Why FedEx Rose Even Though Profit Fell

FedEx spent the year signing a new four-year pilot contract with roughly 40% higher pay and spinning off its Freight unit, while also agreeing to sell FedEx Supply Chain for US$1.4b and ordering US$300m of electric trucks. Investors who held FedEx over the past year are up 55.9%, including dividends. If you were deciding back on 2025-10-16, what would you have needed to believe about these moves before any of that was announced?

A Narrative on Simply Wall St is one investor's written case for a company, with its growth, margin and multiple assumptions spelled out. Those assumptions imply an estimated Fair Value.

If the move has made FedEx harder to judge, start where the gap is still open and scan 33 high quality undervalued stocks.

The Argument FedEx Investors Were Really Weighing

The shares cost US$237 at the start of the period, and the core question for FedEx investors was whether efficiency programs would outweigh structural threats to parcel demand and costs.

On the optimistic side, the DRIVE, Network 2.0 and Tricolor Narrative put Fair Value at US$263, 11% above the start price, assuming revenue growth of 2.8%, a 5.4% profit margin and a future P/E of 13.9x within three years.

The more cautious Narrative saw Fair Value at US$200, 16% below the start price, and focused on structural parcel volume declines and higher labor and environmental costs as long term risks to FedEx.

What The Results Changed For FedEx

FedEx closed the period with Q4 2026 revenue of US$25,007m versus US$22,220m a year earlier, which supported the optimistic thesis that volume and top line could hold up after the Freight spin and supply chain sale. Profit slipped to US$1,595m from US$1,646m and net margin moved from 7.4% to 6.4%, so efficiency-driven upside was not yet confirmed. Overall, the evidence cut both ways.

The lesson for any stock like FedEx is simple. When a story leans on cost programs and mix upgrades, keep checking whether net margin and absolute earnings move in the same direction as revenue in each set of results.

What FedEx's Recent Run Already Prices In

FedEx now trades at US$294 after a 55.9% gain over the past year, while the selected Narrative’s Fair Value sits below that level based on its own framework.

That Narrative centers on fuel, capital spending and execution in efficiency programs. A buyer today would need to believe FedEx can keep turning these projects into reliable cash generation despite those pressures.

"The main factor that needs to go right is that FedEx converts its AI, Dataworks and Network 2.0 efficiency programs, along with lower capital intensity, into durable surcharge capture, a healthier mix toward premium B2B and health care, and sustained free cash flow at approximately 4% capex to revenue."

One Narrative has put a figure on that disagreement. → See the Narrative with its lower Fair Value, assumptions and all

Find Your Own Contrarian Opportunity

The story behind this run has already been told. The next one could be taking shape somewhere else. Where could you start looking before it becomes the headline?

• Company 1 - 32% below our estimate - sells high-density GPU rack systems into expanding AI-focused data centres.
• Company 2 - 42% below our estimate - converts specialised AI, utility and chemicals challenges into repeat advisory mandates.
• Company 3 - 33% below our estimate - wins subsea tieback projects that integrate installation work with multi-year service support.

Those are three of them. See all 25 companies with the balance sheet to back it up →

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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