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Stock Analysis & Ideas

FedEx Stock: Attractively Priced, Strong Moat

FedEx Corporation (FDX) is an American conglomerate based in Tennessee, Texas, focusing on e-commerce, transportation, and other services. The company’s name today (FedEx) is an abbreviation of its air division, Federal Express.

Now, FedEx is popular for its delivery services since it became one of the first companies globally that offer overnight delivery. Since then, the company has also offered other services like FedEx Office, FedEx Ground, FedEx Supply Chain, and others. One of its main competitors is United Parcel Service (UPS).

I am bullish on FedEx Corporation as Wall Street analysts are overwhelmingly bullish on it, and the average price target indicates strong upside potential over the next year.

Strengths

Data by Forbes suggests that FedEx ranks 83 in terms of brand equity because of its valuation of $7.5 billion. The company pays intricate attention to the brands it cultivates since it spends approximately $400 million on its branding initiatives. The company has also repeatedly benefited from economies of scale since it provides its services in almost 250 countries and has over 370 service locations.

Its continued success has also made it a strong acquisition body as it has acquired several companies over the years and has no plans of stopping.

Recent Results

In the second quarter of Fiscal Year 2022, FedEx reported total revenue of $23.5 billion, a 14% year-on-year increase. Its adjusted net income for the year stands at $1.3 billion, which remained unchanged. Its adjusted diluted EPS of $4.83 has also remained unchanged.

According to the company’s Chief Financial Officer, Michael C. Lenz, FDX’s operating income grew in the second quarter because it has managed its costs well. He also commented that the effective tax rate for this quarter was higher. It’s also worth noting that FedEx has repurchased $750 million of common stock and has ended this quarter with $6.8 billion cash in hand.

Valuation Metrics

FDX stock looks attractively priced right now as it trades below its historical averages on a forward EV/EBITDA ratio and forward price/ normalized earnings basis.

Its forward EV/EBITDA ratio is 8.1x compared to its historical average of 8.5x, and its forward price/normalized earnings per share ratio is 10.8x compared to its historical average of 14x. Meanwhile, analysts expect revenue to increase by 10.6% in Fiscal 2022 and normalized earnings per share to increase by 14.2% in Fiscal 2022.

Wall Street’s Take

According to Wall Street analysts, FDX earns a Strong Buy consensus rating based on 12 Buys and two Holds assigned in the past three months. Additionally, the average FedEx price target of $309.71 puts the upside potential at 28.9%.

Summary and Conclusions

FDX stock looks really attractively priced here. Wall Street analysts are overwhelmingly bullish on it. Its average price target implies substantial upside over the next year, it has strong growth momentum at the moment, a strong moat buoys its business model, and its valuation multiples trade at a meaningful discount to its historical averages.

While no investment is a sure bet, in turbulent times, FDX looks like it might be a conservative way to invest with a strong probability of generating market-beating returns over time.

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