FedEx has spent the past three years rebuilding its business. Investors now want to know if they will ultimately make a profit. FedEx reported its fourth quarter fiscal 2026 results on the evening of June 23, giving shareholders an updated look at the company’s turnaround. The parcel delivery company’s stock has risen 42% since the beginning of the year, as Wall Street increasingly embraces CEO Raj Subramaniam’s transformation plan. After a strong run that included hitting a 52-week high on Friday, the key question heading into print is whether FedEx can continue to generate higher profits from every package that passes through its network. That means shipping giants must continue to expand their margins. Jim Cramer thinks it’s possible, and he became even more convinced after interviewing Subramaniam and John Smith, CEO of the newly separated FedEx Freight, on May 12 from the company’s largest global sorting hub at Memphis International Airport. Less than a week later, the club initiated a position with FedEx and acquired a stake in FedEx Freight, which was spun off on June 1. We received one FDXF share for every two FDX shares we owned. FedEx maintained a 20% stake in FedEx Freight, North America’s largest less-than-truckload (LTL) carrier with industry-leading transit times. FDXF opened at $164 on its first trading day as an independent company and has risen slightly over the past 10 trading days. We’re going to keep the cargo stock. FedEx Freight took a tough turn Friday after lowering its price target and earlier this week when Amazon announced it would expand LTL services in the U.S. as part of its recently created Amazon Supply Chain Services (ASCS) division. In the logistics industry, less-than-truckload services are for items that are too large for regular shipping, but not large enough for an entire tractor-trailer. Therefore, multiple small packages from different shippers are grouped together to fill an entire truck. Wednesday’s Amazon news sent FedEx Freight stock down more than 3%, along with other LTL stocks such as XPO, Arkvest and Saia, on concerns about outbound cargo, expansion into non-Amazon destinations and targeting of large shippers. Amazon said it remains focused on retail freight. We viewed the FedEx cargo sell-off as an overreaction. A turnaround During the pandemic, FedEx became an essential link in the global supply chain as homebound shoppers increasingly turned to online shopping. While business-to-business (B2B) shipping activity has slowed due to lockdowns and disruptions caused by the coronavirus, business-to-consumer (B2C) shipments have surged. To meet this unprecedented demand, FedEx has rapidly expanded its delivery network and facilities. But as the pandemic subsided and e-commerce growth normalized, the company found itself with excess production capacity and a network built for a level of delivery demand that no longer existed. This has forced management to rethink how FedEx operates. Since becoming CEO four years ago, Subramaniam has restructured the company around four strategic priorities: growing in high-margin industries, transforming the network, leveraging data and technology, and reducing costs. A veteran of the company, Mr. Subramaniam joined the company in 1991 and held leadership roles in Asia and the United States. He became chief marketing and communications officer and was promoted to president and chief operating officer in 2019. He joined the board a year later and ultimately succeeded founder Fred Smith as CEO in June 2022. Under Subramanian, FedEx’s first initiative was DRIVE. It is an efficiency plan that aims to simplify operations and find different ways to do so through procurement savings, transportation optimization, and automation. Reducing overhead costs. From fiscal year 2023 to fiscal year 2025, FedEx reduced approximately $4 billion in costs from its operations. Management expects to see an additional $2 billion in cost savings through fiscal 2027. The second initiative was FedEx Network 2.0, aimed at streamlining logistics. This initiative will make it easier and faster to pick up and deliver packages through a new integrated intermodal transportation structure. Under the Network 2.0 model, FedEx closed 100 stations and was able to transport the same amount of cargo with fewer facilities. This eliminated redundant transport routes and integrated ground and express operations. Management also cut spending. Historically, FedEx spent a lot of money to expand production capacity. Capital expenditures for fiscal 2025 totaled $4.1 billion, reduced by approximately $1.1 billion compared to $5.2 billion in the prior year. The company’s capital investment as a percentage of revenue was 4.6%, the lowest since FedEx was founded in 1998. The key variable in FedEx’s profitability growth, and the most undervalued part of FedEx’s history by Wall Street, is its focus on higher-yield B2B shipments rather than lower-margin package volumes. The company has identified four major B2B vertical markets: healthcare, automotive, aerospace and data center markets, all of which are growing faster than the U.S. economy as measured by government gross domestic product (GDP) numbers, executives said. As priority growth areas, these categories, which collectively represent a $130 billion market opportunity, typically require premium transportation services and generate better economics than traditional courier services. At its February Investor Day, FedEx highlighted how it is “enabling the AI revolution from the ground up” by transporting semiconductors, large servers and other critical equipment to support building artificial intelligence infrastructure. The company estimates there is an approximately $7 billion opportunity in this data center-related transportation market alone, and said it is “very well positioned to benefit from a wave of capital investment” in the new AI economy. In a research note published June 1, the day the Freight spinoff took place, Goldman Sachs said FedEx’s “strategic shift” to B2B shipping was “a key lever for structural profit growth.” “By capturing high-yield, high-density B2B volumes, FedEx stands to unlock more value per stop compared to traditional residential delivery,” the analysts wrote. Goldman’s bull market hinges on whether its earnings before interest and taxes (EBIT) grow far faster than sales through 2029. Analysts said the company’s potential long-term financial trajectory “remains a key central part of our bullish trajectory.” They are targeting 2026 earnings per share (EPS) of $16.40, up from $15 at FedEx’s investor day. The company targets $25 in EPS by 2029, assuming 4% revenue growth and double-digit EBIT growth. Goldman’s new price target is $375 per share, implying an 11% upside from Friday’s level. Analysts point to FedEx’s “lower cost network services that provide meaningful operating leverage torque” as the freight industry emerges from the longest recession in recent memory. Although FedEx is no longer in the freight business, Morgan Stanley said that when it reports its earnings in late June, it will include FedEx Freight’s results on both a segment and accounting basis through May 31, as well as a separate freight report that will discuss the transition period after June 1 and the same period last year. FedEx management believes that separating Freight will allow both companies to better pursue their own growth strategies and improve operations and execution. The club agreed. It’s the catalyst investors have been waiting for. We view FedEx Freight as an undervalued asset that was overlooked within a larger organization that was focused on a broader turnaround story. As an independent company, Freight needs more flexibility to better serve its customers and realize greater productivity gains. The company said it expects fiscal 2028 sales to be $8.7 billion and adjusted operating margin to be approximately 12%. Freight CEO Smith aims to increase profit margins to 15% by 2029, up from around 12% currently. Smith suggested there could be further upside beyond that target. ASCS, announced by rival Amazon in May, is an expansion of its logistics business that allows retailers to take advantage of Amazon’s transportation, warehousing, fulfillment and delivery network even if they don’t sell products on Amazon’s marketplace. Amazon is repurposing the infrastructure it built to support its e-commerce business into services for other companies. The announcement initially rattled FedEx and traditional logistics competitor United Parcel Service. While Amazon may be a competitor, Subramaniam argued in his “Mad Money” interview with Jim that ASCS primarily functions as a third-party logistics provider, while FedEx operates a true end-to-end transportation network. He also noted that Amazon remains an important customer. Indeed, Barclays pointed to the recent expansion of the relationship between FedEx and Amazon, highlighting that FedEx is now part of Amazon’s returns network through its FedEx Office locations. Barclays added that the parcel operations are “fundamentally different” between the two companies. Analysts argued that even though Amazon’s ASCS news is “more noise than risk,” FedEx’s value proposition remains compelling. That’s because FedEx feeds its network through hundreds of thousands of pickup points every day, while Amazon picks up at 1,000 to 2,000 facilities that are already stocked with inventory, and the journey to destination is likely less than 75 miles. That’s much shorter than the more than 600 miles traveled by FedEx, which makes up about half of its shipments, according to Barclays. Overall, it remains to be seen whether Amazon can truly replace the industry’s current leader. Importantly, the company points to FedEx’s continued market share growth in key U.S. markets at the expense of top competitor UPS, helped by FedEx’s weekend delivery service and faster transit times. Jim remains bullish on FedEx as a top player in the industry. “They’re fighting a weaker competitor, UPS,” he said at the company’s monthly meeting in May, arguing that FedEx has significantly closed the competitive gap. His conclusion: FedEx stock is “on the rise.” Conclusion We think the key metric to watch for earnings is FedEx’s margin performance. The company has already proven that cost reductions are possible, and the next step is to demonstrate that the combination of these cost reductions and high-margin services can drive sustainable revenue growth. Freight spin-offs provide a further long-term catalyst as industry demand recovers. Expectations are definitely rising as stock prices have risen this year. But if management continues to execute on its turnaround plan and strengthens its long-term profit goals, it could squeeze even more out of the stock. (Jim Cramer Charitable Trust is Long FDX, FDXF. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
