Will FedEx Stock See Higher Levels After A Mixed Q2?

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FedEx

FedEx stock (NYSE: FDX) is down 34% this year, compared to a 19% fall for the broader S&P500 index. After its recent fall, FDX stock can see higher levels. Due to a decline in delivery volumes, FedEx and other logistics companies have had a tough year. The big e-commerce surge seen through the lockdown phase of the Covid-19 pandemic is now cooling off. Furthermore, the weakening U.S. economy and high inflation further add to the woes. Our analysis of FedEx’s Revenue details how the company’s revenues are trending.

Earlier this week, the company reported its Q2 fiscal 2023 results (the fiscal year ends in May), with revenue of $22.8 billion, down 3% y-o-y, and falling well below our estimate of $23.9 billion, primarily due to softening volume. Average daily package volume was down 12% during the quarter. However, yields continued to improve, with composite package yield rising 8%.

The company continued to see a rise in costs, resulting in a nearly 180 bps y-o-y drop in operating margin to 5.3% on an adjusted basis. Our FedEx operating income comparison dashboard has more details. The company reported earnings of $3.18 on a per share and adjusted basis, reflecting a 34% y-o-y decline. However, this was well above our estimate of $2.96.

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FedEx in Q1 announced its plans to reduce costs, including shutting down some of its offices, cutting its flight frequencies, and canceling some of its network capacity projects, among other actions. The company expects to achieve $3.7 billion in cost savings in the current fiscal.

We have updated our model to reflect the latest quarterly results. We now estimate FedEx’s Valuation to be $195, reflecting a 15% upside from its current levels of $170. At its current levels, FDX stock is trading at under 12x forward expected adjusted earnings of $14.50 (vs. our prior estimate of $14.75), compared to an average of 15x seen over the last five years, implying that the stock has more room for growth. That said, there are near-term headwinds with fears of a recession in 2023, high inflation, 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 has more room for growth, 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 higher inflation and the Fed raising interest rates, among other factors, FedEx stock has fallen 34% 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 -7% -34% -9%
 S&P 500 Return -5% -19% 73%
 Trefis Multi-Strategy Portfolio -5% -21% 216%

[1] Month-to-date and year-to-date as of 12/22/2022
[2] Cumulative total returns since the end of 2016

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