FedEx Corp (NYSE: FDX) tanked as much as 15% on Friday after reporting a steep decline in quarterly profit that missed Street estimates.
The logistics company also lowered its full-year earnings guidance from $21 a share to $20.5 per share, citing customers are trading down from express to regular delivery in pursuit of lower costs ahead of a potential economic slowdown.
In the earnings release, CEO Raj Subramaniam also acknowledged weakness in industrial demand, which tends to be the most profitable segment for FedEx.
Still, famed investor Jim Cramer continues to see FedEx as a “great stock to own” and recommends buying it on the post-earnings sell-off.
Why is Jim Cramer bullish on FedEx stock?
Jim Cramer has immense confidence in the leadership of Raj Subramaniam who has “managed to take out huge costs” to improve the overall profitability of the business.
FedEx earned $3.60 a share (adjusted) in its recently concluded quarter that translates to a 15% year-on-year decline.
Still, the number is up significantly from when Subramaniam joined the company as its chief executive.
Additionally, the US Federal Reserve opted for a jumbo 50-basis point cut to its benchmark interest rate this week to stimulate the economy.
That may be a boon for FedEx stock as increased economic activity often leads to higher shipping volumes, as per the Mad Money host.
Shares of the multinational based out of Memphis, TN currently pay a dividend yield of 2.12%, which makes it fairly positioned for healthy total returns.
FDX currently has authorization to repurchase $4.1 billion worth of its stock as well.
Baird sees upside in FDX to $320 a share
In June, FedEx committed to investing another $5.2 billion to improve its operations.
That may serve as another tailwind for its tumbling stock price in the months ahead.
Baird analyst Garrett Holland also shares the optimism Cramer has about the freight transport company despite a “rough quarter”.
The investment firm maintained its “buy” rating on FDX today and said its shares could climb back to $320, indicating potential for a 25% gain from here.
Holland has confidence in the management’s ability to increase prices to offset sluggish demand, which together with continued cost savings, could translate to a much higher share price over the next 12 months.
All in all, Baird remains bullish on FedEx stock due to a favourable risk/reward and recommends investing in it on the post-earnings weakness as the longer-term financial health of the company listed on the New York Stock Exchange continues to be as impressive as ever.
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