Will FedEx Stock Rise Post Q2 Results?

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Trefis
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FedEx

FedEx (NYSE: FDX) is scheduled to report its fiscal Q2 2023 results on Tuesday, Dec 20. We expect FedEx to post revenue and earnings above the street expectations. The company’s revenue growth is likely to be led by better yield for its domestic and international businesses. However, the company’s costs will likely remain elevated and weigh on the bottom line for Q2. Not only do we expect the company to post upbeat results, we find its stock to be undervalued at its current level of $173, as discussed 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 Q2 2023 revenues to be around $23.9 billion, reflecting a 1.7% y-o-y growth and slightly above the consensus estimate of $23.7 billion.
  • FedEx has guided revenue to be between $23.5 and $24.0 billion in Q2.
  • The company has been able to grow its yield over the recent quarters, a trend expected to continue in the near term. For perspective, composite package yield was up 16%, and composite freight yield was up 12% in the previous quarter.
  • However, the average daily volume declined by 11% during the quarter.
  • FedEx’s total revenues grew 6% y-o-y to $23.2 billion in Q1, as volume softness was more than offset by better yields.
  • All three segments – Express, Ground, and Freight saw sales growth in Q1. 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 Q2 FY 2023 adjusted earnings per share (EPS) is expected to be $2.96 per Trefis analysis, higher than the consensus estimate of $2.83.
  • The company has guided for adjusted EPS to be over $2.75 in Q2.
  • FedEx’s adjusted net income of $905 million in Q1 2023 reflected a 23.8% drop from the $1.2 billion figure in the prior-year quarter. This can be attributed to an adverse impact of higher costs on the company’s operating margins.
  • Looking forward, for the full-fiscal 2023, we expect the EPS to be lower at $14.75, compared to $20.61 in fiscal 2022.

(3) FDX stock is undervalued

  • We estimate FedEx’s Valuation to be $235 per share, which is a significant 35% above its current market price of $173.
  • At its current levels, FDX stock is trading at just 12x forward expected adjusted earnings of $14.75, compared to an average of 15x seen over the last five years, implying that the stock is undervalued.
  • That said, there are near-term headwinds with fears of a recession in 2023, high inflation and rising interest rates, and a strengthening dollar, which is likely to weigh on the overall earnings for FedEx in the near term.

While FDX stock looks like it can see higher levels, it is helpful to see how FedEx’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 at 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 33% this year. Can it drop more? See how low FedEx 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.

Returns Dec 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 FDX Return -5% -33% -7%
 S&P 500 Return -5% -18% 74%
 Trefis Multi-Strategy Portfolio -4% -21% 218%

[1] Month-to-date and year-to-date as of 12/16/2022
[2] Cumulative total returns since the end of 2016

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