Key insights
- FedEx Freight's shares experienced a notable decline on their NYSE debut following the completion of its spinoff from FedEx Corp. Despite a challenging market debut, parent FedEx Corp shares remained stable. Analyst concerns regarding execution risk and transition costs, coupled with underperformance metrics, contributed to the stock's drop. The broader freight market shows signs of recovery, but FedEx Freight faces short-term profit dampening due to modernization investments.
By Lisa Baertlein and Nandan Mandayam
June 1 (Reuters) - FedEx Freight shares fell after their New York Stock Exchange debut on Monday, following the completion of its spinoff from parent FedEx Corp.
The shares of the trucking company dropped as much as 13.8% from their opening price, and were last down 2.8%. Parent FedEx Corp's shares were little changed at $333.30.
J.P. Morgan analyst Brian Ossenbeck said he values FedEx Freight at a lower multiple compared to its rivals XPO, Saia and Old Dominion Freight Line, "given execution risk and transition costs related to the spin as well as persistent underperformance on service and volume metrics".
FedEx Freight's shares opened 2.3% higher on Monday at $164, compared to $160.37 when the stock was trading on a when-issued basis last week.
When-issued trading allows investors to buy and sell stock before they officially begin regular trading, with settlement taking place once the shares are formally issued.
FedEx Freight's debut as an independent company comes at a time when freight rates could be emerging from a four-year slump, partly due to several operators exiting the market because of financial losses and a push by federal regulators to drastically restrict commercial driver licenses to U.S. citizens only.
The company expects average revenue growth of 4% to 6% in the medium term, Chief Financial Officer Marshall Witt said in April.
It also expects average core profit growth in the range of 10% to 12% over the medium term.
Investments in modernizing and separating the business from FedEx will dampen profit in the short term, but cost controls, automation and the addition of more high-profit cargo will strengthen margins over time, Witt said.
(Reporting by Lisa Baertlein in Los Angeles and Nandan Mandayam in Bengaluru; Editing by Shinjini Ganguli)