FedEx Corporation (FDX.US) gains Goldman Sachs Group, Inc.'s strong support after Q3 results: short-term quarterly volatility and cost pressures remain, but the long-term development path stays solid.

FedEx Corporation (FDX.US) reported its fiscal third-quarter 2026 results on Wednesday. Benefiting from higher package yields, volume growth, and continued progress on structural cost-reduction measures, the company's quarterly revenue and profit both beat Wall Street expectations, and it raised its full-year earnings outlook for calendar year 2026. In a research note published after FedEx Corporation released its latest results, Goldman Sachs Group, Inc. pointed out that the company's third-quarter results beat expectations, with strong international business performance. Although short-term quarterly volatility and cost pressures remain, the long-term development path stays solid. Goldman Sachs Group, Inc. maintained its "Buy" rating on FedEx Corporation with a 12-month target price of US$390, implying roughly 28% upside from the stock's Wednesday closing price of US$304.58. Performance Highlights The financial report showed that FedEx Corporation achieved third-quarter revenue of US$22.9 billion, up about 12% from US$20.4 billion in the same period last year, above the market expectation of US$22.42 billion. On profitability, adjusted operating profit was US$1.2 billion, with an adjusted operating margin of 5.3%; adjusted earnings per share were US$3.74, up about 28% from US$2.93 in the same period last year, better than the market expectation of US$3.36. The company's quarterly net profit was US$290 million, down from US$650 million in the same period last year. The sharp fluctuation in net profit was mainly affected by one-off items, including losses related to short-term investments, gains on debt extinguishment, and certain restructuring costs. It is understood that the company completed the spin-off and listing of FedEx Corporation's freight business (FedEx Freight) on June 1, 2026, retaining a 19.9% equity stake, and recognized a US$1.2 billion book loss on this equity investment in the quarter. By segment, FedEx Corporation's U.S. domestic express business operating profit grew in the quarter, mainly driven by higher package yields and volume growth; the international business benefited from growth in international export volumes, but this was partly offset by wage increases, higher purchased transportation costs, and the impact of changes in global trade policy. Based on the strong quarterly performance, FedEx Corporation raised its calendar year 2026 adjusted earnings per share outlook to US$18 to US$18.60 from the previous US$16.90 to US$18.10; it also raised its 2026 revenue growth forecast to about 12% year-on-year from the previous 11%. Goldman Sachs Group, Inc. Commentary Goldman Sachs Group, Inc. noted that FedEx Corporation's third-quarter adjusted earnings per share were US$3.74, significantly above the bank's estimate of US$3.18. The earnings beat was mainly attributable to an international business margin of 3.9% and EBIT far exceeding expectations. Given the company's long-term margin target of 8% set for 2029, this performance is encouraging. However, although FedEx Corporation raised its full-year earnings guidance from US$16.9018.10 to US$18.0018.60, Goldman Sachs Group, Inc. believes that a 20 basis point year-on-year decline in the U.S. domestic business margin, with a further slight decline expected in the fourth quarter, could trigger some concerns. The company mentioned the adverse impact of fuel costs and said this impact should be temporary, but also noted that outsourced transportation costs are at elevated levels. FedEx Corporation's management believes the company has multiple levers to reduce the impact of outsourced transportation costs in 2027, and therefore expects full-year domestic business margin to improve year-on-year in 2027, but the market may still worry about when margins will begin to inflect upward and whether the company can truly deliver on cost-mitigation measures. Nevertheless, Goldman Sachs Group, Inc. said the bank had anticipated that, following the spin-off of the freight business, quarterly results could show some noise and volatility in the transition from fiscal-year reporting to calendar-year reporting (and that investors would also need to adapt to new seasonal trends). However, Goldman Sachs Group, Inc. remains confident that, with volume growth and disciplined core pricing, margin improvement potential in both domestic and international businesses will gradually materialize over the next three years. Goldman Sachs Group, Inc. continues to rate FedEx Corporation "Buy." Factors supporting the bank's positive rating include: (1) the company's multi-pronged commercial strategy and its distinctive cost and efficiency initiatives, including increasing the mix of higher-yield B2B business, selectively developing B2C business, advancing cost transformation, and integrating artificial intelligence (AI). (2) Good capital discipline and strong free cash flow (FCF) conversion. Notably, capital expenditure as a percentage of revenue has fallen from 7.2% in fiscal 2022 to 4.0% in fiscal 2026. (3) Strong long-term earnings per share potential, expected to approach US$25 by calendar year 2029. (4) A recovery in freight demand is expected to lower fixed costs per shipment and drive earnings leverage through operating leverage. (5) Given the potential for a recovery in freight demand, as well as the upside from the company's own efficiency improvements and cost-saving initiatives, the current valuation remains reasonable. Goldman Sachs Group, Inc. also noted that the stock currently trades at only 14.8x the bank's calendar year 2027 forecast. The bank expects its international business to perform strongly in 2027, and against this backdrop remains optimistic that the company can achieve healthy double-digit earnings per share growth. However, given that the trajectory of domestic business margin in late 2026 is below prior expectations, Goldman Sachs Group, Inc. lowered its 2027 forecast to reflect a slower pace of margin improvement at the start of the year; but the bank's three-year earnings growth path remains unchanged, and its 2029 forecast has not been adjusted.