FedEx shares climb 13% as it boosts dividend. Is it a buy?

Posted: 14 June 2022 4:12 pm
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FedEx’s dividend hike is a magnet for yield-hunting investors bracing for a recession as the Federal Reserve keeps raising interest rates to combat high inflation.

FedEx Corp. (FDX) shares climbed 13% as the company boosted its quarterly dividend by more than half and tied its executive compensation to shareholder return. The company also added two independent directors as part of a cooperation agreement with activist investor DE Shaw Group.

The moves attracted investors hunting for yield in a market that’s bracing for a recession as inflation climbed. The Federal Reserve is expected to increase interest rates by another half percentage point on Wednesday and announce plans for bigger hikes in the next few months. That could slow consumer spending and hurt corporate profits, adding to a wall of worries for shareholders.

FedEx will increase quarterly dividend by $0.40 to $1.15 per share on its common stock, payable on July 11 to stockholders as of the close of business on June 27, according to its press release. The company also said its management compensation will be more directly tied to delivering total shareholder return and long-term value creation.

The higher dividend offers some comfort should FedEx shares continue to get swept in a wider market sell-off that pushed equities into a bear market. The cooperation agreement with D.E. Shaw reduces the risk of a proxy fight with an activist investor.

Is FedEx now a buy, sell or hold?

Nineteen of 31 analysts who track the stock recommend that investors buy FedEx, while four say they should add to their holdings, according to data published on the Wall Street Journal website. The remaining eight analysts are suggesting investors hold on to their stake.

Analysts on average expect FedEx to climb to $286.81, a 27% upside potential for the stock that traded at $227.02 at 11:08 a.m. in New York Tuesday.

Morgan Stanley analysts, who pared their price target for the stock to $245 from $250, have a cautious view across the industry. The bank has an “equal-weight” rating on the stock, which means its allocation in an investor’s portfolio should be equal to its weighting in indices

“Macro data points have turned more sluggish globally, no doubt compounded by additional complications from the conflict in Ukraine and COVID-related shutdowns in China, which we expect to weigh on volumes,” Morgan Stanley analysts Ravi Shanker, Christyne McGarvey, Alexander Gomez and Katherine Kallergis, said in a note June 2.

The bank’s analysts expect the company’s quarterly earnings to miss estimates when it reports next week. “But anything short of a big miss may be good enough as investors look ahead to the FY23 guide and LT targets at the Analyst Day,” they said, referring to FedEx’s fiscal 2023 outlook and its long-term financial targets.

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