FedEx Corporation (FDX) is a multinational holding conglomerate based in Memphis Tennessee, which provides transportation, e-commerce, and business services to customers worldwide.
I am bullish on FedEx as its solid growth momentum and competitive strengths combined with its attractive valuation make it look like it could be a good time to add shares of the company. (See Analysts’ Top Stocks on TipRanks)
Strengths
FedEx is best known for its air freight service, FedEx, which promises overnight delivery of packages. The company has also started FedEx Ground, FedEx Freight, FedEx Office, FedEx Supply Chain, and other services and considers UPS as one of its major competitors.
FDX is one of the top contractors of the United States government and offers assistance with some U.S. Postal Services packages through its FedEx SmartPost service.
FedEx has also acquired the naming rights to the football field in Washington, FedExField, and the basketball arena in Memphis, FedExForum.
FedEx’s main shipping hub is located at the Memphis International Airport, making it the busiest cargo airport in the world. It also has the world’s second-busiest cargo hub at Hong Kong International Airport.
Recent Results
FedEx reported higher-than-expected revenue for its first quarter of Fiscal 2022. The company posted revenues of $22 billion, which was slightly above the $21.9 billion consensus estimate. It reported top-line growth of 14% year-over-year that was attributed to higher sales in all three segments; Express, Ground, and Freight.
However, the company only reported adjusted earnings of $4.37 per share compared to consensus estimates of $4.92 and its own estimates of $5.11.
FedEx operating results for the first quarter of 2022 were negatively impacted by an estimated $450 million due to increased costs due to labor shortage and higher transportation expenses. The negative impact was partially offset by higher sales and a fortunate net fuel impact.
Moreover, while U.S. domestic express and commercial ground packages saw an increase from the same quarter of the previous year, the continuous disruptions in the supply chain slowed down the domestic parcel demands compared to FedEx’s earlier estimates.
The company expects labor availability to become easy in the second half of Fiscal Year 2022. For now, it has lowered its full-year earnings per share guidance to be in the range of $19.75 to $21.00 compared to previous forecasts of $20.50 to $21.50.
Valuation Metrics
FedEx’s stock looks attractively valued right now. Its forward EV/EBITDA ratio is right in-line with its five-year average of 8.47x, and its forward price-to-normalized earnings ratio is 11.9x, which is significantly below its five-year average of 14.1x.
looking forward, the company expects to continue generating solid growth, with EBITDA expected to grow by 7.2% in 2022 and 10.8% in 2023 after growing by 48.1% in Fiscal 2021. Normalized EPS is also expected to grow by 7.9% in 2022 and 12.5% in 2023 after growing 91.3% in Fiscal 2021.
Wall Street’s Take
Turning to Wall Street, FedEx earns a Strong Buy consensus rating based on 17 Buys and four hold ratings assigned in the past three months. Additionally, the average FedEx price target of $305.6 implies 23.8% upside potential.
Summary and Conclusion
FedEx is a leading player in the delivery and logistics industry with a hard-to-replace network of logistics assets, relationships, and know-how. Additionally, the company is highly profitable and growing consistently at a strong clip.
Last but not least, the stock appears to be attractively priced right now, and Wall Street is overwhelmingly bullish on shares here. As a result, it looks like it could be a good time to add shares.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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