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FedEx Stock: Underappreciated as Holiday Season Begins
Stock Analysis & Ideas

FedEx Stock: Underappreciated as Holiday Season Begins

FedEx (FDX) provides prompt package delivery services to businesses and residences. I am bullish on the stock.

Besides inflation, the hot economic topic of late 2021 is supply chain bottlenecks.

With some products in short supply and the holiday season upon us, FedEx’s shipping services are as vital as ever.

You’d think that FedEx’s value as a last-mile package delivery service would be appreciated on Wall Street, right?

In reality, investors haven’t favored FDX stock in 2021 so far. However, that’s a window of opportunity, not a problem, for contrarian investors.

A Quick Look at FDX Stock

Can you guess which famous billionaire’s foundation held 1.5 million shares of FedEx stock during the second quarter of 2021?

If called out Bill Gates’ name, you’re right.

We can’t know exactly why Gates apparently likes FDX stock so much, but maybe it’s because FedEx increased its dividend by nearly 37% over the past three years.

Currently, the company pays out $3 per share in dividends on an annualized basis. That probably won’t make you wealthy like Gates, but it certainly sweetens the deal for FedEx’s long-term shareholders.

Meanwhile, value-focused investors should be salivating at FedEx’s trailing 12-month price-to-earnings (P/E) ratio of 12.5.

In a stock market that some people believe is overpriced, you won’t find too many large-cap stocks with such a reasonable P/E ratio.

Regarding the price action of FDX stock, it hit some hard resistance in May at the $315 level. Then, the stock took a nasty dive, leveling off at around $236 in early October.

Major Link in the Chain

The stock’s price trajectory in 2021 may be discouraging, but it also helps to explain how the P/E ratio go to be as low as it is.

Don’t expect FedEx stock to trade at such an appealing price forever, though.

Sooner or later, Wall Street should come to appreciate how crucial this company is to the supply chain.

Despite the challenges presented by the COVID-19 pandemic, FedEx accommodated a record 39% surge in e-commerce volumes in the U.S. between the first quarters of 2020 and 2021.

Moreover, the company achieved this while delivering potentially lifesaving healthcare shipments and COVID-19 vaccines.

Also, FedEx delivers nearly $70 billion in direct impact on America’s national economy through its revenue and related business activity.

This includes $8 billion in U.S. economic activity created by operations with other companies within the transportation sector.

A Business That Delivers

Clearly, the nation can’t do without FedEx from a logistics point of view.

Really, FedEx should be commended for stepping up and delivering (literally and figuratively) during one of America’s most difficult times.

With that, FedEx chairman and CEO Frederick W. Smith has earned some bragging rights.

Referring to his company’s outstanding fiscal first quarter, Smith commented, “The execution of our strategies continues to drive higher demand for our services, despite the disruptive impact of the pandemic to labor availability and global supply chains.”

As it turns out, the data backs up Smith’s contention. During the quarter that ended on August 31, FedEx generated $22 billion in GAAP revenue.

That’s a definite improvement over the $19.3 billion generated in the year-earlier quarter.

Furthermore, FedEx reported $1.11 billion in net income, along with a healthy operating margin of 6.4%, for the company’s fiscal first quarter.

Bear in mind, the company’s operating results were negatively impacted by an estimated $450 million year-over-year increase in costs due to the constrained labor market.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, FDX is a Strong Buy, based on 17 Buy and four Hold ratings. The average FedEx price target is $304.65, implying 29.4% upside potential.

The Takeaway

In a highly challenging situation, FedEx fulfilled its central role in America’s complex supply chain.

Frankly, it’s hard to imagine the U.S. getting through the holiday season without FedEx.

In time, the investing community will appreciate this.

Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.

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