With 20% Gains In A Month Is Target A Better Pick Over FedEx Stock?

FDX: FedEx logo

Given its better prospects, we believe Target stock (NYSE: TGT) is a better pick than FedEx stock (NYSE: FDX). Although these companies are from different sectors, we compare them because they have a similar market capitalization of $60-65 billion. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. In the sections below, we discuss why we believe TGT will offer higher returns than FDX in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of FedEx vs. TargetWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

FDX stock has seen little change, moving slightly from levels of $260 in early January 2021 to around $260 now, while TGT stock has faced a notable decline of 25% from levels of $175 in early January 2021 to around $135 now, vs. an increase of about 20% for the S&P 500 over this roughly three-year period.

Overall, the performance of FDX stock with respect to the index has been quite volatile. Returns for the stock were 0% in 2021, -33% in 2022, and 49% in 2023 (YTD). Similarly, the decrease in TGT stock has been far from consistent, with returns of 31% in 2021, -36% in 2022, and -10% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 19% in 2023 (YTD) – indicating that FDX underperformed the S&P in 2021 and 2022 and TGT underperformed the S&P in 2022 and 2023.

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In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the industrials sector, including BA, UNP, and GE, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could FDX face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump? We expect some growth in both stocks in the next three years, but TGT will likely fare better between the two.

1. Target’s Revenue Growth Is Better

  • Target’s 12% average annual growth rate in the last three years is slightly better than 10% for FedEx.
  • The revenue growth for FedEx was driven by e-commerce growth, especially during the lockdown phase of the COVID-19 pandemic. Solid pricing growth bolstered the top-line growth.
  • However, the sales growth has slowed in recent quarters due to a weakening consumer spending environment. For perspective, FedEx saw its average daily package volume decline by 10%, 7%, and 11% for its Express, Ground, and Freight segments in 2023 (fiscal ends in May), respectively.
  • Target’s revenues increased from around $78 billion in 2019 to about $94 billion in 2020, due to the impact of COVID-19, as consumers stocked up on essentials which gave Target an edge over other retailers during this period. Moreover, sales rose to $109 billion in 2022, as demand picked up further.
  • However, demand has slowed in recent quarters amid weakening consumer spending.
  • If we look at the last twelve months, Target has seen its sales decline by 1.7%, while FedEx’s sales fell by 6.5%.
  • Our FedEx Revenue Comparison and Target Revenue Comparison dashboards provide more insight into the companies’ sales.
  • We expect FedEx’s revenue to grow at a slightly faster rate than Target over the next three years.

2. FedEx Is More Profitable

  • FedEx’s operating margin has risen from 3.3% in 2020 to 5.9% in 2023, while Target’s operating margin fell from 6.0% in 2019 to 3.5% in 2022.
  • Also, looking at the last twelve months period, FedEx’s operating margin of 6.9% fares better than 3.5% for Target.
  • The decline in operating margin for FedEx can be attributed to higher operational costs, primarily fuel and declining volumes.
  • Our FedEx Operating Income Comparison and Target Operating Income Comparison dashboards have more details.
  • Looking at financial risk, FedEx’s 75% debt as a percentage of equity is higher than 26% for Target, but its 8% cash as a percentage of assets is higher than 3% for the latter, implying that Target has a better debt position and FedEx has more cash cushion.

3. The Net of It All

  • We see that Target has demonstrated marginally better revenue growth and has a better debt position. On the other hand, FedEx is more profitable and has a better cash cushion.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Target is the better choice of the two.
  • Even if we compare the current valuation multiples to the historical averages, Target is better, with its stock currently trading at 0.6x revenues vs. the last five-year average of 0.8x. In contrast, FedEx’s stock trades at 0.7x revenues aligning with its last five-year average.
  • Our FedEx (FDX) Valuation Ratios Comparison and Target (TGT) Valuation Ratios Comparison offers more details.

While TGT may outperform FDX in the next three years, 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.

Returns Nov 2023
MTD [1]
YTD [1]
Total [2]
 FDX Return 8% 49% 39%
 TGT Return 21% -10% 85%
 S&P 500 Return 9% 19% 104%
 Trefis Reinforced Value Portfolio 9% 28% 557%

[1] Month-to-date and year-to-date as of 11/30/2023
[2] Cumulative total returns since the end of 2016

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