FedEx Sells Debt, Plans Buyback

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One of the leading freight forwarding companies, FedEx Corp. (FDX) has announced the sale of $2 billion senior notes and expects to buyback shares worth $2 billion with the initial repurchase of 11.4 million shares. The company expects the bond sale to facilitate its new share buyback program.  

Apart from offering debt to support investor return, FedEx has been opting for strategies that result in inorganic growth. The company has been implementing higher shipping rates, which remain imperative to revenue growth. Last year, the company provided rate hikes for 2014, including a 3.9% hike in shipping rates at FedEx Express for U.S. export and import services, effective Jan 6, 2014. We expect these initiatives to substantially better the company’s earnings power over the next several years.

Further, the company is also banking on new business wins. In Sep 2013, FedEx won a $171 million contract from the U.S. Department of Defense for small package delivery services for the military. This contract expires on Sep 30, 2014. FedEx also won a second defense contract worth $49.8 million for overpacking and transportation of perishable products for the Defense Commissary Agency and Defense Logistics Agency, effective Oct 1, 2013. Unless extended, the contract will expire on Sep 30, 2014.

Based on the positive factors, we expect FedEx to register earnings momentum, long-term expansion opportunities and advantages over other freight carriers like United Parcel Service, Inc. (UPS), Radiant Logistics, Inc. (RLGT) and Atlas Air Worldwide Holdings Inc. (AAWW).

FedEx currently has a Zacks Rank #3 (Hold).

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