What To Expect From FedEx’s Q1?

FDX: FedEx logo

FedEx (NYSE: FDX) is scheduled to report its fiscal Q1 2021 results on Tuesday, Sep 21. We expect FedEx to likely post revenue and earnings above the street expectations. With a rise in number of Covid-19 cases in the U.S., it is likely that FedEx’s Ground shipment volume may have trended higher during the quarter, boding well for its overall top-line growth. Of late, the company has seen an expansion of margins and this has aided its earnings growth. However, higher input costs may have kept the overall margin growth in check in Q1.

Looking at FDX stock, our forecast indicates that FedEx’s valuation is around $348 per share, which is 36% above the current market price of around $255, implying that FDX stock is attractively valued at its current levels. Our interactive dashboard analysis on FedEx’s Pre-Earnings has additional details.

(1) Revenues expected to be above the consensus estimates

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Trefis estimates FedEx’s fiscal Q1 2022 revenues to be around $22.0 Bil, slightly above the consensus estimate of $21.9 billion. FedEx, over the recent quarters, has seen an increase in demand for shipments, primarily led by a surge in e-commerce orders, as people preferred to stay in-doors, during the pandemic. However, Fedex’s peer – UPS – reported a decline in ground shipments in Q2, and this had an adverse impact on FDX stock as well. While this should likely also impact FedEx, over the recent months, there has been a rise in total number of Covid-19 cases, and it means that the ground shipments may continue to trend higher in the near term. Looking back at fiscal Q4 2021, revenues grew a solid 30% to $22.6 Bil, with Ground segment seeing a 27% y-o-y jump in revenues, compared to a 32% rise for Express and a 38% jump in the Freight segment. Our dashboard on FedEx’s Revenues offers more details on the company’s segments.

2) EPS likely to be above the consensus estimates

FedEx’s fiscal Q1 2022 adjusted earnings per share (EPS) is expected to be $5.11 per Trefis analysis, 2% above the consensus estimate of $5.00. FedEx’s net income of $1.4 Bil in fiscal Q4 2021 reflected a large 2x rise from its $663 million figure in the prior-year quarter. This can be attributed to higher revenues and margin expansion. However, the rising costs may impact the overall earnings growth in Q1.

(3) Stock price estimate 36% above than the current market price

Going by our FedEx’s Valuation, with an EPS estimate of around $21.33 and a P/E multiple of 16x in 2022, this translates into a price of $348, which is roughly 36% above the current market price of around $255. While the 16x P/E multiple for FedEx is slightly above the levels seen over the recent years, it is justified given the strong earnings growth. FedEx’s adjusted EPS declined from $15.57 in fiscal 2019 to $9.52 in 2020, before rising to $18.23 in 2021, and it is now expected to grow to $21.33 in 2022.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year

While FDX stock may see a rise in the near term, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for United Parcel Service vs. Sprouts Farmers Market.
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