Shares of FedEx (FDX) rose on Wednesday after JPMorgan upgraded the shipping giant ahead of the planned separation of its freight business.
Analysts believe the move could unlock additional shareholder value and improve transparency across the company’s operations.
FedEx stock gained 3.4% to $413.70 in morning trading, outperforming rival United Parcel Service, whose shares rose 2.13% to $104.19.
JPMorgan analyst Brian Ossenbeck upgraded FedEx shares to Overweight from Neutral and raised his price target to $460 from $432.
The analyst cited growing confidence in FedEx’s restructuring efforts and optimism surrounding the company’s upcoming freight spinoff, which is expected to be completed on June 1.
“We…believe the relative risk/reward is attractive heading into the separation of the Freight business on June 1,” Ossenbeck wrote.
Freight spinoff seen unlocking value
FedEx plans to separate its less-than-truckload freight business into a standalone company called FedEx Freight.
Existing FedEx shareholders will receive one share of the new company for every two FedEx shares owned.
The new entity will operate as the largest North American less-than-truckload carrier serving small and medium-sized businesses.
Less-than-truckload shipping, commonly referred to as LTL, serves customers who do not require a full truckload and primarily supports industrial freight transportation over shorter distances.
Analysts have long argued that the freight business has been undervalued while housed within the broader FedEx organization.
FedEx currently trades at roughly 18 times expected earnings over the next 12 months, while competitor Old Dominion Freight Line trades closer to 38 times earnings.
FedEx Freight expects fiscal 2026 revenue of approximately $8.7 billion and operating profit of $1.1 billion.
By comparison, Wall Street projects FedEx as a whole will generate nearly $94 billion in revenue and $6.5 billion in operating income.
Ossenbeck said the standalone freight company could eventually narrow its valuation discount relative to peers.
He wrote that he expects FedEx Freight to initially trade at “a modest discount to LTL peers given transaction costs and execution risk,” though he also sees the gap narrowing as the business demonstrates “progress on yield, service, and operational efficiencies post-spin off.”
Network transformation supports outlook
JPMorgan also pointed to operational improvements underway within the remaining FedEx parcel business.
“We have been of the view that the structural improvements underway at legacy Federal Express through Network 2.0 are increasingly visible as the last several quarters of solid execution put the company on a credible path to its calendar year 2029 targets,” Ossenbeck wrote.
The analyst applied a 9.5-times EBITDA multiple to FedEx’s fiscal 2027 parcel business, citing margin expansion and operational improvements tied to the company’s Network 2.0 restructuring efforts and European transformation initiatives.
For the freight business, Ossenbeck raised his fiscal 2027 EBITDA multiple estimate to 14 times.
“Overall, while the stock has had a strong run over the past year [up 87% y-o-y], we still believe there is attractive upside relative to the rest of the sector based on our SOTP math with the spin set to serve as a near-term catalyst that should improve transparency as idiosyncratic initiatives at both entities make progress,” he wrote.
FedEx continues outperforming UPS
FedEx has significantly outperformed UPS over the past year as investors increasingly favored its earnings growth outlook and restructuring progress.
Coming into Wednesday’s session, FedEx shares had gained roughly 82% over the past 12 months, compared with about 5% for UPS.
FedEx is expected to continue growing earnings through 2026, while UPS faces pressure from labor inflation and weaker shipping volumes tied to reduced business from Amazon.
Wall Street expects FedEx to report fiscal fourth-quarter earnings per share of $5.91 on June 23, down slightly from $6.07 a year earlier.
Ossenbeck forecasts stronger results, projecting earnings of $6.40 per share.
According to analyst data, roughly 63% of analysts covering FedEx currently rate the stock a Buy, compared with 48% for UPS.
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