FedEx upgraded to buy as J.P. Morgan sees 12% upside from spinoff

J.P. Morgan upgraded FedEx to overweight from neutral, raising its price target to $460 from $432, implying 12% upside from the prior close.

"We believe the relative risk/reward is attractive heading into the separation of the Freight business on June 1," Brian Ossenbeck, analyst at J.P. Morgan, said.

The upgrade comes as FedEx prepares to spin off its less-than-truckload unit, FedEx Freight, which expects fiscal 2026 revenue of $8.7 billion and operating profit of $1.1 billion. FedEx as a whole is projected to generate almost $94 billion in sales and $6.5 billion in operating income. The freight business has been undervalued within the broader company, with FedEx trading at about 18 times forward earnings versus LTL peer Old Dominion Freight Line at roughly 38 times.

FedEx shares have surged 82% over the past 12 months, far outpacing rival United Parcel Service, which gained 5%. The stock rose 2.9% to $411.78 on Wednesday after the upgrade. Ossenbeck also expects FedEx to beat consensus when it reports fiscal fourth-quarter earnings on June 23, forecasting per-share earnings of $6.40 versus the $5.91 Wall Street estimate.

Ossenbeck applied a 9.5-times EBITDA multiple to FedEx's parcel business for fiscal 2027, citing margin expansion from the Network 2.0 restructuring. He raised his freight business multiple to 14 times, expecting the standalone company to narrow its valuation discount as it demonstrates progress on yield and service.

The spinoff will give existing FedEx shareholders one share of the new company for every two FedEx shares they own. FedEx Freight will operate as the largest North American LTL carrier serving small and medium-sized businesses.

About 63% of analysts covering FedEx rate the stock a buy, above the S&P 500 average of 55% to 60%. For UPS, 48% of analysts rate it a buy.

The upgrade and spinoff give FedEx a clearer path to closing its valuation gap with LTL peers. Investors will watch the June 23 earnings report for signs that Network 2.0 cost savings are accelerating.

This article is for informational purposes only and does not constitute investment advice.