To say that FedEx's (FDX) latest results for its fiscal second quarter were a disappointment would be an understatement. The shipping and logistics giant missed Wall Street's expectations on both the top and bottom line, and sparked selling across equity markets by issuing softer-than-expected revenue guidance for fiscal 2024.
Viewed as a business bellwether, shares of FDX cratered 12% in a single session as traders reacted to the news, and the stock has yet to recover.
However, one key insider in the FedEx C-suite seems to think the stock is a bargain after its post-earnings plunge. Here's a look at the latest insider buying on FDX after earnings.
CFO Makes Substantial Purchase
On Dec. 28, Chief Financial Officer John Dietrich bought 1,000 shares of FedEx at an average price of $252.02, for a total value of $252,020. With this transaction, Dietrich now holds 4,745 shares of the company. Notably, this is Dietrich's first purchase of the company's shares with his own money since he assumed the role of CFO last August.
Insider buying refers to the purchase of stock by company executives, directors, and stakeholders of 10% or more. It's considered a useful metric because this well-placed group is generally considered to have better insights than the average investor regarding a company's operational strategies, challenges, and opportunities. And, as investing legend Peter Lynch observed, insiders might sell their shares for any number of reasons - but they tend to buy stock only when they think the price will rise.
In this context, Dietrich's purchase of FedEx on the dip is noteworthy, especially given his role as the company's top finance executive. The generous size of the stock buy is also worth pointing out, particularly compared to the purchase by board member Amy Lane around the same time.
Dietrich is an aviation sector veteran, previously serving as President and CEO of Atlas Air Worldwide, where he served in numerous leadership roles since 1999. Prior to joining Atlas, Dietrich worked at United Airlines (UAL) for 13 years.
FedEx Fundamentals
Founded in 1971 by Yale graduate Fredrick W. Smith, FedEx's iconic purple and orange logo is almost synonymous with logistics worldwide. Focused on transportation, e-commerce and business services, FedEx operates primarily through five business segments: Express, Ground, Freight, Supply Chain and Services.
FedEx's market cap currently stands at a mammoth $61.29 billion. Even in the wake of its earnings-related plunge, FDX's 52-week return still stands at a formidable 32.8%.
The stock also offers a dividend yield of 2.05%, which is above the industrial sector median of 1.5%. FedEx has increased its dividend consecutively for over 15 years, and has a low payout ratio of just 29% to support continued growth.
A Closer Look at the Q2 Miss
In Q2 2024, FedEx reported quarterly revenues of $22.2 billion, down 3% from the previous year, led by a 6% drop in the Express segment. EPS rose 25.5% to $3.99, representing a rare bottom-line miss for FDX. Dietrich noted “demand continuing to pressure the top-line” in the results.
Despite a shift by customers toward lower-priced options, FedEx's cost management prowess came to the fore during the quarter. Both operating income ($1.42 billion,+17.4% YoY) and operating margin (6.4% vs 5.3% in Q2 2023) improved from the year-ago period, supported by solid execution on its DRIVE program.
Plus, for the six months ended Nov. 30, FedEx reported net cash flow from operating activities of $4 billion, up 28.1% from the previous year. The company closed the quarter with a cash balance of $6.7 billion, way above the current portion of long-term debt of $334 million.
Over the past 10 years, FedEx's revenue and EPS have expanded at a CAGR of 6.97% and 12.56%, respectively.
Growth Drivers for FDX
A key contributor to the margin improvement for FedEx has been its DRIVE program - and the company is doubling down on this initiative. With it, the company remains on track to save about $1.8 billion in FY 2024, about $4 billion in FY 2025, with an incremental $2 billion of savings in FY 2027.
Further, the company's focus on high-margin volumes - such as B2B air freight, instead of last-mile retail deliveries - is expected to increase profits in the years to come.
The company is also providing shareholder support through buybacks. In the latest quarter, the company completed a $500 million accelerated share repurchase transaction, while announcing an additional $1 billion buyback in its latest quarterly results.
Is FedEx Stock a Good Value Buy Right Now?
Although the shares have performed well over the last year, FDX stock is still priced attractively at current levels, compared to its peers in the industrials sector. The shares are priced at 14.64x forward earnings, 0.69x forward sales, 2.25x book, and 6.92x forward cash flow - all of which are below sector median valuations.
Looking ahead, consensus estimates call for FDX to return to top-line growth in fiscal year 2025, with 4.56% revenue growth expected after the 1.98% decline in fiscal 2024. EPS growth is expected at 17.81% this fiscal year, and 23.75% in FY 2025.
Overall, analysts have a consensus rating of “Moderate Buy” for FedEx stock, with a mean target price of $291.68. This indicates an upside potential of roughly 18.2% from current levels.
Out of 23 analysts covering the stock, 14 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 8 have a “Hold” rating.
