What To Expect From FedEx Stock As It Reports Q2 Results?

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FedEx (NYSE: FDX) is scheduled to report its fiscal Q2 2022 results on Thursday, Dec 16. We expect FedEx to likely post revenue and earnings above the street expectations. Revenue growth is likely to be led by its Express and Freight segments, while operating margins may remain tepid, owing to the inflationary headwinds. Looking at FDX stock, our forecast indicates that FedEx’s valuation is around $326 per share, which is 36% above the current market price of around $240, 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 Q2 2022 revenues to be around $22.6 billion, slightly above the consensus estimate of $22.5 billion. Of late, FedEx’s ground shipments have seen a slowdown in volume growth with the economies opening up and people venturing out of their homes. For perspective, average daily package volume for ground shipments was flat y-o-y in Q1 FY22, compared to a rise of 23% in fiscal 2021. It is likely that FedEx’s ground shipment volume, especially for home delivery, may continue to see slower growth in the near term. However, the company’s other segments, including Express and Freight, likely saw continued growth during the quarter. Our dashboard on FedEx’s Revenues offers more details on the company’s segments.

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2) EPS likely to be above the consensus estimates

FedEx’s fiscal Q2 2022 adjusted earnings per share (EPS) is expected to be $4.57 per Trefis analysis, 7% above the consensus estimate of $4.28. FedEx’s net income of $1.2 billion in fiscal Q1 2022 reflected a 7% fall from its $1.3 billion figure in the prior-year quarter. This can be attributed to margin contraction. Now, the company’s operating margins trended lower in the previous quarter, due to rising costs, primarily limited labor supply resulting in increased wages. The company stated that it expects labor availability to ease in the second half of the fiscal year, but margins may remain weak in Q2.

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

Going by our FedEx’s Valuation, with an EPS estimate of around $20.50 and a P/E multiple of 16x in 2022, this translates into a price of $326, which is roughly 36% above the current market price of around $240. While the 16x P/E multiple for FedEx is slightly above the levels seen over the recent years, we believe 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 $20.50 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 Rogers vs. UPS.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.
Returns Dec 2021
MTD [1]
2021
YTD [1]
2017-21
Total [2]
 FDX Return -5% -8% 29%
 S&P 500 Return -1% 24% 107%
 Trefis MS Portfolio Return -2% 42% 282%

[1] Month-to-date and year-to-date as of 12/15/2021
[2] Cumulative total returns since 2017

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