I am bullish on FedEx (FDX) because its strong business model that benefits from massive network effects and e-commerce tailwinds gives it a lengthy growth runway and stable cash flows, and its share price looks to be trading at a compelling value right now.
FedEx Corporation is a Tennessee-based multinational company known for its worldwide courier delivery services. For Fiscal Year 2021, the company reported earning $84 billion in total annual revenue.
FedEx shares have been publicly listed since 1978. Its shares have since gone up from the initial $24 per share to over $220 on average today. (See Insiders’ Hot Stocks on TipRanks)
It remains one of the most reputable brands in the world. The company has high brand values, thanks to its smart mergers and acquisitions, as well as its continued partnership with the U.S. Postal Services.
FedEx has an extensive portfolio of courier and logistics services. It offers these under its four operating companies: FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services.
These four service segments help the company provide complete supply and logistics solutions, ensuring it maintains a competitive advantage in the industry.
The company’s recently announced results for the first quarter of FY 2022 were below industry expectations.
FedEx reported a total quarterly revenue of $22 billion, which is up from last year’s $19.2 billion. This 14% year-on-year growth is attributed to the increased sales in all of its service segments. Aside from the two-digit growths of the Express and Freight segments, FedEx services had a 338% increase.
Although FedEx met the estimated revenues, it also saw a 6.8% decline in its operating margin, with its adjusted operating income falling from $1.6 billion to $1.5 billion.
Additionally, the company’s adjusted earnings per share of $4.37 not only fell below last fiscal quarter but also did not meet the $5.11 industry forecast.
FedEx’s stock looks attractively valued right now as its EV/EBITDA ratio and P/E ratio both indicate the stock is trading below its historical average.
The EV/EBITDA ratio is currently 8x compared to its five-year average of 8.4x and the P/E ratio is currently 10.9x compared to its five-year average of 14.2x.
Wall Street’s Take
From Wall Street analysts, FedEx earns a Strong Buy analyst consensus based on 17 Buy ratings, four Hold ratings, and zero Sell ratings in the past three months. Additionally, the average FedEx price target of $305.15 puts the upside potential at 33.9%.
Summary and Conclusions
FedEx stock certainly looks cheap at the moment, as it is trading below its average historical valuation multiples, and Wall Street analysts are overwhelmingly bullish on it here as well.
The business continues to enjoy significant long-term growth potential thanks to its competitive positioning, and macroeconomic e-commerce tailwinds.
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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