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Bull of the Day: FedEx (FDX)

Benjamin Rains
·5 mins read

FedEx (FDX) posted blowout quarterly results on September 15 that highlighted its ability to thrive during the coronavirus. FDX shares have now soared roughly 80% in the past three months and its outlook appears strong, as it expands its e-commerce reach.

Expansion Plans…  

FedEx shares had been falling over the last several years, as its longer-term earnings outlook fell. FDX then surprised some on Wall Street when it essentially cut ties with Amazon (AMZN) las summer. Company executives apparently didn’t want to be in business with an e-commerce titan that has its own shipping and logistics aspirations.

FedEx said at the time that Amazon represented only a small proportion of its sales. Since then, the company has focused on working with all of the other major players in traditional retail like Walmart (WMT) and Target (TGT), that have gone all-in on e-commerce.

Meanwhile, the Memphis, Tennessee-based firm is bolstering its automation efforts and modernizing its Express air fleet. The long-term plan is to attract more e-commerce and business-to-consumer clients, while remaining a business-to-business heavy operation.

 

 

 

 

 

 

 

 

 

 

 

 

Pandemic Boost…

FedEx topped our bottom-line estimate by 80% in its fiscal fourth quarter, as it gained momentum in its business to consumer space. Still, its sales slipped over 2% on the back of declines in its higher-margin Express air-shipment unit. But Wall Street seemed convinced that its B2B focused segment would bounce back, while its digital commerce division continued to grow.

FDX promptly smashed our adjusted Q1 fiscal 2021 earnings estimate by nearly 90%, with the figure up 60% from the year-ago period. And its revenue jumped over 13% to $19.3 billion for the three-month period ended on August 31, which marked its strongest sales growth since Q4 FY17.

The firm’s ground segment jumped during the summer months, as consumers continued their massive digital shopping sprees. FDX also benefited from declines in international passenger flights, as businesses had fewer opportunities to use extra cargo space on commercial flights.

FedEx Express saw its adjusted operating income “more than doubled,” while Ground operating income jumped 30%, with Freight up 41%. Overall, its adjusted Q1 operating income popped 56% from the prior-year period. Retiring CFO Alan Graf said on FDX’s earnings call that this growth was “primarily due to international priority volume growth of 31%, a surge in demand for US residential delivery, yield improvement at FedEx Ground and FedEx Freight,” and more.

 

 

 

 

 

 

 

 

 

 

 

 

Down the Road…

On top of its record revenue, Wall Street was also likely pleased to hear that FedEx expects the overall e-commerce market to explode. “Pre-COVID, we projected that the US domestic market would hit 100 million packages per day by calendar year 2026. We now project that the US domestic parcel market will hit this mark by calendar year 2023,” Chief Marketing and Communications Officer Brie Carere said on the call.

FDX projects that 96% of this anticipated growth will come from e-commerce. The firm will, of course, be competing for its portion of a growing pie against core competitors such United Parcel Service (UPS), DHL, and the US Postal Service. And this trend could continue for years, as e-commerce accounted for only 16% of total retail sales in Q2, according to U.S. Census data, despite perfect conditions to outperform.

Meanwhile, the company is preparing to hire as many as 70,000 seasonal holiday workers, up from around 55,000 in previous years. FedEx is also rolling out extra fees, mostly aimed at large customers, during the high-traffic season to offset costs and manage volume.

With all of this in mind, Zacks estimates call for the firm’s adjusted Q2 EPS figure to jump 32% on 7% stronger sales. FDX’s adjusted earnings are then projected to climb 40% in FY21 and another 17% in FY22.

FedEx's revenue is expected to expand by 8% this year, with FY22 projected to jump over 5% higher. Plus, its earnings estimates have soared since its last report, as its outlook improves significantly.

 

 

 

 

 

 

 

 

 

 

 

 

Bottom Line

FedEx’s bottom line revisions help it earn a Zacks Rank #1 (Strong Buy) right now, alongside a “B” grade for Growth and an “A” for Momentum in our Style Scores system. The firm’s Transportation - Air Freight and Cargo industry rests in the top 2% of over 250 Zacks industries, and its 1.07% dividend yield also tops the 10-year U.S. Treasury.

Despite its 60% climb in 2020, which destroys the S&P 500’s 4% gain, and its 80% run over the past three months, FDX sits around 8% off its early 2018 highs. This could give it more room to run, and its business should also start to benefit as economies around the world continue to adapt to the virus.

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