FedEx Freight (FDXF) just delivered its first earnings report as a standalone company, and Wall Street liked what it saw. Bank of America reiterated its Buy rating and nudged the price target up to $187 from $185, signaling confidence in the less-than-truckload carrier's pricing power and long-term strategy.

Analyst Ken Hoexter noted that the fiscal fourth-quarter adjusted operating income came in above expectations, driven by stronger pricing, higher revenue per shipment, and increased weight per shipment. Revenue climbed 5% year over year to $2.41 billion, while adjusted operating income hit $363 million — $27 million ahead of the firm's forecast.

Transition Outlook Improves

FedEx Freight also laid out financial targets for its June-to-December 2026 transition period, projecting revenue growth of 4% to 6%, adjusted operating income between $605 million and $645 million, adjusted operating margins of 11.5% to 12.0%, and adjusted earnings of $2.40 to $2.60 per share. Hoexter raised his estimates to reflect this stronger outlook.

The analyst expects earnings growth during the transition period to be driven primarily by pricing, with higher yields adding roughly 200 basis points to margins. Efficiency initiatives should also support profitability, though variable compensation costs, transition service agreement expenses, and softer shipment volumes could partially offset those gains.

Margin Expansion Remains Key Thesis

BofA increased its 2027 earnings estimate by about 2% to $5.41 per share and said FedEx Freight's focus on profitable revenue growth and long-term margin improvement supports a higher valuation. The firm values the shares at 34.5 times projected 2027 earnings — a slight discount to peers like XPO, Inc. (XPO), Old Dominion Freight Line (ODFL), and Saia, Inc. (SAIA) — because the company is still transitioning as an independent business.

Hoexter said management believes the ongoing unwinding of bundled customer contracts poses limited pricing risk, since only about 10% of revenue is tied to those agreements and discounts have averaged just 1% to 3%. Management also identified retail, healthcare, grocery, data centers, and small- to medium-sized businesses as key growth markets.

As of Thursday's close, FedEx Freight shares were down 4.79% at $150.93.