Analysts' Choice: FedEx Checks The Right Boxes

10/24/2016


  Recent Price
$170
  Dividend
$1.60
  Yield
0.9%
  P/E Ratio
15
  Shares (millions)
269
  Long-Term Debt As % Of Capital
49%
  52-Week Price Range
$177.36 - $119.71

It's rare that you come across a stock that ticks virtually all of the most important boxes. FedEx ($170; FDX) is such a stock:

• Earnings and revenue beats (check)
• Rising earnings estimates (check)
• Decent organic revenue growth (check)
• Profit-guidance raise (check)
• Attractive valuation (check)
• Strong Quadrix numbers (check)
• Price momentum (check)
• Sharply rising dividend stream (check)
• Pricing power (check)

Boosted by a strong August quarter, these shares jumped to their highest level in more than a year before pulling back slightly in recent trading. With the stock market recently pivoting toward economically sensitive stocks, FedEx is situated nicely to outperform the broad market over the next 12 months. FedEx is a Buy and a Long-Term Buy.

Delivering the goods

FedEx's network covers more than 220 countries, linking more than 99% of the world's gross domestic product. FedEx Express (45% of total revenue) provides time-sensitive, air-ground express service through 375 airports worldwide, delivering more than 4 million packages a day. FedEx Ground (29%) provides business-to-business and residential services, delivering more than 7.5 million packages daily via more than 50,000 vehicles. FedEx Freight (11%) provides less-than-truckload shipping. FedEx Services (3%) provides solutions for global supply chains, e-commerce, and other shipping logistics.

FedEx expanded its international footprint with the May 2016 acquisition of TNT Express, a provider of delivery services in Europe, the Middle East, Africa, Asia-Pacific, and the Americas. Acquisition and assimilation costs will likely limit the profit impact from TNT Express in fiscal 2017 ending May, but the deal sets up nicely to benefit in fiscal 2018, especially with improved economic activity overseas.

Both per-share earnings and revenue increased 20% in the August quarter to surpass the consensus. Driving the gains were higher volume at FedEx Express, FedEx Ground, and FedEx Freight. Overall revenue received a lift from the inclusion of TNT Express (12% of total revenue), which added $1.8 billion in revenue for the quarter.

FedEx is optimistic about the current fiscal year, raising its earnings-growth guidance to 10% to 14% excluding one-time items. The results should benefit from continued volume growth, driven partly by growth in e-commerce, as well as higher prices.

Risk factors going forward are primarily threefold:

1) The U.S. and global economies regress, reducing demand.

2) Amazon, a major client, builds out its own delivery network.

3) Political rhetoric concerning tightening or eliminating trade deals becomes a reality.

Given the stock's valuation — less than 15 times the company's low-end earnings guidance of $11.85 per share for fiscal 2017, a 30% discount from its five-year average P/E ratio — the shares seem to be adequately discounting these risks.

An annual report for FedEx Corp. can be obtained at 942 S. Shady Grove Road, Memphis, TN 38120; (901) 818-7500; www.fedex.com. 

FEDEX
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Aug '16
2.90
vs.
2.42
19%
169.57
-
145.00
16 - 13
May '16
3.30
vs.
2.66
7%
169.30
-
137.30
17 - 14
Feb '16
2.51
vs.
2.03
8%
160.67
-
119.71
17 - 12
Nov '15
2.58
vs.
2.16
4%
164.94
-
140.01
18 - 15
           
Year
(May)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2016
50.37
10.80
1.00
185.19
-
119.71
17 - 11
2015
47.45
8.95
0.80
183.51
-
138.30
21 - 15
2014
45.57
6.75
0.60
144.85
-
94.60
21 - 14
2013
44.29
6.23
0.56
109.66
-
83.80
18 - 13
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
92
78
70
78
56
97
60

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.
   NA Not available.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com