We're calling up a Bullpen stock, buying small to give us room to build
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CNBC Finance
5 min read
We're initiating a position in FedEx , buying 100 shares at roughly $370. Following Monday's trade, Jim Cramer's Charitable Trust will own 100 shares of FDX with a weighting of about 0.95%. We're calling up FedEx from our Bullpen stocks-to-watch list following Jim's visit to the company's World Hub in Memphis, Tennessee, and interview with CEO Raj Subramaniam. FedEx has undergone a remarkable turnaround under Subramaniam, prioritizing growth in high-margin verticals such as business-to-business (B2B) and specialized business-to-consumer (B2C). In B2B, the company is focused on four key verticals: healthcare, automotive, aerospace â and yes, data centers. Combined, FedEx estimates these verticals represent a $130 billion market opportunity, and they are growing much faster than the broader economy and come with higher margins. We're not calling FedEx at "data center play," but we also shouldn't ignore the tailwinds the AI buildout has on the business. FedEx plays a crucial role in the supply chain, transporting highly valued semiconductors, servers, and other products. This equipment is precious cargo, requiring specialized knowledge and handling that companies turn to FedEx for. This is a $7 billion addressable transportation market, according to the company, and should provide a nice revenue stream for many years as data centers pop up all across the globe. In B2C, FedEx has a dominant market share in transporting goods weighing over 50 pounds. Another factor they look at is the value of the goods. The company earns a better margin on shipments that are highly valued because customers are willing to pay a premium on speed, reliability, tracking, and security. A funny moment happened at the Investor Day in February, when the chief customer officer explained, "If you're shipping T-shirts, FedEx might not be for you. But if you are shipping Oura Rings, FedEx is for you." Taking out costs and improving margins has been another key part of the turnaround. From fiscal year 2023 through fiscal year 2025, the company has removed $4 billion in costs across air, surface, and general & administrative expenses. Another $2 billion in savings is expected to be realized by the end of 2027 through its Network 2.0 and One FedEx initiatives. Outside the broader economy, a longstanding risk that has impacted the stock at times is concerns that Amazon will disrupt transportation supply chains. Those fears intensified on May 4Â after Amazon announced the launch of Amazon Supply Chain Services (ASCS). The news caused FedEx shares to sell off about 9%, dropping from $393 to $358. When Jim was in Memphis, he asked Subramaniam what impact this news could have on the business. The FedEx CEO also currently sits on the board of Procter & Gamble (another Club stock). With the household products giant among the first to sign up for Amazon's program, Subramaniam has a strong perspective on whether the offering will hurt his business at FedEx. He pointed out that FedEx is an end-to-end global network with a system of assets that help companies transport goods from one part of the world to any other in just a couple of days. It's asset-heavy with aircraft, trucks, sorting hubs, and last-mile delivery networks. What Amazon is offering is a third-party logistics service, which Subramaniam said is a non-asset play. Their program is about putting together the assets and warehouse solutions on behalf of shippers. Subramaniam did acknowledge that Amazon's program could impact about 2% of FedEx revenue. But that's a very small piece of the pie, and he said FedEx has long-term contracts for customers in this part of the business, easing concerns that customers will immediately jump ship to Amazon. A stock decline of 9% on something that will impact less than 2% of sales was an overreaction. At around $370 on Monday, the stock hasn't fully recovered from this decline, and we think that's an opportunity to start small. FDX YTD mountain FedEx YTD Finally, you know we love a good breakup story. When strong management teams spin off high-quality businesses, both entities benefit from a sharper strategic focus, helping unlock value through improved products and services alongside expanding margins. Both companies become better equipped at pursuing their own growth strategies. FedEx is in the late stages of its own breakup plan. On June 1, the company will spin off FedEx Freight to shareholders, creating two industry-leading public companies. FedEx Freight is the largest LTL (less than truckload) carrier in North America with the broadest network and industry-leading transit times. FedEx Freight management recently held an Investor Day, where they outlined a medium-term outlook of 4% to 6% revenue growth with expanding margins FedEx shareholders will receive one share of FedEx Freight for every two shares owned. So, based on the 100 shares we are buying on Monday, we expect to receive 50 shares of FedEx Freight when it begins trading on June 1Â under the ticker FDXF. We are initiating the FedEx position with a price target of $425. But keep in mind, the price target will need to be adjusted after the spin. (Jim Cramer's Charitable Trust is long FDX, AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
