surpass low market expectations," they added.