FDX: Taking Our New Freight Model for a Spin

Research evidence excerpt

FDX: Taking Our New Freight Model for a Spin

FedEx Corporation Equity Research

FedEx Freight Medium-Term Targets

• FedEx Freight's medium-term target of a ~85% OR in calendar 2029 feels conservative and is

predicated on modest revenue growth (4%-6%) and 10%-12% EBIT growth.

• Freight appears poised to quickly remove the ~$50m (~50 bps) of Transition Service Agreement

(TSA) costs that will burden the public company initially.

• FedEx Freight will generate strong free cash flows that should allow it to delever as well as provide

increased shareholder returns over time.

• We are modeling $3.80 of EPS in calendar 2026 (12-months ending November 30th), $5.50 in

calendar 2027, $6.60 in calendar 2028, and $8.00 in calendar 2029. Our dynamic pro forma FedEx

Freight model can be found in the "FDXF" tab in our FedEx model.

○ We expect FedEx Freight to achieve its 85% OR target a year early (calendar 2028).

○ We assume FedEx Freight grows slower than the broader LTL market and do not expect the

company to start to grow shipments until November 2026. We expect Economy volume

growth to lag Priority and have modeled base rate increases inline with the broader LTL

industry, which may prove conservative given potential catch-up opportunity.

Exhibit 1 - FedEx Freight Medium-Term Targets Exhibit 2 - FedEx Freight EBIT Margins Guided to Expand to

Medium-Term Outlook ~15% in 2029 Driven Primarily by Yield and Cost Efficiencies

Revenue 4-6% CAGR

Adj. EBIT 10-12% CAGR

CapEx to revenue ratio ~5%

Free cash flow generation >$1.0 billion

Free cash flow conversion >90%

Source: Company data; Wells Fargo Securities, LLC

Source: Company data; Wells Fargo Securities, LLC estimates

Exhibit 3 - FedEx Freight Pro Forma Earnings Calendar Year 2026-29E ($ Millions)

Calendar year 2026E 2027E 2028E 2029E