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FedEx Corporation Has Amazon Derangement Syndrome

Dana Blankenhorn

Like many companies in today’s stock market FedEx Corporation (NYSE:FDX) is suffering from Amazon.Com Inc. (NASDAQ:AMZN) derangement syndrome.

Symptoms include a refusal to accept good news, an assumption that Amazon is going to seize its market and a bargain stock price.

Despite profit growth of 36% over the last three years, shares in the package delivery company are down 6.6% so far in 2018, while those of Amazon are up 32%. Its market cap is $64 billion, about even with one year’s sales when they’re reported June 19.

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FDX is profitable, with analysts expecting net income of $5.72 per share on $17.13 billion of revenue for the quarter, and 21 of 28 suggesting investors buy the stock.

Yet the stock goes nowhere, because traders see Amazon around every tree.

It’s not.

FedEx and Amazon

Amazon pays $13 billion to deliver its packages, splitting the U.S. business among FedEx, United Parcel Service Inc. (NYSE:UPS), the U.S. Postal Service and (recently) its own delivery efforts. 

This has led to the assumption that Amazon is put to kill FedEx.

But while Amazon is a big account for FedEx, it’s only 3% of FedEx’s business. If Amazon went away tomorrow, FedEx would still be growing.

It doesn’t hurt that FedEx is cozying up to Walmart Inc. (NYSE:WMT), the second-leading e-commerce player, with plans to put fulfillment centers in 500 Walmart stores.  The street presence would go alongside the former Kinko’s copying stores, rebranded to FedEx and bought in 2003 for $2.4 billion,  of which there were 1,200 when the buyout was completed — one-third of them open 24 hours per day.

FedEx continues to innovate, now with trucks powered by hydrogen fuel cells.  FedEx has been growing internationally with such acquisitions as Flying Tiger, GENCO and (most recently) TNT Express.  When Amazon delivers to Africa, it will probably FedEx it.

FedEx Stands Alone

It’s for these reasons that most analysts, and many InvestorPlace writers, continue to like FDX stock.

Serge Berger made it his “trade of the day” back in April, and the shares obediently went from $240 to $255 each, although they’re now back at $240.

Lawrence Meyers, noting FedEx’s independence from Amazon, said it was “safe to buy the stock” the same month. Tyler Craig has also offered a cheap way to profit on FDX with call spreads.

Despite the stock being “ready to fly”, it just hasn’t. It is useless to argue with the market, saying the price “should be” higher. It is what it is.

Here’s another argument for buying the stock, however. Income. FDX has been increasing its dividend rapidly in recent years. It was at 15 cents per share each quarter back in 2013. It’s at 50 cents per quarter now. That’s $2 per year, which doesn’t sound like much if you’re paying $240 to get in on it. But those dividend investors who got in back when the stock was at $100 per share now have a 2% yield and a capital gain of $140 per share.

The Bottom Line on FDX Stock

FedEx management has realized they’re not a trading stock. They’re a buy-and-hold stock.

Over time — and we’re talking decades here — FedEx has turned many small investors into millionaires. Had I picked up a few shares when I started my career in 1978, my basis would be roughly $2 per share before five stock splits and I would have a continuing stream of dividends going back to 2002.

That’s how you play the investing game. Buy good stocks, like FedEx, hold them, and ignore the noise. Let time work its magic.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time,  available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.

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