By Is now a good time to buy FedEx shares?
Stock Ticker:
FDX ($FDX)
Stock Name and Stock Exchange Platform:
FedEx Corporation (Formerly Federal Express Corporation) – NYSE (NYSE: FDX)
The Stock Sector:
FedEx is a US-based international company group engaging in;
- Industrials transportation;
- E- logistics;
- Courier;
- Freight; and
- other business services.
FedEx has a long history dating back to 1971. It operates in just over 2,000 locations worldwide.
So gigantic is FedEx that it has been referred to as the Superhub courier of the globe. Its headquarters is located in Memphis, Tennessee.
FDX directly employs over 565,000 people.
Recent News on FedEx
FedEx recently reported their third-quarter earnings. Despite being higher, the results have fallen short of Wallstreet’s forecasts.
This sent the stock tumbling, although it recovered with a minimal margin. This was similarly witnessed when FedEx announced their earnings report in September 2021.
FedEx has been on a downward spiral over the last year, and has plunged to a 52-week low, just before the recent earnings were released.
Their main contender $UPS (United Parcel Service) is performing better by all metrics, even though it is significantly smaller than $FDX.
UPS has said, it aims to be better and not bigger in delivery services.
Recent developments in the Ukraine situation have led these delivery companies to cease shipments into involved countries in Eastern Europe.
FedEx has attributed the performance lag to an acute labor shortage, disruption by the Omicron variant, and lower package volume.
Amidst inflationary pressures, FedEx contractors have complained that higher fuel prices will negatively impact on them, and they have also petitioned for higher payments.
Consumer perception has also not been favorable for FedEx, as they registered higher rates of complaints due to late arriving packages, compared to other delivery companies, like $UPS.
This can result in consumer inclination towards their competitors causing a devastating effect on FedEx.
Despite facing numerous hiccups, $FDX had a sigh of relief as they reported improved profit margins from their e-commerce activities.
Analysts have conflicting views on FedEx, thus remains the paradox, as to whether FDX is a potential value play or a value trap?
Current Position of FDX
FDX has historically been on an upward trend, up until the recent decade. They are likely to have been late to the dot com revolution, and the online shopping companies are fiercely competing for market share.
FedEx almost dominated the whole delivery sector, from industrials to end consumers. Today they only have a foot in industrials, and this hold is rapidly waning.
High-tech eCommerce companies like Amazon are dominating online shopping and infiltrating in industrial delivery.
FedEx is laser-focused on changing the current trend, to a more positive one according to its executives. In their horizon for the future, they look to focus on margin expansion and shareholder equity.
FedEx believe this will be achieved by driving improved results in Europe, which underperformed in the last quarter.
The European market has not been fully tapped by FedEx and remains a big profit opportunity.
FDX is not in the position, as it is still the leading global courier shipment company, and has a lot of leverage like pricing power that it could utilize.
However, this position is not permanent, and it is not immune to collapse. It is performing well in terms of P/E, but the return on invested capital has been insanely low over the last five years and this drives investors away.
FedEx has a huge market capitalization of about $60.4B at the moment. Conservatives might still hold on to it due to this factor alone.
Another factor to consider, is the large institutional ownership of FDX.
They account for over 70% of the total float and includes;
- Hedge funds;
- Mutual funds; and
- other big groups that include;
- Blackrock Inc;
- Vanguard group;
- City-state Bank;
- Dodge and Cox; and others who have a combined stake of about $5.2B.
FedEx will adopt closer scrutiny on its operations due to their growing customer complaints. They have set targets to increase collaboration and efficiency to optimize networks and lower the cost of service.
The covid-19 pandemic ramped up the growth of delivery companies like FedEx, but this has slowed down due to various factors.
The stay-at-home mantra saw deliveries spiral, as most people stayed indoors. FedEx spiraled exponentially at this time, and delivered in huge volumes.
The trend has reversed since then, and a labor shortage has spurred people to get back to work.
FDX Revenues are high, and amassed in the three years before the pandemic.
It is for this reason that some investors believe it to be undervalued, and that it is a sleeping giant that will awaken with a mighty thud.
FedEx has an almost unparalleled air delivery service called, FedEx Express, which is very popular.
It was among the first companies to offer overnight shipping.
It has not held back on vertical integration, having multiple subsidiaries like;
- FedEx Office;
- FedEx Ground;
- FedEx Supply chain;
- FedEx Freight;
- FedEx Logistics; and many others.
FedEx is currently trading at $227 per share as of the 18 March 2022. It has dipped to a 52-week low this year (2022) at $192 per share.
FDX was at an all-time high in May 2021 closing at $319.90 per share.
It now trades at a day range of $220- $229. It is up 0.91% today compared to a previous market close of $222, (-2.41%) in the red.
Thursday’s earnings report revealed a Q3 adjusted diluted EPS of $4.59, up from $3.47 a year ago, a little shy of the estimated $4.65 by analysts.
The quarterly revenue increased from $21.5B to $23.6B, still less than the anticipated $23.3B by the market.
The volume of shares traded is 2.40M. The P/E ratio stood at 18.52 for the current quarter which is fairly reasonable.
FDX is still currently trading below peak levels and some believe it is undervalued.
However, it has not done well by the metrics of price to cash flow ratio, which sits at 83.41.
This is a staggering figure and a huge disconnect. It has reflected in the 5 years Return on invested capital which is low at -1%. FedEx’s 1 year return on capital is 4% which is averagely high but not exceptional.
FedEx has still underperformed the market and is not a reliable high return investment.
Sentiment on FDX
The reason it is held majorly by institutional holders, is that FedEx are in it for the long haul, and they can take a market hit. An investor looking for high returns within a limited timeframe will steer clear of FDX.
Those investors who favor FDX, view the company as a value stock that pays dividends. It is down 28% from its peak and speculations are that this is a buying opportunity.
FDX is facing a lot of issues at the moment, and is set to cut margins in respect of its ground units. FedEx plans a fuel surcharge increase.
FedEx’s poor consumer reception will also weigh heavily on the company.
While FDX has been hurt over the past year (down by -16%), their Chief Rival $UPS has performed pretty well (up by 36%). They are predicted to take over the industry if they can sustain the recent momentum.
The majority of analysts are bullish on FDX, while the rest recommend it as a hold.
Profits of FDX
Profits are down over the last year. The net profit margin was reported at 4.45% in November 2021. This was down -25% over the year.
Operating income was at $1.59B, down by -1.30%. Net income was $1.04B down -14.85%. The net change in cash was -20 million dollars, down by -101%.
FDX recorded cash and equivalents of about $6.83B, still down by -18%.
Their cost of revenue went up by 16% valued at $17B.
The profitability of FDX looks pretty grim at the moment and they are taking contingency measures to combat the drawbacks.
Future of FDX
FDX is heavily involved in the shipping space, and is likely to be around for a long time to come.
FedEx’s fundamentals are strong and it has massive leverage. This was evident with its buyback of $5B worth of shares.
FedEx are looking to integrate into the e-commerce sector and compete with players in the space.
If they manage to successfully penetrate the European markets, greener pasture might lie ahead. Their best year which was in 2021 but was dependent on the lockdown.
It, therefore, seems like a company that thrives in crisis and not so much in a free market.
Is now a good time to buy FedEx shares?
FDX generally seems like a great business and not necessarily a great investment. Although it is at record lows right now, its massive rise was during the recent bubble.
The investor crowd might be wrong in calling it a bullish stock. It has faltered historically and its fundamentals are strongly affected by the market at the moment.
FedEx might rise in the short term due to an influx of capital coming its way.
In the medium and long-term it is bearish and a bet against it might payoff.
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