Here’s A Better Pick Over FedEx Stock

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We think that Pfizer stock (NYSE: PFE) currently is a better pick compared to FedEx stock (NYSE: FDX), despite it being the more expensive of the two, trading at 3.3x trailing revenues compared to 0.6x for FedEx. The gap in the valuation of these two companies can be attributed to Pfizer’s superior revenue growth and profitability, as discussed below. Although these two companies are from different industries, we compare them due to their similar revenue base.

If we look at stock returns, Pfizer’s 40% return is significantly better than FedEx’s -29% change over the last twelve months. This compares with a -1% change in the broader S&P 500 index. While FedEx stock has been weighed down due to rising costs and fears of a recession, Pfizer stock has been rewarded for its strong sales of the Covid-19 vaccine and antiviral pill. While both the companies are likely to see stock price appreciation, Pfizer is expected to outperform. There is more to the comparison, and in the sections below, we discuss why we believe that PFE stock will offer better returns than FDX stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis of FedEx vs. PfizerWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Pfizer’s Revenue Growth Has Been Stronger

  • Pfizer’s stellar revenue growth of 99% over the last twelve months is far better than 16% for FedEx.
  • Looking at a longer time frame, FedEx’s sales grew at an average growth rate of 9% to $84.0 billion in 2021, compared to $65.5 billion in 2018, while that of Pfizer grew at 32% to $81.3 billion in 2021, compared to $40.8 billion in 2018.
  • Pfizer’s sales over the recent years were primarily driven by a very high demand for the Covid-19 vaccine. However, as the global vaccination rate rises, the demand for Covid-19 vaccines is also expected to fall, weighing on Pfizer’s revenue growth over the coming years. The revenue growth in 2022, though, will be bolstered by the sales of its Covid-19 antiviral pill.
  • For FedEx, revenue growth over the recent years was driven by shelter-in-place restrictions and the spread of the Covid-19 virus, resulting in more online orders, aiding its ground shipments.
  • Our FedEx Revenue and Pfizer Revenue dashboards provide more insight into the companies’ sales.
  • Looking forward, FedEx’s revenue growth over the next three years is expected to be better than Pfizer, which will see a decline from its Covid-19 vaccine. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 3.8% for FedEx, compared to a 1.6% CAGR for Pfizer, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. Pfizer Is More Profitable, And It Has A Better Debt Position

  • Pfizer’s operating margin of 26% over the last twelve-month period is much better than 8% for FedEx.
  • This compares with 14% and 8% figures seen in 2019, before the pandemic, respectively.
  • Pfizer’s free cash flow margin of 37% is better than 10% for FedEx.
  • Our FedEx Operating Income and Pfizer Operating Income dashboards have more details.
  • Looking at financial risk, FedEx’s debt as a percentage of equity of 80% is much higher than just 12% for Pfizer, while its 7% cash as a percentage of assets is higher than the 1% for the latter, implying that Pfizer has a better debt position and FedEx has more cash cushion.

3. The Net of It All

  • We see that Pfizer has demonstrated better revenue growth, is more profitable, and has better debt position. On the other hand, FedEx is available at a comparatively lower valuation.
  • However, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Pfizer is currently the better choice of the two, despite it being more expensive of the two.
  • The table below summarizes our revenue and return expectations for FedEx and Pfizer over the next three years and points to an expected return of 4% for FedEx over this period vs. a 22% expected return for Pfizer stock, implying that investors are better off buying PFE over FDX, based on Trefis Machine Learning analysis – FedEx vs. Pfizer – which also provides more details on how we arrive at these numbers.

While PFE stock may outperform FDX, 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 Medtronic vs. Masco.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns May 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
FDX Return 11% -15% 18%
PFE Return 10% -9% 66%
S&P 500 Return 1% -13% 86%
Trefis Multi-Strategy Portfolio 1% -16% 228%

[1] Month-to-date and year-to-date as of 5/30/2022
[2] Cumulative total returns since the end of 2016

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