FedEx is ‘conducting an assessment’ of its LTL unit, FedEx Freight

FedEx reported fiscal fourth-quarter earnings per share of $5.41 from sales of $22.1 billion. That was ahead of Wall Street’s estimates for EPS of $5.34 and sales of $22 billion.

While those results were solid, FedEx then added a trucking-industry megaton explosion in its news release. That’s when it disclosed it was “conducting an assessment of the role of FedEx Freight in the company’s portfolio structure and potential steps to further unlock sustainable shareholder value.”

FedEx Freight is the less-than-truckload (LTL) subsidiary of FedEx. It was created in in 2001, when FedEx Cor. acquired and merged the assets of American Freightways, Viking Freight and Watkins Motor Lines.

It has since become the largest carrier in the LTL space. In 2022, it posted $10.18 billion in revenue, an 18.5% percent boost in revenue from the previous year, according to figures compiled by SJ Consulting.

But last year, FedEx Freight slipped. Its revenue dropped 10.6% to $9.01 billion, according to SJ Consulting. It still ranked as the largest LTL carrier in the country.

Investors were excited by FedEx Corp.’s mix of earnings, guidance and a strategic review. FedEx stock surged 14.7% in Wednesday trading at $293.94 a share. It was the best performer in the S&P 500 early in the trading day, according to Dow Jones Market Data.

Immediately after the announcement, J.P. Morgan transport analyst Brian Ossenbeck upgraded FedEx stock to Buy from Hold. He took his price target to $359 a share, up from $296.

The “surprising step” to evaluate its freight business cheered. LTL stocks usually trade for about 13 times estimated earnings before interest, taxes, depreciation, and amortization (EBITA). FedEx shares trade for about seven times before EBITA.

The freight decision “lends credibility to a sum-of-the-parts upside potential given much higher multiples at similar LTL franchises,” added Evercore ISI analyst Jonathan Chappell in a Wednesday report.

FedEx stock is up only about 1% this year. Investors have been concerned about slowing demand and lower freight rates. FedEx’s fiscal year 2024 sales fell about 3% year over year. But revenue in the fiscal year 2025 are expected to grow between 3% and 5%, analysts estimate.