Buy, Hold, or Sell FedEx Stock Ahead of Q4 Earnings: Weighing Risk and Reward

FedEx (FDX) is set to report its fourth-quarter fiscal 2025 earnings on June 24, a critical juncture for investors weighing its near-term struggles against its long-term potential. With the stock down 17.1% year-to-date and facing headwinds like weak demand and recession fears, the company's ability to navigate these challenges will determine its valuation trajectory. This article dissects the risks, opportunities, and conflicting signals ahead of the earnings release, concluding that investors should avoid aggressive positions until post-report clarity emerges.

Near-Term Challenges: A Delicate Balancing Act

FedEx faces a confluence of short-term pressures that could weigh on Q4 results:
1. Declining Demand: Average daily shipments are expected to fall due to softening industrial activity and lingering tariff-related tensions. The Express segment, which accounts for over half of FedEx's revenue, is projected to see a 3.2% year-over-year revenue decline.
2. Cost Savings vs. Headwinds: While the DRIVE program (targeting $2.2 billion in annualized cost savings) should reduce expenses—salary costs are expected to drop 2.1%—these gains may be offset by inflationary pressures and supply chain disruptions.
3. Earnings Revisions and Downward Pressure: The Zacks Consensus Estimate for Q4 EPS has been trimmed by 1.5% in the past 60 days to $5.94, reflecting skepticism. The company's Zacks Rank #4 (Sell) and an Earnings ESP of -9.47% further signal investor pessimism about outperforming expectations.

Long-Term Potential: Cost Cuts and Strategic Bets

Despite near-term turbulence, FedEx has structural advantages:
- DRIVE Program Momentum: The company achieved $600 million in savings in Q3 2025, advancing toward its $2.2 billion annual target. These efficiencies could bolster margins if demand stabilizes.
- Strategic Initiatives: Investments in Network 2.0 and Tricolor (streamlining operations and expanding e-commerce capabilities) aim to position FedEx for long-term growth. The multi-year Amazon delivery deal, while not yet materializing in profits, signals strategic relevance in a competitive landscape.
- Valuation Discounts: FDX's forward 12-month Price/Sales ratio is below both the industry average and rival UPS, offering a margin of safety for long-term investors.

Dividend Boost and Buybacks: A Mixed Signal

FedEx raised its quarterly dividend by 5.1% to $1.45 per share, a confidence-building move for income investors. However, this gesture must be viewed in context:
- Buybacks and dividends are less compelling in an environment where revenue is projected to decline 1.9% year-over-year.
- The stock's 35.5% upside potential to the average analyst price target of $284.34 hinges on a strong earnings beat—a low-probability outcome given downward revisions and macro risks.

Key Risks: Earnings Miss and Recession Fears

• Earnings Disappointment: A miss on EPS or revenue could amplify selling pressure, especially with the stock already down 21.1% over the past year. A weak report might further erode confidence in management's guidance.
• Macro Uncertainties: Recession risks, exacerbated by tariff disputes and inflation, could prolong demand weakness. The expiration of the U.S. Postal Service contract and rising fuel costs add to near-term pressures.

Investment Recommendation: Proceed with Caution

While FedEx's long-term prospects are anchored by cost discipline and strategic investments, the near-term risks are too significant to justify aggressive buying ahead of earnings. The Zacks #4 rating and downward EPS revisions suggest skepticism about near-term execution, while the dividend hike and valuation discounts are insufficient to offset these concerns.

Historical performance further supports this caution: a backtest of buying FedEx shares one day before quarterly earnings and holding for five days from 2020 to 2025 showed a -106% compound annual growth rate (CAGR), a maximum drawdown of 25%, and a Sharpe ratio of 0.03—indicating poor risk-adjusted returns. These results underscore the challenges of pre-earnings exposure, reinforcing the case for waiting until after the report for clarity.

Hold or Sell: Until Q4 results clarify whether FedEx can stabilize margins and navigate macro headwinds, investors should avoid adding positions. A post-earnings reevaluation—factoring in updated guidance and the stock's price reaction—will be critical for determining whether to buy.

Conclusion

FedEx's Q4 earnings will act as a litmus test for its ability to balance cost savings with demand volatility. While the company's long-term trajectory remains intact, the current macro environment and market skepticism demand patience. Investors are advised to wait for post-earnings clarity before considering entry points, as the path to outperformance hinges on execution in the coming quarters.