FedEx on Track for Record Holiday Volumes

FedEx (NYSE:FDX) is primed to cash in this Christmas after the holiday shopping season got off to a strong start with e-commerce driving record sales on both Black Friday and Cyber Monday. Retail figures broadly exceeded analyst expectations, raising hopes that the company will deliver on its promise to ship record volumes during the peak season. With competitor UPS (NYSE:UPS) also expecting brisk business, we believe that sustained growth in e-commerce beyond the festive period could secure close to 20% upside on FedEx’s current valuation.See Full Analysis for FedEx Here

Logistics in Place for Another Record Season

According to retail research firm comScore, sales on Cyber Monday jumped 22% year-on-year to reach an all-time high of $1.25 billion. ^[1] That followed a 6.6% hike in Black Friday sales reported by ShopperTrak, ^[2] adding weight to the expectation that e-commerce will once again drive record high demand for delivery firms this Christmas.

FedEx last month published a forecast that more than 260 million shipments would pass through its global delivery network, equating to a 12% hike over the holiday shopping period leading up to December 12th.  ^[3] The company planned to increase its workforce by 20,000 seasonal positions to cope with the surge in demand, which it says will result in more than 25 million packages being delivered on five of the ten days before Christmas. Though its forecast is limited to the festive period, consistent year-on-year growth highlights our belief that total ground volume will continue rising through to 2018.

Last-Minute Shoppers Boost Express Packages

FedEx Ground shipments are the company’s single most important division, contributing to 44.5% of the stock price. But with retail shopping habits continually evolving, we see its Express Packages playing an increasingly vital role this Christmas. This division accounts for 17% of the stock price, comprising Overnight Boxes, Overnight Envelopes and Deferred Packages.

Aggressive early bird marketing campaigns likely contributed to the recent plump figures, so some analysts are expecting an early-December lull while consumers await the next wave of last-minute promotions. If shoppers postpone their e-commerce until closer to Christmas, this will in turn boost demand for FedEx’s Overnight Box division. In the long-term, shifting consumer behavior of this type could help the firm reverse downward pressure on Overnight margins, which have been eroded by the highly leveraged exposure of air transportation to fuel costs.

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1. Cyber Monday Spending Hits $1.25 Billion to Rank as Heaviest US Online Spending Day in History, comScore, Nov 29 2011 [↩]
2. Black Friday 2011 Sets New Retail Sales Record, ShopperTrack, Nov 26 2011 [↩]
3. E-Commerce Shipments to Drive Record FedEx Holiday Volume, FedEx, Oct 24 2011 [↩]