$52.31
$132.76
bear $52.31
base $94.38
bull $132.76
margin of safety $54.00
market price* $113.21
FedEx Freight is the largest less-than-truckload (LTL) carrier in North America: it moves pallet-sized shipments from many shippers through a network of service centers and hubs across the United States, with smaller operations in Canada and Mexico. It was part of FedEx until June 1, 2026, when it was spun off as a separate public company. Revenue was $9.4 billion in fiscal 2024, $8.9 billion in fiscal 2025 and $8.8 billion in fiscal 2026 (years end May 31), with shipments down 4% in the latest year on weak industrial production and excess LTL capacity, partly offset by higher revenue per shipment. What the business earns. Only three years of carve-out financials exist. We measured the cash the business produces for its owners as operating cash flow, stripped of working-capital timing swings, less stock pay, bad-debt provisions and capital spending, with two adjustments the carve-out accounts require. First, operating lease payments ($232-250 million a year) are kept as a cost, because the accounts add back the lease amortization but bury the cash payment in a liability line. Second, we removed the interest income FedEx paid on cash swept into its pool ($330 million in 2024, $388 million in 2025, $351 million in 2026 before tax). That pool was terminated on May 29, 2026; the cash itself left with the $4.1 billion distribution to FedEx, so this income will not recur. On that basis owner earnings were about $1,192 million ($7.97 a share) in fiscal 2024, $1,024 million ($6.85) in 2025, and $557 million ($3.72) in 2026. Fiscal 2026 is not representative: it carries $492 million of spin-off costs (legal, advisory and a spin-related employee incentive plan), and its reported operating cash flow of $167 million was further distorted by reacquiring about $1.0 billion of receivables FedEx had previously bought from it. We excluded fiscal 2026 from the normal level and took the 2024-2025 median, about $1,108 million a year of owner earnings (about $1,111 million before the small amount of interest the business paid then). Capital spending was treated entirely as maintenance because revenue fell in each year. Stand-alone adjustments. The historical figures already include about $600 million a year of costs FedEx allocated for IT, sales, finance and executives, but the company now pays FedEx under a Transition Services Agreement for up to two years, must rebuild order-creation and other systems (calendar 2026 capital spending is guided at $320-340 million, partly for this), and loses the FedEx shared sales channel; it also brought over 1,500 FedEx employees onto its own payroll. We charge this in the near years: the base case starts at about $820 million of pre-interest cash flow in the first year, below the pre-spin level, rising to $950 million by year four as transition fees and duplicate costs roll off. Against fiscal 2026's actual of $557 million that first year is higher, and the named reason is that the $492 million of spin-off costs recorded in fiscal 2026 are one-time transaction costs identified in the 10-K. The starting point is still well below fiscal 2024-2025, because shipments are falling and stand-alone costs are real. Debt. To fund a $4.1 billion cash payment to FedEx, the company borrowed $4.26 billion just before the spin: $993 million of 4.30% notes due 2029, $991 million of 4.65% notes due 2031, $693 million of 4.95% notes due 2033, $988 million of 5.25% notes due 2036, and a $599 million term loan at about 4.91% maturing around 2029. It also has $263 million of finance leases and a $1.2 billion undrawn revolver. Shareholders' equity on the books is negative ($497 million deficit), purely because of the distribution. Interest will run about $205 million a year. Net debt is about $4.38 billion after crediting roughly $150 million of the $251 million cash balance as surplus. Because the notes carry fixed coupons below 6% for 3 to 10 years, the effective burden in the base and bull cases is about $215 million lower, $4.16 billion; in the bear case we assume the 2029 maturities are refinanced at higher cost during a downturn and use $4.48 billion. Base case ($94 a share). LTL is a dense, hard-to-replicate network business, and FedEx Freight's network is the largest. Cash flow before interest recovers from about $820 million to $950 million over four years as transition costs end, then grows about 1% a year, roughly the long-run pace at which this network has added freight while pricing for yield. We do not credit share gains, margin expansion beyond pre-spin levels, or management's stated efficiency targets, because none has yet been delivered as a stand-alone company. The business is worth about $18.3 billion; less $4.2 billion of debt leaves about $14.1 billion, or $94 a share. Bear case ($52 a share). LTL earnings are highly cyclical. In the 2008-2010 freight recession, industry LTL tonnage fell by roughly a fifth and FedEx's own LTL unit swung from solid profits to operating losses for about two years before recovering. We apply a comparable episode in years three to five, on top of the current soft market and stand-alone costs: cash flow before interest of $780 million and $760 million in the first two years, falling to $350 million and then $200 million, recovering through $400 million and $650 million to about $825 million and staying flat. At the trough the business roughly covers its interest bill for one year, which is survivable with a $1.2 billion revolver and no maturities before 2029, but refinancing the 2029 notes and term loan in that environment would be costly. The business is worth about $12.3 billion, it owes about $4.5 billion, leaving about $7.8 billion, or $52 a share. Bull case ($133 a share). Transition costs come out on schedule, the tighter network and yield discipline that produced $1.19 billion of owner earnings in fiscal 2024 is re-established by year four (about $1.12 billion before interest), and growth then runs about 2% a year, tapering to 1.5%. This does not assume a freight boom, only the earnings level the business has already shown. Worth about $24.0 billion, less $4.2 billion of debt, leaves about $19.8 billion, or $133 a share. What could make this wrong. We have only three years of history, all prepared as a carved-out unit inside FedEx with allocated costs, so the true stand-alone earnings level is the largest uncertainty. The loss of the shared FedEx sales channel could cost more volume than we assume, and replacing FedEx systems could run late or over budget. On the other side, pre-spin earnings in fiscal 2024 show what this network can do in a decent market. Previous analysis. Our earlier estimate counted the interest income FedEx paid on swept cash as part of the business's earnings and did not separate lease payments; neither treatment reflects the business as it now exists, so the previous figures are not comparable. Margin-of-safety price. We are only moderately sure of the earnings level: three carve-out years, one distorted by the spin, and no stand-alone year yet. The worst plausible outcome is a deep freight recession arriving while the company is still exiting FedEx systems, with $4.3 billion of debt and 2029 maturities to refinance; the hard assets (owned service centers, trucks and terminals) and a network that took decades to build mean the business would survive, but shareholders could see the value cut to around $50 a share, or below that if refinancing were forced at very high rates. If we are wrong about stand-alone costs and the speed of recovery together, the shares are worth somewhere in the $50s to $70s. The price assumes a three-to-five-year holding period for the stand-alone earnings to be proven, and there is no established dividend during that period. The margin-of-safety price is $54, near what the business is worth even in a recession case; if the business simply returns to about $950 million of cash flow before interest within three years, a value in the mid-$90s implies roughly 20% a year from that price. Above that level, a bad cycle early in the holding period would make 20% a year unlikely.