Should You Buy FedEx Stock Over This Healthcare Company With Similar Market Cap?

FDX: FedEx logo

We think that FedEx stock (NYSE: FDX) currently is a better pick compared to HCA Healthcare stock (NYSE: HCA), a healthcare facilities operator, given FedEx’s comparatively lower valuation and better growth prospects. FedEx trades at about 0.8x trailing revenues, compared to 1.4x for HCA Healthcare.  Although both the companies saw a rise in revenue over the last year or so, FedEx’s growth has been better, aided by e-commerce growth.

Looking at stock returns, HCA, with -3% returns over the last six months, has outperformed FDX, which saw a -18% change. Both the stocks have underperformed the broader indices, with the S&P500 falling around 1% over the same period. FDX stock in particular has been weighed down due to its margin contraction on the back on inflationary headwinds, primarily impacting the labor costs.

However, there is more to the comparison, and we believe that FedEx stands out with higher expected returns compared to HCA Healthcare, as we discuss in the sections below.  We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis – FedEx vs HCA HealthcareWhich Stock Is A Better Bet? Parts of the analysis are summarized below. We compare these two companies given that they have similar market capitalization.

Relevant Articles
  1. Should You Buy FedEx Stock After Q3 Earnings Beat?
  2. What To Expect From FedEx’s Q3?
  3. Is FedEx Stock A Better Pick Over Its Peer?
  4. Will FedEx Stock See Higher Levels After A Mixed Q2?
  5. Will FedEx Stock Rise Post Q2 Results?
  6. Should You Buy FedEx Stock At $165?

While FDX stock looks poised for better gains going forward, it is helpful to see how its peers stack up. Check out how FedEx’s Peers fare on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

1. FedEx’s Revenue Growth Has Been Stronger

  • Both companies managed to see sales growth over the recent quarters, but FedEx has witnessed a comparatively faster revenue growth over the recent quarters. Looking at a longer time frame, FedEx’s sales have jumped from $60 billion in 2017 to $87 billion over the last twelve months, while HCA Healthcare revenues have risen from $44 billion to $58 billion over the same period.
  • For FedEx, revenue growth over the recent quarters was driven by shelter-in-place restrictions, resulting in more online orders, aiding its ground shipments. Our FedEx Revenues dashboard provide more details on the companies’ segments.
  • For HCA Healthcare, the revenue growth over the recent past is being driven by a rise in total admissions as well as revenue per admission, both the metrics grew 8% for the nine month period ending September 2021.
  • Now, FedEx’s revenue growth of 21% over the last twelve month period is better than 14% growth for HCA Healthcare, driven by higher demand for its ground shipments. Even if we were to look at a slightly longer time frame, FedEx has outperformed HCA Healthcare with its last three-year revenue CAGR of 9%, compared to 6% for HCA Healthcare.
  • Looking forward, with the economies opening up, the residential volume of ground deliveries is likely to grow at a slower pace compared to what we saw during the pandemic induced shelter-in-place restrictions.
  • For perspective, FedEx’s average daily volume for ground shipments was up 23% in fiscal 2021 (fiscal ends in May), driven by e-commerce growth. However, the average daily volume for ground shipments was up only 2% in the first half of fiscal 2022, as people started to venture out of their homes.
  • FedEx’s revenue is expected to grow at the same pace compared to HCA Healthcare over the next three years. The table below summarizes our revenue expectation for the two companies over the next three years, and points to a CAGR of 6% for both the companies, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies negatively impacted by Covid, and for companies not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively impacted by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate, and beyond the recovery point, we apply average annual growth observed in the three years prior to Covid to simulate return to normal conditions. For companies registering positive revenue growth during Covid, we consider average annual growth prior to Covid with certain weight to growth during Covid and the last twelve months.

2. HCA Healthcare Is More Profitable But It Comes With Higher Risk

  • FedEx’s operating margin of 8% over the last twelve month period is much lower than 19% for HCA Healthcare.
  • However, if we were to look at the recent margin growth, both the companies are comparable, with last twelve month vs last three year margin change at 4.1% for FedEx, compared to 4.6% for HCA Healthcare.
  • FedEx’s operating margin over the last couple of quarters was impacted by rising labor costs.
  • It should be noted that HCA Healthcare’s operating margin has historically been better than FedEx. HCA Healthcare’s operating margin rose from levels of 14% in 2017 to 19% currently, while FedEx’s operating margin has seen no change and it remained at 8% over the same period. However, FedEx’s margin has been far more volatile over the recent years. Our FedEx Operating Income and HCA Healthcare Operating Income dashboards have more details.
  • Looking at financial risk, FedEx beats HCA Healthcare with its better debt and cash position. FedEx’s 40% debt as percentage of equity is lower than 41% for HCA Healthcare, while it’s 8% cash as percentage of assets is higher than 3% for the latter, implying that FDX stock offers lower financial risk compared to HCA stock.

3. The Net of It All

  • We see that FedEx has demonstrated better revenue growth over HCA Healthcare. It also offers lower financial risk and its valuation (based on trailing revenues) is more attractive. However, the latter is more profitable, justifying the valuation gap.
  • Looking at valuation based on P/EBITDA, FDX is more expensive. At its current levels, FDX stock represents a P/EBITDA multiple of 6x based on FedEx EBITDA for the last twelve months, while HCA stock represents a P/EBITDA of 5x based on HCA Healthcare EBITDA for the last twelve months.
  • Now, looking at future prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe FedEx is currently the better choice of the two. The table below summarizes our revenue and return expectation for FDX and HCA over the next three years, and points to an expected return of 14% for FDX over this period vs. just 5% expected return for HCA stock, implying that investors are better off buying FDX over HCA, based on Trefis Machine Learning analysis – FedEx vs HCA Healthcare – which also provides more details on how we arrive at these numbers.

While FDX stock may outperform HCA, the Covid-19 crisis 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 Acuity Brands vs. FedEx.

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 Jan 2022
MTD [1]
YTD [1]
Total [2]
FDX Return -6% -6% 31%
HCA Return -7% -7% 223%
S&P 500 Return -9% -9% 95%
Trefis MS Portfolio Return -13% -13% 242%

[1] Month-to-date and year-to-date as of 1/26/2022
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market Beating Portfolios

See all Trefis Price Estimates