Should You Buy The Recent Dip In FedEx Stock?

FDX: FedEx logo

[Updated: Sep 23, 2021] FDX Stock Update

The stock price of FedEx (NYSE: FDX) plunged over 9% in yesterday’s trading session, following its fiscal Q1 2022 earnings, which were below the consensus estimate, and the company also lowered its full-fiscal year outlook, primarily due to rising labor costs. Specifically, the company’s operating margins fell to 6.4% in Q1, compared to 8.2% in the prior-year quarter. The company pointed at a constrained labor market for higher wages, resulting in a 13% jump in employee costs and 14% growth in purchased transportation costs. Although the rise in these costs was in-line with the overall revenue growth, this was higher than what the company had earlier anticipated.

Now, FedEx expects the labor costs to ease only in the second half of the current fiscal, and hence is lowering its full-year outlook. We have now updated our model for FedEx to take into account the latest quarterly release and guidance. We now estimate full-fiscal 2022 adjusted EPS to be $20.50, compared to $21.33 earlier. We have not made any changes to our revenue forecast of $91.2 billion, and the change in EPS is on account of a -25 bps revision in net margins to less than 6%. However, we maintain our P/E multiple of around 16x, translating into FedEx Valuation of $326 per share, compared to $348 earlier. Despite a -6% revision to our price estimate for FDX stock, it remains at a premium of over 40% to the current market price of around $230. We believe that investors can use the recent dip as a buying opportunity for long-term gains.

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[Updated: Sep 22, 2021] FDX Q1 Earnings Update

FedEx (NYSE: FDX) recently reported its fiscal 2022 Q1 results, which were below our expectations. The company reported revenues of $22.0 billion, in-line with our forecast, and slightly above the $21.9 billion consensus estimate. The top-line growth of 14% y-o-y was led by higher sales for all of its segments – Express, Ground, and Freight. Our dashboard on FedEx’s Revenues offers more details on the company’s segments.

However, looking at the bottom line, the company reported adjusted EPS of $4.37, way below our $5.11 forecast and $5.00 as per the consensus estimate. This can be attributed to rising costs, primarily limited labor supply resulting in increased wages, while fuel costs have also risen over the recent past. The company expects labor availability to ease in the second half of the fiscal year. That said, it lowered its full-year 2022 earnings outlook to now be in the range of $19.75 to $21.00, compared to its prior guidance of $20.50 to $21.50. We were earlier working with a forecast of $21.33 for full-fiscal 2022, and we will soon update our model to reflect the recently announced numbers. The Q1 numbers are unlikely to sit well with the investors, especially given a downward revision to the full-year outlook. In fact, in after trading hours, FDX stock is down over 5%.


[Updated: Sep 20, 2021] FDX Q1 Earnings Preview

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

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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