U.S. markets open in 8 hours 24 minutes
  • S&P Futures

    +1.25 (+0.03%)
  • Dow Futures

    +12.00 (+0.04%)
  • Nasdaq Futures

    -9.25 (-0.08%)
  • Russell 2000 Futures

    +2.20 (+0.13%)
  • Crude Oil

    -0.33 (-0.40%)
  • Gold

    -9.40 (-0.56%)
  • Silver

    -0.13 (-0.72%)

    -0.0052 (-0.53%)
  • 10-Yr Bond

    0.0000 (0.00%)
  • Vix

    -2.42 (-7.42%)

    -0.0076 (-0.70%)

    +0.3430 (+0.24%)

    +809.53 (+4.31%)
  • CMC Crypto 200

    +18.25 (+4.26%)
  • FTSE 100

    +20.80 (+0.30%)
  • Nikkei 225

    +255.52 (+0.98%)

Assessing FedEx's Prospects After 21% Slump

·2 min read

FedEx Corp. (NYSE:FDX) shocked the market last week when it missed its first-quarter 2023 earnings target by a sizable $1.70 per share. Many investors remain undecided on the stock after its 21% one-day drop.

While the Memphis,Tennessee-based transportation and logistics company posted unimpressive preliminary quarterly results, its drawdown could mean it is an oversold stock with an attractive dividend yield.

Whether you believe the stock is worth the risk or not is entirely up to you; however, there are a few factors to consider.

Assessing FedEx's Prospects After 21% Slump
Assessing FedEx's Prospects After 21% Slump

Earnings miss and macroeconomic headwinds

FedEx did not only suffer from the global common denominator, which is increasing input costs, but also lagged its revenue target by approximately $300 million amid a slowdown in trade volume in the eurozone and Asia.

Although China's bound for a recovery, matters in Europe are grim with an energy crisis and geopolitical risk dominating business activity in the region. As a major courier company, FedEx is directly exposed to trade volumes, meaning it is a cyclical stock bound to economic contractions.

Will global trade recover anytime soon?

Global trade might proliferate from a supply-side vantage point. However, there are two sides to the coin, and global demand is slowing considerably. For instance, the pending recession in the United States and multiyear high inflation in emerging markets have coalesced to diminish supply chain value arbitrage, in turn driving down core demand.

While FedEx is a powerhouse with cash flow from operations of nearly $10 billion, the signs are that its medium-term prospects are bleak and unlikely to reach pre-pandemic levels.

Valuation and dividend analysis

Based on a holistic valuation, GuruFocus data implies FedEx is fairly valued currently. Even though the stock's price-sales ratio conveys an absolute valuation of $320 (approximately twice the stock's traded price), other metrics such as the discounted cash flow suggest it is overvalued.

Assessing FedEx's Prospects After 21% Slump
Assessing FedEx's Prospects After 21% Slump

Furthermore, FedEx's most recent drawdown has amplified its forward dividend yield to 2.86%, which is well covered by robust cash flows. However, a dividend-based investment decision might not be sensible at the moment as the stock's value at risk clearly exceeds its dividend prospects.

Assessing FedEx's Prospects After 21% Slump
Assessing FedEx's Prospects After 21% Slump

Source: Macroaxis

Concluding thoughts

Although FedEx's stock does show some signs of value, it is likely a value trap as ongoing macroeconomic headwinds could stall the company's progress. Furthermore, the forward dividend yield of 2.86% is attractive, but the stock's value at risk could trump its income-based prospects.

This article first appeared on GuruFocus.