FedEx shares added on valuation pullback ahead of Freight spin-off

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FedEx valuation pullback, Freight spin-off

Highlights

FedEx shares dropped nearly 9% from about $393 to $358 following Amazon's May 4 supply chain announcement, despite Amazon's service expected to affect less than 2% of FedEx sales.
FedEx plans to spin off FedEx Freight, North America's largest less-than-truckload carrier, on June 1, issuing one FDXF share for every two FedEx shares held.
FedEx aims for $6 billion in cost savings by 2027 and is targeting $130 billion B2B markets such as healthcare, automotive, aerospace, and data centers under CEO Raj Subramaniam.

Growth strategy and source of the trade call

As reported by CNBC, Jim Cramer's Charitable Trust is initiating a small position in FedEx at roughly $370 a share, arguing the stock's nearly 9% decline after Amazon's May 4 supply chain announcement is disproportionate to an expected impact of less than 2% of FedEx sales.

The investment case is tied to FedEx's operational turnaround under CEO Raj Subramaniam and its focus on faster-growing, higher-margin segments in business-to-business and specialized business-to-consumer shipping. In B2B, the company is targeting healthcare, automotive, aerospace and data centers, which FedEx estimates together represent a $130 billion market opportunity.

FedEx also sees a long-term opening from AI-related infrastructure buildouts because it transports semiconductors, servers and other high-value equipment that require specialized handling. In business-to-consumer deliveries, the company says it holds a strong position in goods weighing more than 50 pounds and in premium shipments where customers pay more for speed, tracking, reliability and security.

Cost reduction remains another pillar of the turnaround. FedEx says it removes $4 billion in costs from fiscal 2023 through fiscal 2025, and expects another $2 billion in savings by the end of 2027 through its Network 2.0 and One FedEx programs.

Amazon risk, spin-off plans and market implications

Concerns over Amazon's expansion in logistics intensify after the launch of Amazon Supply Chain Services, helping push FedEx shares from about $393 to $358. Subramaniam says Amazon's offer is a third-party logistics service rather than an asset-heavy global network like FedEx, which operates aircraft, trucks, sorting hubs and last-mile delivery infrastructure.

He says the Amazon program could affect about 2% of FedEx revenue, but adds that long-term customer contracts reduce the risk of an immediate shift in business. That assessment underpins the view that the stock's decline is an overreaction and leaves room for recovery if the revenue effect proves limited.

Another catalyst is FedEx's planned June 1 spin-off of FedEx Freight, which will create two separately listed companies. FedEx Freight is the largest less-than-truckload carrier in North America, and shareholders are set to receive one share of the new company for every two FedEx shares they own, with the spun-off unit expected to trade under the ticker FDXF.

The separation is expected to sharpen strategic focus at both businesses and could help unlock value through more targeted growth plans and margin expansion. The new FedEx position is being started with a $425 price target, though that target is expected to be revised after the spin-off.

Our earlier article on NextEra’s proposed all-stock acquisition of Dominion Energy outlined how rising electricity demand from AI-focused data centers is influencing utility consolidation and the push for greater scale. We noted that Dominion’s Virginia footprint and data-center-heavy customer base could broaden NextEra’s reach, while the combined company would still face regulatory scrutiny and balance-sheet considerations tied to funding large grid investments.

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