What To Expect From FedEx Stock As It Reports Q3 Results?

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FedEx (NYSE: FDX) is scheduled to report its fiscal Q3 2022 results on Thursday, Mar 17. We expect FedEx to post revenue and earnings above the street expectations. The company’s revenue growth is likely to be led by its Ground and Freight businesses, while its operating margins may see some growth. In its previous earnings call, FedEx’s management stated that it expects the operating margins to trend higher in the second half as the labor market gets easier. Not only do we expect the company to post upbeat results, we find its stock to be undervalued at its current levels of $213, as we discuss in the sections below. Our interactive dashboard analysis of FedEx’s Earnings Preview has additional details.

1) Revenues expected to be above the consensus estimates

  • Trefis estimates FedEx’s Q3 2022 revenues to be around $23.6 billion, compared to the consensus estimate of $23.4 billion.
  • The company’s Ground shipments likely benefited in Q3, given the spread of Omicron and people using e-commerce channels for their needs.
  • The company’s international business has also seen substantial growth over the recent quarters, a trend expected to continue in Q3 as well.
  • Looking back at Q2 FY 2022, FedEx’s total revenues grew 14% y-o-y to $23.5 billion, with growth seen across its segments. Our dashboard on FedEx’s Revenues offers more details on the company’s business segments.
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2) EPS likely to be above the consensus estimates

  • FedEx’s Q3 FY 2022 adjusted earnings per share (EPS) is expected to be $4.75 per Trefis analysis, higher than the consensus estimate of $4.65.
  • FedEx’s adjusted net income of $1.3 billion in Q2 2022 was at the same level as in the prior-year quarter. This can be attributed to an adverse impact of labor shortage on the company’s operating margins.
  • The company expects operating margins to improve with the labor market easing in the second half.
  • Looking forward, for the full-fiscal 2022, we expect the EPS to be $20.98, compared to $18.23 in fiscal 2020.

3) FDX stock is undervalued

  • We estimate FedEx’s Valuation to be $322 per share, which is a significant 51% above its current market price of $213.
  • This represents a forward P/EBITDA of 5x based on FedEx’s EBITDA.
  • Even if we were to look at the $309 figure per the average of analysts’ estimates for FDX stock, it represents a significant 45% upside from the current levels.
  • There are near-term headwinds with the Russia and Ukraine geopolitical crisis, which may result in continued volatility in the broader markets in the near term. We believe any dips in FDX stock can be used as a buying opportunity for solid gains in the medium term.
While FDX stock may see a rise in the near term, 2020 has created many pricing discontinuities that offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Waters vs. FedEx.
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 Returns Mar 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 FDX Return -4% -18% 14%
 S&P 500 Return -4% -12% 88%
 Trefis MS Portfolio Return -4% -14% 238%

[1] Month-to-date and year-to-date as of 3/14/2022
[2] Cumulative total returns since the end of 2016

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