Is FedEx a Buy Following Its FedEx Freight Spinoff?
Key Points
FedEx recently raised its full-year guidance.
The company's spinoff will allow it to pay off debt.
FedEx is looking to cut costs significantly.
FedEx (NYSE: FDX) completed the spinoff of its FedEx Freight business (NYSE: FDXF) on June 1, making FedEx Freight a separate, less-than-truckload (LTL) business focused on short-distance deliveries. The point is to unlock shareholder value as both companies can focus on their own concerns.
FedEx operates more than 650 planes as the world's largest express air cargo carrier and delivers to more than 220 countries. Its shares are up more than 45% so far this year, but fell 17% on the first trading day since the spinoff, while FedEx Freight's shares dropped more than 6%.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
Despite the recent slide, there are three good reasons to buy FedEx stock now.
Image source: Getty Images.
It has higher margins ahead
The move simplifies FedEx's cost-cutting plans to improve profitability. Managing a massive hybrid network of overnight air express, ground parcel, and heavy freight leads to complexity. By spinning off its freight division, FedEx can more easily introduce its Network 2.0 initiative, which combines its express and ground sorting networks while using artificial intelligence (AI) and automation to a greater extent.
The transportation company plans to close 475 of its shipping stations by the end of 2027 while making its deliveries more efficient, sending fewer delivery trucks to the same neighborhood. It said the plan will equal more than $2 billion in savings by the end of 2027.
FedEx in the third quarter revised its fiscal 2026 guidance to expect annual revenue growth of 6% to 6.5% and earnings per share (EPS) of $19.30 to $20.10, compared to $18.19 in 2025.
Once it clears those spinoff charges, the company is betting that businesses, particularly in business-to-business (B2B) shipping, will be willing to pay more for faster and more consistent delivery times.
The spinoff will allow FedEx to reduce debt
FedEx will keep 19.9% of FedEx Freight's shares, albeit only for a short while. The plan is to sell those shares, helping the company pay down the more than $22.8 billion in long-term debt. As of now, it has a debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) of 3.5, which reduces its flexibility. With less debt, FedEx will be able to buy back stock and improve its dividend.
FedEx will trade FedEx Freight shares directly to creditors to retire outstanding corporate bonds, avoiding the need to use cash flow to settle those debts.
It benefits from its connection to InPost
The last mile of deliveries is the most expensive part of shipping for companies, particularly in Europe. FedEx is leading a consortium to buy the Polish company InPost, which has more than 60,000 automated parcel lockers across Europe.
If FedEx can secure its 37% minority stake in InPost, it will have at its disposal a low-cost, high-density European delivery network that bypasses the doorstep entirely. In many cases, Europeans prefer to pick up packages at their local transit hubs or grocery stores on their own schedule rather than wait for a delivery van. The move can serve its customers better while reducing costs.
James Halley has no position in any of the stocks mentioned. The Motley Fool recommends FedEx. The Motley Fool has a disclosure policy.