FedEx Corp. stock soared 13% Tuesday to put it on track for the biggest one-day gain in about 29 years, after the company raised its quarterly dividend by 53% as part of a new agreement with activist investor D.E. Shaw.
The moves come just weeks after new Chief Executive Raj Subramaniam took on his new role, replacing Fred Smith, who founded the company back in 1973. Subramaniam was president and chief operating officer before taking on the new role.
In addition to the raised dividend, the company
announced a series of moves aimed at improving shareholder value and corporate governance.
These include shaking up its long-term incentive compensation plan, adding a total shareholder return performance metric to its executive program that will be linked to a broad market index. The company is also lowering its capital expenditures as a percentage of revenue performance metric in a move expected to lower capital intensity and improve returns.
“ ‘We view this as a very positive development. Investors have been speculating about an activist at FedEx for years, without one materializing. Now, with a new leadership team and fresh voices on the board (including a proven operator like Mr. Vena), we are hopeful that a new day is dawning at FedEx.’ ”
The company is adding two new independent directors to its board, Amy Lane and Jim Vena, as part of the D.E. Shaw agreement. A third will be added at a later date.
Lane is currently a director at NextEra Energy Inc.
and discount retailer TJX Cos. Inc.
and is a former managing director and group leader of the global retailing investment banking group at Merrill Lynch & Co., now part of Bank of America.
Vena has more than 40 years of railroad experience, most recently as chief operating officer of Union Pacific Corp.
Before that, the executive spent 40 years at Canadian National Railway Co.
where his roles included that of COO.
See also: UPS stock drops to 6-month low after earnings beat was driven by higher prices, while volumes dropped
Finally, FedEx’ Audit and Finance Committee has a new mandate to review its financial affairs, including capital structure, allocation, and returns.
“We view this as a very positive development,” said analyst Jack Atkins at Stephens in a note to clients. “Investors have been speculating about an activist at FedEx for years, without one materializing. Now, with a new leadership team and fresh voices on the board (including a proven operator like Mr. Vena), we are hopeful that a new day is dawning at FedEx.”
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Stephens has an overweight rating on the stock with a $285 price target that is 24% above its current price.
Citigroup analysts, who rate the stock a buy, were equally effusive.
“The directors, Jim Vena and Amy Lane, add meaningful credibility given Vena’s rail operating experience and Lane’s financial acumen,” they wrote in a note to clients. The higher dividend and new metrics “are positives and imply a greater focus on returns,” they wrote.
“Ultimately, we see the announcement and board additions adding credibility to the $30 F25 EPS number outlined in our constructive case in last week’s preview and see solid upside beyond today’s move,” they added.
The move is also positive for FedEx rival United Parcel Service Inc.
and for the broader parcel delivery business, “as FedEx is more likely to be focused on utilizing existing capacity and leveraging pricing, keeping the market tight and preserving pricing power beyond the pandemic-related volume boom.”
Bernstein analysts, who rate the stock at the equivalent of buy, called the move the last of the large cap transport turnarounds. The total shareholder return metric will be welcomed by investors, who tend the view FedEx as a “low return on capital” company that can’t stop growing, they wrote.
“TSR improves if you do better, and capital discipline keeps you from getting bigger, and we think this is the message the market has been looking for since a similar shift in focus was announced at UPS,” they wrote.
FedEx stock is down 12% in the year to date, while the S&P 500
has fallen 21%.