FedEx has garnered significant attention recently, especially with the anticipated separation of its freight division set to take place on June 1. Influential financial commentator Jim Cramer has voiced strong optimism regarding the company’s stock performance, suggesting that it could reach new heights following this major strategic move. Speaking on CNBC, Cramer emphasized that the company’s valuation could rise dramatically, predicting that investors may soon wonder why the stock isn’t priced as high as $500, which would translate to an approximate 25% increase from its current value.
This outlook aligns with the stock’s impressive performance thus far in the year, having surged by 38% as confidence grows around the leadership of CEO Raj Subramaniam and the company’s transformative initiatives. A core element of Cramer’s bullish stance is centered on the imminent split of FedEx’s freight division, which is being regarded by analysts at Wells Fargo as a “self-help” strategy amid a recovering trucking market. These analysts have pointed to advantages such as enhanced pricing power and a reduction in operational costs.
In addition, a recent analysis from Citi highlighted potential cost efficiencies and rising profitability for FedEx while cautioning about the competitive landscape, particularly the threat posed by Amazon Supply Chain Services. However, Cramer dismissed these concerns, referencing Subramaniam’s reassurances earlier this month on “Mad Money.” The CEO characterized Amazon’s logistics expansion as primarily focused on third-party offerings, which constitute only a minor share of FedEx’s revenue. He noted that FedEx’s third-party logistics segment generates approximately $2 billion, indicating that despite Amazon’s presence, it does not pose a substantial threat.
FedEx is expected to exceed $93 billion in revenue for the fiscal year concluding in May, according to data from FactSet. Beyond its core shipping services, Cramer highlighted FedEx’s role in capitalizing on long-term growth trends associated with artificial intelligence infrastructure. The company is involved in the transport of critical components such as semiconductors and servers for data centers, a sector that FedEx estimates holds a $7 billion transportation opportunity.
Despite acknowledging that FedEx shares may no longer be viewed as a bargain following their strong rally, Cramer argued that the stock warrants a higher earnings multiple than its current trading rate. He expressed that while a valuation at 20 times earnings may not be a steal, it should indeed attract a multiple closer to 23 or 24 times.
Cramer is set to elaborate on FedEx’s potential in the upcoming CNBC Investing Club Monthly Meeting alongside Jeff Marks, who is the director of portfolio analysis for the Club. As part of the CNBC Investing Club, subscribers are alerted before any trades are made, ensuring they are kept informed about strategic moves related to the portfolio managed by Cramer’s charitable trust.
