What To Expect From FedEx’s Q3 After 20% Gains In A Year?

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FedEx (NYSE: FDX) is scheduled to report its fiscal Q3 2024 results on Thursday, March 21. We expect it to post revenue in line and earnings above the street expectations. FedEx will likely see a marginal growth in its average daily volumes across its segments, and it should benefit from its cost reduction actions.  Our interactive dashboard analysis of FedEx’s Earnings Preview has additional details.

Looking at FDX stock performance, it has seen little change, moving slightly from levels of $260 in early January 2021 to around $255 now. This compares with an increase of about 35% for the S&P 500 over this roughly three-year period. Overall, the performance of FDX stock with respect to the index has been lackluster. Returns for the stock were 0% in 2021, -33% in 2022, and 46% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that FDX underperformed the S&P in 2021 and 2022.

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 GE, CAT, and UNP, 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.

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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? From a valuation perspective, FDX stock appears to have some room for growth.

(1) Revenues expected to align with the consensus estimates

  • Trefis estimates FedEx’s Q3 2024 revenues to be around $22.0 billion, reflecting a 1% y-o-y decline and aligning with the consensus estimate.
  • FedEx has had a tough few quarters amid falling delivery volumes. The weakening consumer demand, given high inflation, has weighed on the overall package delivery volumes.
  • FedEx’s total revenues declined 3% y-o-y to $22.2 billion in Q2, as better yields and volume for the Ground segment were offset by a decline in volume and yield for the Express segment. The Freight segment also witnessed a decline in volume, while its yields were up.
  • The company’s management stated that it improved its market share in the U.S. as well as the international market in Q2. We expect overall volumes to see marginal growth in Q3.
  • Our dashboard on FedEx’s Revenues offers more details on the company’s business segments.

(2) EPS likely to be above the consensus estimates

  • FedEx’s Q3 FY 2024 adjusted earnings per share (EPS) is expected to be $3.58 per Trefis analysis, higher than the consensus estimate of $3.49.
  • This compares with the $3.41 figure the company reported in the prior-year quarter.
  • FedEx’s adjusted net income of $1.0 billion in Q2 2024 reflected a 24% rise from the $815 million figure in the prior-year quarter. This can be attributed to the company’s initiatives to cut its costs, which resulted in operating margin expanding to 6.4% in Q2’24, versus 5.3% in the prior-year quarter.
  • This trend is expected to continue, with the company’s operating margins expected to expand y-o-y in Q3.
  • Looking forward, for the full-fiscal 2024, we expect the adjusted EPS to be higher at $17.57, compared to $14.96 in fiscal 2023.
  • FedEx expects its 2024 adjusted EPS to be in the range of $17.00 and $18.50.

(3) FDX stock has some room for growth

  • We estimate FedEx’s Valuation to be $284 per share, 11% above its current market price of $257.
  • Our estimate is based on a 16x forward expected adjusted earnings of $17.57, slightly above the 14x average over the last five years.
  • Overall, the market share gains for FedEx, and its focus on improving margins will aid FedEx’s growth in the near-term.
  • Furthermore, the potential rate cuts this year will bode well for the broader markets and likely FDX stock.
  • FDX stock will likely see higher levels if it reports upbeat Q3 results and raises its guidance for the full fiscal year.

While FDX stock looks like it has some 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.

Returns Mar 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 FDX Return 3% 1% 38%
 S&P 500 Return 2% 9% 131%
 Trefis Reinforced Value Portfolio -1% 3% 635%

[1] Returns as of 3/20/2024
[2] Cumulative total returns since the end of 2016

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