Delivery titan FedEx Corporation (FDX) is poised to announce its earnings on March 21, 2024. Analysts anticipate an EPS of $3.49 for the fiscal third quarter, indicating a 2.4% rise compared to the previous year's quarter. The company is expected to generate revenue of $22.09 billion. This article provides insights into what to anticipate from FDX's earnings report and offers guidance on positioning your portfolio accordingly.
In the fiscal first quarter, the company surpassed the consensus EPS estimates but failed to exceed the revenue estimates due to weak shipping demand, especially in the Express unit. However, this quarter, FDX aims to reduce its expenses through proactive cost-cutting strategies.
Focusing on the industry dynamics, in recent years, air freight has significantly increased due to economic growth, changing consumer trends, and technology. Cross-border trade is a key driver, and demand for fast and efficient international shipping is expected to rise further.
As a result, the Freight and Logistics industry is likely to be valued at $6.03 trillion this year and is expected to expand at a CAGR of 4.6%, reaching $7.54 trillion by 2029.
Additionally, the e-commerce boom has profoundly impacted FDX, revolutionizing its delivery operations. Moreover, its features like last-mile delivery, fulfillment services, and specialized shipping options have helped the company maintain its image as a delivery giant worldwide.
Last year, e-commerce sales increased by 7.6% and accounted for around 15.4% of total retail sales, which suggests a higher demand for shipping and delivery services. FDX, being a major player in the logistics and delivery industry, stands to benefit from this trend as it could lead to increased demand for its services to fulfill online orders.
Further, it was recently reported that FDX and Amazon.com, Inc. (AMZN) were in talks about teaming up for AMZN’s return orders. Previously, FDX had a delivery contract with AMZN that ended in 2019. Last year, U.S. retailers saw a 17.6% return rate for online purchases, totaling around $247 billion. The new partnership could amplify the courier giant’s revenue streams.
In the realm of price performance, FDX’s stock has surged 29.6% over the past year to close the last trading session at $252.99.
Here are the financial aspects that could affect FDX’s performance in the near term:
Solid Financials
In the second quarter of fiscal 2024, which ended November 30, 2023, FDX recorded a total revenue of $22.20 billion. Meanwhile, its total operating income experienced an 8.5% increase from the previous year, reaching $1.28 billion. Additionally, the company's non-GAAP net income and non-GAAP EPS reached $1.01 billion and $3.99, respectively, marking a 23.2% and 25.5% surge from the same quarter in the prior year.
As of November 30, 2023, FDX's total current assets reached $19.12 billion, reflecting a 2.7% rise compared to $18.61 billion as of May 31, 2023.
Stable Dividend Policy
The company pays an annual dividend of $5.04, which yields 1.99% on the current market price, higher than the four-year average dividend yield of 1.57%. The company has raised its dividend payouts at a CAGR of 24.7% over the past three years. It has consistently raised its dividend payouts for the past three years.
Favorable EPS Estimates
For the fiscal year ending May 2024, the company is likely to report an EPS of $17.46, representing a 16.7% year-over-year rise. Furthermore, the company has a notable earnings surprise history, surpassing the EPS estimates in three of the trailing four quarters.
Impressive Historical Growth
Over the past three years, FDX's revenue and EPS grew at CAGRs of 5.6% and 22.2%, while its net income and levered FCF improved at CAGRs of 20.5% and 138.1%, respectively.
Robust Profitability
The stock’s trailing-12-month cash from operations of $9.73 billion is remarkably higher than the $298.64 million industry average. Its trailing-12-month CAPEX/Sales of 6.40% is 113.5% higher than the industry average of 3%. Additionally, the stock’s trailing-12-month asset turnover ratio of 1.01x is 27.5% higher than the 0.79x industry average.
Discounted Valuation
In terms of forward non-GAAP PEG, FDX is trading at 1.03x, which is 39.5% lower than the industry average of 1.71x. Its forward EV/Sales multiple of 1.07 is 40.3% lower than the industry average of 1.80. Furthermore, its forward P/S multiple of 0.72 is 50.8% lower than the industry average of 1.52x.
POWR Ratings Exhibit Sound Prospects
FDX’s rosy fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. FDX has a B grade for Quality, which is consistent with its higher-than-industry profitability metrics.
Within the Air Freight & Shipping Services industry, FDX is ranked #2 out of the 14 stocks.
In addition to the POWR Ratings stated above, one can also access FDX’s Growth, Value, Momentum, Stability, and Sentiment ratings here.
Bottom Line
FDX has strategically responded to the e-commerce boom, transforming its delivery operations and solidifying its position as a dominant force in the industry. Moreover, its potential partnership with AMZN should significantly benefit the company.
In addition, the stock is trading above its 50-day and 200-day moving averages of $246 and $251.43, respectively, indicating an uptrend.
Furthermore, its robust financial performance, steadfast dividend policy, and discounted valuation metrics reinforce its credibility. With impressive historical growth and strong profitability metrics, FDX presents a compelling buying opportunity currently.
How Does FedEx Corporation (FDX) Stack Up Against Its Peers?
While FDX has an overall grade of B, equating to a Buy rating, you may also check out these other Buy-rated stocks within the Air Freight & Shipping Services industry:
AerCap Holdings N.V. (AER)
Deutsche Post AG (DPSGY)
Universal Logistics Holding, Inc. (ULH)
To explore more Air Freight & Shipping Services stocks, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
FDX shares were trading at $256.25 per share on Tuesday afternoon, up $3.07 (+1.21%). Year-to-date, FDX has gained 1.81%, versus a 8.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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