FedEx Corp. surged to the highest in more than six years after the operator of the world’s largest cargo airline authorized a buyback plan of as many as 32 million shares, its biggest repurchase program ever.
The stock jumped 4.1 percent to $120.08 at the close in New York, the highest since February 2007. The shares touched $122.50 in intraday trading for the highest price on that basis since the Memphis, Tennessee-based company’s initial public offering in 1978.
Approving a buyback equivalent to 10 percent of the shares outstanding may blunt market skepticism that FedEx can meet targets in its $1.7 billion restructuring program, said Brandon Oglenski, an analyst at Barclays Plc in New York. FedEx has been working to cut costs as customers shift toward less-expensive delivery options than overnight air shipments.
Management is signaling “they can deliver those numbers and that they see real value in the equity,” Oglenski said in a telephone interview. He rates FedEx overweight, equivalent to a buy recommendation.
A buyback of 32 million shares would be equal to about $3.7 billion in stock based on the close of trading yesterday. The move adds to the remaining 7.4 million of shares authorized for repurchase in an existing program, FedEx said in a statement.
FedEx didn’t specify timing to conclude the plan. During the company’s fiscal first quarter that ended Aug. 31, FedEx repurchased 2.8 million shares, according to the statement.
“Historically FDX has not been a regular or aggressive buyer of its shares and so the announcement this morning is surprising,” Thomas Wadewitz, an analyst at JPMorgan Chase & Co. in New York, said today in a note. Wadewitz, who has a neutral rating on the shares, said the program may boost annual earnings per share by 75 cents to 85 cents after its completion.
The repurchase decision is “credit negative,” Moody’s Investors Service said in a statement. Moody’s didn’t change FedEx’s senior unsecured rating of Baa1, three levels above non-investment grade.