Should You Buy FedEx Stock After Q3 Earnings Beat?

FDX: FedEx logo

FedEx stock (NYSE: FDX) is up 13% in a week, compared to a 3% rise for the broader S&P500 index. After its recent surge, FDX stock looks appropriately priced, in our view. 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 has now cooled 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.

Last week, the company reported its Q3 fiscal 2023 results (the fiscal year ends in May), with revenue of $22.2 billion, down 6% y-o-y, and falling below our estimate of $22.8 billion, primarily due to softening volume. Average daily package volume was down 11% during the quarter. However, yields continued to improve, with composite package yield rising by 3%.

The company’s overall costs remained elevated, resulting in a nearly 90 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 $3.41 on a per-share and adjusted basis, reflecting a 26% y-o-y decline. However, this was well above our estimate of $2.78. FedEx, in fiscal 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. FedEx is on track to cut its expenses by $4 billion by the end of fiscal 2025. The company revised its earnings outlook for fiscal 2023. It now expects adjusted earnings to fall between $14.60 and $15.20 vs. its prior forecast of $13.00 to $14.00. This outlook boded well with the investors, evident from the stock price action over the last five days.

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We have updated our model to reflect the latest quarterly results. We now estimate FedEx’s Valuation to be $236, reflecting a 7% upside from its current levels of $220. At its current levels, FDX stock is trading at a little under 15x forward expected adjusted earnings of $15.02 (vs. our prior estimate of $13.68, and within the company’s provided range), compared to an average of 14x seen over the last four years, implying that the stock is appropriately priced. Furthermore, 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 appropriately 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]
YTD [1]
Total [2]
 FDX Return 8% 27% 18%
 S&P 500 Return 1% 4% 79%
 Trefis Multi-Strategy Portfolio -1% 6% 234%

[1] Month-to-date and year-to-date as of 3/22/2023
[2] Cumulative total returns since the end of 2016

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