Latest Developments:
In 1Q25, FedEx (FDX) reported $21.56 billion in revenue, marking a 0.47% YoY decline. Despite cost-saving initiatives like the DRIVE program, the company faces significant challenges, including the termination of its contract with the USPS, shifts in customer behavior, and a weak macroeconomic environment. Operating margins deteriorated to 5%, and net margins fell to 3.68%.

Investment Case:
FedEx’s ongoing operational challenges, exacerbated by the potential impact of tariffs, make it difficult for the company to recover. While the DRIVE initiative has led to cost savings, its efforts have been offset by rising transportation costs and other headwinds, leaving margins under pressure. The company’s revenue and margin outlook remains weak, with no signs of near-term improvement.

Valuation:
Based on conservative estimates of low single-digit revenue growth and marginal improvements in operating income, the implied share price of FedEx is $283.88, suggesting limited upside potential. If the company fails to improve margins, its share price could face significant downside risk, with a potential contraction of more than 50%.

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