Should You Pick FedEx Stock At $300 After An Upbeat Q4?

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FedEx stock (NYSE: FDX) saw a 15% rise on Wednesday, June 26, after it reported Q4’24 results (fiscal ends in May) better than the street estimates. FDX stock is up 17% year-to-date, compared to -12% returns for its peer – UPS stock (NYSE:UPS). FedEx’s Q4 revenue and earnings largely aligned with our expectations. The company reported revenue of $22.1 billion and adjusted earnings of $5.41 per share, compared to our estimates of $22.2 billion, and $5.40, respectively. This compares with the consensus estimates of $22.0 billion and $5.35, respectively. Not only did FedEx beat earnings, it announced a drop in capital spending, boding well for its stock.

Looking at a slightly longer term, FDX stock has seen around 15% gains from levels of $260 in early January 2021 to around $300 now, vs. an increase of about 45% for the S&P 500 over this 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, we think FDX stock has a little room for growth, after its recent 15% move. We estimate FedEx’s Valuation to be $318 per share, reflecting just 7% upside from its current levels. Our forecast is based on a 15x forward expected adjusted earnings of $21.00, slightly above the 14x average over the last five years.

FedEx’s Revenue rose 1% y-o-y to $22.1 billion, primarily due to slightly higher yields for both Express and Ground segments. The average daily volume was down 1% for Express but up 1% for the Ground segment. FedEx also saw its adjusted operating margin expand by 40 bps to 8.5% in Q4’24. This clubbed with a 2% decline in average shares outstanding, amid share repurchases, resulted in a 10% rise in the bottom line to $5.41 on an adjusted basis.

Looking forward, FedEx expects a low single-digit rise in total revenues for fiscal 2025. FedEx is in the midst of its $4 billion cost-saving efforts by the end of fiscal 2025. Moving in that direction, it expects its fiscal 2025 capital spending to be $5.2 billion, aligning with the fiscal 2024 levels. It expects its earnings to be in the range of $20 and $22. We forecast the 2025 revenue to be around $90.3 billion, reflecting a 3% y-o-y rise, and adjusted earnings to be $21.00, versus $17.80 in fiscal 2024. While FedEx will likely benefit from its market share gains in parcel delivery and its focus on improving margins, the company faces headwinds from the loss of a large client – United States Postal Service – to UPS.

While FDX stock looks like it has a little room for growth, which will likely come in today’s trading session, 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 Jun 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 FDX Return 17% 17% 59%
 S&P 500 Return 4% 15% 144%
 Trefis Reinforced Value Portfolio 2% 6% 656%

[1] Returns as of 6/26/2024
[2] Cumulative total returns since the end of 2016

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