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FedEx-Walmart partnership could create ‘mini-fulfillment centers’ in the future

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FedEx-Walmart partnership could create ‘mini-fulfillment centers’ in the future
By Tonya Garcia

Published: Mar 21, 2018 1:53 p.m. ET

FedEx and Walmart announced that they would put 500 FedEx Office locations in Walmart stores nationwide
Getty Images
FedEx’s and Walmart’s plan to bring Office locations to Walmart stores is mutually beneficial, analysts say

The new partnership between FedEx Corp. and Walmart Inc., which will put 500 FedEx Office locations in Walmart stores nationwide, could create “mini-fulfillment centers” in stores, a boon for both companies, according to Credit Suisse analysts.

FedEx FDX, +1.71% and Walmart WMT, +1.57% have agreed to open the new FedEx Office locations nationwide over the next 24 months. The news comes after a pilot program that spanned 47 locations across six states.

“Longer term, there appear to be many opportunities on the table to utilize Walmart’s retail stores to build out an omnichannel presence via this collaboration (potentially including a carve-out of a store for a mini-fulfillment center) — which should position both companies well as supply chains continue to evolve to meet the needs of consumers,” wrote Credit Suisse analysts led by Allison Landry.

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Analysts also point out the more immediate benefits, like Walmart’s ability to offer a variety of shipping services at a time when e-commerce purchases and returns are growing. For FedEx, opening a location in a Walmart store is more cost-effective than opening a stand-alone location.

“At the end of the day, we view this as a mutually beneficial arrangement that strengthens each company’s competitive positioning in the e-commerce retail and logistics world, particularly relative to Amazon,” the note said.

Credit Suisse rates FedEx stock outperform with a $306 price target, down from $314.

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E-commerce was also a factor in Cowen’s analysis.

“We rate FedEx shares outperform as we believe the company will benefit from increased e-commerce growth and global expansion related to their TNT acquisition,” analysts led by Helane Becker wrote.

FedEx bought TNT in May 2016 for nearly $5 billion.

Investment in the company’s Ground business and TNT integration could hurt margins, analysts warn. But Stifel considers “any share price weakness resulting from this increased investment as a buying opportunity.”

Stifel has a $280 price target on FedEx stock.

FedEx was upgraded at Stifel, with analysts listing the price target to $295 from $284.

“Because we like the company’s general earnings trajectory (numbers going higher) and think the stock moves up from here with growth, we are upgrading the shares to buy,” analysts led by David Ross said. Shares were previously rated hold.

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FedEx reported fiscal third-quarter earnings per share of $7.59, adjusted EPS of $3.72, and revenue of $16.5 billion. Last year, EPS was $2.07, adjusted EPS was $2.30, and revenue was $15.0 billion.

The FactSet consensus was for EPS of $3.11 and revenue of $16.18 billion.

FedEx shares are up 1.3% in Wednesday trading, and up 33% for the past year. The S&P 500 index SPX, +0.43% is up 16.3% for the last 12 months.

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