Bull Of The Day: FedEx (FDX)
Global digitalization has accelerated what would have taken years in a matter of months during 2020’s COVID crisis. The perfect storm has been created for online retailers and their respective delivery services as society is conditioned to function entirely remotely. FedEx (FDX) has considerably benefited from the COVID-crisis, with its growth being pulled forward by years in just the past 2 quarters. Analysts have been increasingly optimistic about this stock, raising short and long-term EPS estimates and propelling FDX into a Zacks Rank #1 (Strong Buy).
FedEx is a global enterprise with massive expansionary opportunities as businesses go online. Small-and-medium-sized companies are looking for a trusted and fast partner for their product distribution. FedEx Ground is faster to more locations than UPS Ground. FedEx also operates the most extensive air fleet in the world and is globally renowned for its speed and efficiency.
FDX has far outperformed its duopoly cohort, UPS (UPS), in this crazy year, driving up over 73% year-to-date compared with UPS’s 47% share price appreciation. Even with this outperformance, FDX is still trading at a relative discount to UPS, with a forward P/E of 15x compared to UPS’s over 20x P/E. Granted, UPS has an over 2% dividend compared to FDX’s 1% yield, but FedEx has a much more exciting growth outlay.
FedEx operates the largest express delivery service globally (aka FedEx Express), and the need for rapid delivery is going to drive demand for FedEx’s best-in-class delivery services.
Recent Developments
FedEx cut ties with e-commerce giant Amazon (AMZN) in 2019, saying that the business wasn’t lucrative and only made up 1% of the company’s total business. I believe that the implications were much more extensive than 1%. Now FedEx CEO Fredrick Smith is framing the e-commerce behemoth as a threat to its business.
Amazon currently makes up 23.1% of total online retail revenue this past quarter, a figure that has dropped amid the pandemic as many retailers of all shapes and sizes race to get their operations online, according to analytics done by Digital Commerce 360.
FedEx has been acquiring synergy-driving enterprises over the past few years to expand its operations, and further engrain its business in the exploding digital commerce space. The most notable acquisition was the purchase of TNT Express in 2016, which significantly expanded the business’s European exposure. This acquisition initially weighed heavy on margins, but it is finally beginning to produce growth with the COVID tailwind and continuous integration.
Its most recent acquisition was made earlier this month for ShopRunner, “the e-commerce platform that directly connects brands and merchants with online shoppers.” According to FedEx’s related press release, “ShopRunner connects more than 100 brands and merchants to millions of consumers and offers a seamless shopping experience from inspiration through delivery.”
Financials
FDX has healthy-looking financials with more than $8.3 billion in cash & equivalents, swelling free-cash-flows, which topped $1 billion in each of the past two quarters, and a debt-to-total capital of 53%. The company has an enormous amount of financial flexibility for organic growth projects and synergy-driving acquisitions.
FDX has pulled back from its $305+ all-time high, which it hit earlier this month, as investors begin taking some profits from this clear COVID winner. Today looks like an excellent time to jump into this growth-oriented delivery service. 16 out of 21 analysts are calling FDX a buy with no sell ratings and an average price target of $307 a share, which would represent an over 15% upside from where it is trading today.
Final Thoughts
FedEx has some strong tailwinds going into 2021, including continued growth opportunities from TNT Express and its synergy-driving integration, the e-commerce explosion, as well as a resurgence in B2B operations as the economy comes back to normality. The world has been conditioned to exist remotely in the new normal, and FedEx’s best-in-class delivery operations position it to boom in the Roaring 20s.
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