FedEx Stock And This E-Commerce Giant May Offer Similar Returns

We think  FedEx stock (NYSE: FDX) and Amazon stock (NASDAQ: AMZN) may offer similar returns over the next few years. Although FedEx is trading at a comparatively lower valuation of 0.6x trailing revenues than 2.2x for Amazon, this gap in the valuation is justified given Amazon’s superior revenue growth and lower financial risk, as discussed below.

If we look at stock returns, FedEx has seen a fall of 13% so far this year while Amazon is down 20%, both underperforming the broader indices, with the S&P 500 index down 11%. The logistics stocks have been weighed down due to rising costs. The giant e-commerce surge seen through the lockdown phase of the Covid-19 pandemic is now cooling off, reflected in revenue growth rates and stock prices for e-commerce-related companies.

There is more to the comparison, and in the sections below, we discuss the possible stock returns for FDX and AMZN 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. Amazon: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Amazon’s Revenue Growth Is Better

• FedEx’s revenue growth of 10.7% over the last twelve months is lower than 14.0% for Amazon.
• Even if we look at a longer time frame, FedEx saw its sales rise at an average annual growth rate of 10.7% to $93.5 billion in fiscal 2022, compared to $69.7 billion in fiscal 2019 (Fiscal year for FedEx ends in May), while Amazon’s sales rose at an average growth rate of 26.6% to $469.8 billion in 2021, compared to $232.9 billion in 2018.
• For both companies, revenue growth over the recent years was driven by shelter-in-place restrictions and the spread of the Covid-19 virus, resulting in e-commerce growth. However, this trend is now cooling off, reflecting revenue growth rates and delivery volumes.
• However, Amazon has more revenue streams, including online and physical stores, third-party seller services, subscription services, advertising services, and amazon web services (AWS).
• Our FedEx Revenue and Amazon Revenue dashboards provide more insight into the companies’ sales.
• Looking forward, Amazon’s revenue growth over the next three years is expected to be better than FedEx’s. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 5.0% for FedEx, compared to a 16.2% CAGR for Amazon, 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 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.

2. FedEx Is More Profitable, But Comes With Higher Risk

• FedEx’s operating margin of 5.8% over the last twelve-month period is slightly better than 4.5% for Amazon.
• This compares with a 4.3% operating margin for FedEx in fiscal 2020, and 5.8% for Amazon in 2019, before the pandemic.
• FedEx’s free cash flow margin of 10.6% is better than 8.2% for Amazon.
• Our FedEx Operating Income and Amazon Operating Income dashboards have more details.
• Looking at financial risk, Amazon is better placed among the two. Its debt as a percentage of equity of 3.5% is much lower than 81.9% for FedEx, while its 16.2% cash as a percentage of assets is higher than the 8.0% for the latter, implying that Amazon has a better debt position and has more cash cushion.

3. The Net of It All

• We see that Amazon has demonstrated better revenue growth over recent years and comes with lower financial risk. On the other hand, FedEx is more profitable currently and is trading at a comparatively lower valuation.
• Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe both FDX and AMZN are likely to offer similar returns over the next few years.
• The table below summarizes our revenue and return expectations for FedEx and Amazon over the next three years and points to an expected return of 19% for FedEx over this period vs. a 24% expected return for Amazon stock, implying that investors can choose either of the two or both if they are looking to invest in the logistics/e-commerce stocks, based on Trefis Machine Learning analysis – FedEx vs. Amazon – which also provides more details on how we arrive at these numbers.

While FDX and AMZN stocks look like both can see higher levels, it is helpful to see how FedEx’s Peers and Amazon’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, 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 FedEx vs. Amerco.

With inflation rising and the Fed raising interest rates, among other factors, FedEx stock has fallen 13%, and Amazon stock is down 20% this year. Can they drop more? See how low FedEx stock can go and how low Amazon stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

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.

[1] Month-to-date and year-to-date as of 8/25/2022
[2] Cumulative total returns since the end of 2016