Stock Report: FDX – FedEx Corporation

Key Stats for FedEx Corporation

Ticker: FDX
Latest Price: $207.76
Value: $55.733bn
Daily Volume: $440M
Links: SEC Filings, FedEx.com

1. Deliverables

FedEx’s portfolio contains a myriad of business, e-commerce, and transportation services through subsidiaries under the FedEx brand. These companies boast a unique build: they compete collectively, operate independently, and are managed collaboratively. Each company falls under 1 of 5 divisions. FedEx Express, TNT Express, FedEx Ground, FedEx Freight and FedEx Services.

  • Express is a time-guaranteed delivery service. Ground is the cheap/slow service.
  • The TNT Express brand was purchased in May 2016 for $5bn from the Dutch Post Office.
  • The FedEx Services segment provides the other divisions with sales, marketing, information technology, communications, customer service, and other back-office support.
  • 90% of the bottom-line profit comes from Express & Ground, with TNT and Freight figures lost in rounding.

FedEx fiscal year ends with May so we have a complete year’s dataset to work with.

Year2013A2014A2015A2016A2017A
Revenue$44bn$46bn$47bn$50bn$60bn
Reported EPS$8.55$7.48$3.65$6.51$11.07
Adjusted EPSN/AN/AN/A$10.80$12.30

A 20% jump in sales might make some ready to tape this box up but the lion’s share of earnings can be attributed to the TNT acquisition. Omitting that event, sales still show a healthy growth of about 5%. And despite slow EPS in the preceding years, 2017 saw a 14% jump in adjusted earnings.

As far as debt, even facing the acquisition of TNT last year, FDX has a reasonable debt level of ~$10bn. At 1.4x operating profit there’s little risk to their dividends or share buyback program.

2. Is Brown Better?

UPS and FDX are the Burger King and McDonald’s of the delivery world. High-level, UPS and FDX are perfect rivals. Margins are even though returns are demonstrably better at UPS.

The domestic logistics businesses are clearly on smoother roads than the two big European postmen. Though the industry has substantially lower margins than the railroads. Nature of the beast.

Company NameSalesOperating ProfitReturn on Equity
FedEx Corporation (FDX)$60,319M14%20%
United Parcel Service, Inc. (UPS)$61,803M12%236%
Expeditors International of Washington (EXPD)$6,225M11%23%
Foreign Companies
Deutsche Post AG (DPWGN)$68,407M8%24%
Royal Mail PLC (RMG.L)$12,616M10%6%
Freight Companies
Union Pacific Corporation (UNP)$20,244M47%22%
CSX Corporation (CSX)$11,32043%15%
Norfolk Southern Corp. (NSC)$10,043M41%14%
Kansas City Southern (KSU)$2,381M48%13%
Disclaimer: Sales figures above are based on most recent reporting.

It only follows that investors value freight above logistics.

Stock SymbolValuationForecast PELong-term GrowthDividend YieldFCF Yield
FDX$57,547M16x12%1%11%
UPS$95,263M18x8%3%9%
EXPD$10,082M24x6%1%6%
Foreign Companies
DPWGN$47,054M14x11%3%13%
RMG.L$5,357M11x0%6%20%
Freight Companies
UNP$87,155M19x12%2%9%
CSX$49,655M24x15%1%7%
NSC$34,635M19x12%2%10%
KSU$10,873M20x13%1%9%

3. Is Wall Street Shipping?

Continuing the competitive comparison:

  • Analysts aren’t casting away FDX; they’re putting up Buy positions with expectations for a 7% upside to the $230 price target.
  • UPS gets a Hold with a price target just 4% higher than today.

The last couple of years have seen FDX traded between 12x and 18x earnings. On the other hand, we see UPS trading between 16x and 21x.

4. To the Doorstep

The management presentation from June shows business leaders are looking forward to moderate economic growth and earnings adjusted up between 7 to 14% in the next year.

TNT just broke even last year so the acquisition definitely throws a wrench into a lot of the figures. Depending on where they take it (my guess is using it as a vehicle into EU) it’ll take time to see cashflows similar to FDX.

No legitimate shipping discussion can occur without bringing up one of the largest industry customers: Amazon.com. While an Amazon-label carrier and drones sound fun, they’re far off and still blue sky ideas. Bezos is on record saying:

We will take all the capacity that the U.S. Postal Service can give us and that UPS can give us and we still need to supplement it. So we’re not cutting back. We’re growing our business with UPS. We’re growing our business with the U.S. Postal Service.

So for now, Amazon’s prime concern should be keeping deliveries consistent and expeditious.

As far as FDX goes, they have a solid cap, good growth forecast, e-commerce synergies, potential expansion, and margin improvements on the books. This stock is out the door and in the van.

 

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