What To Expect From FedEx’s Q3?

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FedEx (NYSE: FDX) is scheduled to report its fiscal Q3 2023 results on Thursday, Mar 16. We expect it to post revenue and earnings above the street expectations. The company should benefit from its cost reduction actions taken over the recent quarters. However, as discussed below, FDX stock is fully valued at its current price of $210. Our interactive dashboard analysis of FedEx’s Earnings Preview has additional details.

(1) Revenues expected to be marginally above the consensus estimates

  • Trefis estimates FedEx’s Q3 2023 revenues to be around $22.8 billion, reflecting a 3.6% y-o-y decline but marginally above the consensus estimate of $22.7 billion.
  • Due to a decline in delivery volumes, FedEx has had a tough few quarters. The giant e-commerce surge seen through the lockdown phase of the Covid-19 pandemic has cooled off. Furthermore, the weakening U.S. economy and high inflation further add to the woes.
  • 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 12%, and composite freight yield was up 8% for the six months ending Nov 2022.
  • However, the average daily package volume declined by 12% over this period.
  • FedEx’s total revenues declined 3% y-o-y to $22.8 billion in Q2, as better yields were more than offset by volume softness.
  • 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 2023 adjusted earnings per share (EPS) is expected to be $2.78 per Trefis analysis, higher than the consensus estimate of $2.72.
  • This compares with the $4.59 figure the company reported in the prior-year quarter.
  • FedEx’s adjusted net income of $815 million in Q2 2023 reflected a 37% fall from the $1.3 billion figure in the prior-year quarter. This can be attributed to an adverse impact of higher costs on the company’s operating margins, which fell to 5.3% vs. 7.1% over the same period.
  • This trend is expected to continue, with the company’s operating margins declining y-o-y in Q3.
  • Looking forward, for the full-fiscal 2023, we expect the EPS to be lower at $13.68, compared to $20.61 in fiscal 2022.

(3) FDX stock is fully valued

  • We estimate FedEx’s Valuation to be $199 per share, 5% below its current market price of $210.
  • At its current levels, FDX stock is trading at 15x forward expected adjusted earnings of $13.68, aligning with its last five-year average, implying that the stock is fully valued.
  • Furthermore, there are near-term headwinds with slowing economic growth, amid 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.
  • That said, FDX stock may see higher levels if it reports upbeat Q3 results and raises its guidance for the full fiscal year.

While FDX stock looks fully valued, 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 3% in the last twelve months. 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 Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 FDX Return 3% 21% 13%
 S&P 500 Return 1% 4% 78%
 Trefis Multi-Strategy Portfolio 2% 9% 243%

[1] Month-to-date and year-to-date as of 3/9/2023
[2] Cumulative total returns since the end of 2016

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