Analysts' Choice: Expect FedEx To Deliver

9/18/2017


  Recent Price
$215
  Dividend
$2.00
  Yield
0.9%
  P/E Ratio
17
  Shares (millions)
271
  Long-Term Debt As % Of Capital
48%
  52-Week Price Range
$219.99 - $158.20

Coverage of all facets of the shipping market — express delivery, ground transport, freight, and services — makes FedEx ($215; FDX) a one-stop shop. Almost 96% of U.S. revenue comes from customers who patronize at least two of FedEx's operating companies, 76% from customers who use all of them.

Looking ahead, economic trends should benefit FedEx. The rise in e-commerce, including business-to-business sales, has created fresh demand for shipping, as an increasing percentage of transactions are conducted by buyers in a different location from the seller. In addition, globalization has driven an expansion of global shipping activity. A Pitney Bowes study found package volume rose 48% from 2014 to 2016, and the researchers expect global shipping of parcels to increase at an annualized rate of 17% to 28% through 2021.

FedEx expects global economic expansion of 2.7% to 2.8% in both 2017 and 2018. FedEx doesn't need massive gains in economic activity to support profit growth; solid, steady expansion will do just fine. FedEx's profitability is on the rise (operating margin up to 14.0% in the last four quarters from 12.2% a year ago and 10.4% two years ago), and the company says it's gaining market share, particularly in the ground segment.

The stock, already a Long-Term Buy, was added to the Buy List in the Sept. 11 issue of the Forecasts.

The whole package

FedEx has a truly global reach, serving more than 220 countries and territories. The company generated 33% of its sales in foreign countries last year, up from 28% two years ago. Credit most of the gain in foreign sales to the May 2016 purchase of TNT Express for $4.8 billion. TNT delivers to Europe, the Middle East, Africa, and Asia, as well as the Americas.

FedEx operates four business units. FedEx Express (57% of revenue) serves 66,000 drop-off locations worldwide, using more than 650 aircraft and 58,000 vehicles. This unit focuses on overnight and same-day delivery. FedEx Ground (30%) serves 100% of the population of the continental U.S. and can deliver overnight to nearly 100% of potential customers.

FedEx Freight (10%) focuses on less-than-truckload delivery, with both express and economy options. FedEx Services (3%) provides such services as sales, marketing, customer service, and billing to support the parent company's other units. 

Conclusion

FedEx plans to release its August-quarter earnings on Sept. 19. The consensus projects per-share profits of $3.14 per share, up 8%, with sales up 5%. For the year ending May 2018, analysts expect profit growth of 10%, supported by a 5% rise in sales. FedEx has targeted long-term annual growth in per-share profits of 10% to 15%.

Over the last three years, FedEx has spent $3.6 billion on buybacks, net of new share issuance, resulting in an 8% decline in the share count. Continued buybacks should make it easier for FedEx to reach its growth goals, as well as potentially support profit surprises in the interim.

You can obtain an annual report for FedEx Corp. 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
May '17
4.25
vs.
3.30
21%
199.17
-
182.89
18 - 16
Feb '17
2.35
vs.
2.51
19%
201.57
-
183.87
18 - 16
Nov '16
2.80
vs.
2.58
20%
192.58
-
158.20
17 - 14
Aug '16
2.90
vs.
2.42
19%
169.57
-
145.00
16 - 13
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2016
60.32
12.30
1.60
201.57
-
145.00
16 - 12
2015
50.37
10.80
1.00
185.19
-
119.71
17 - 11
2014
47.45
8.95
0.80
183.51
-
138.30
21 - 15
2013
45.57
7.05
0.60
144.85
-
94.60
21 - 13
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
96
88
81
89
53
52
64

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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