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FedEx: Poised for Valuation Expansion

Stock MarketsSep 28, 2021 07:00PM ET
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© Reuters. FedEx: Poised for Valuation Expansion

FedEx (NYSE:FDX) provides a broad portfolio of transportation, e-commerce, and business services through its various subsidiaries under the respected FedEx brand.

The company comprises four core segments: FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services. It provides domestic and international shipping for package delivery and freight. It also offers sales, marketing, information technology, customer service, technical support, billing, and collection services.

While the COVID-19 pandemic disrupted global supply lines and caused heavy logistical issues, it also highlighted the essential nature of FedEx's operations.

The company has flourished during the past couple of years, capitalizing on surging e-commerce sales volumes. FedEx has retained strong momentum, which its most recent results coming in very strong.

Yet, shares seem to be considerably undervalued. For this reason, I am bullish on the stock. (See FDX stock charts on TipRanks)

Q1: A Solid Quarter

FedEx recently reported its Q1 2022 financial results for the three-month period ending August 31. Revenues grew 14% to $22 billion versus the comparable quarter a year ago.

Revenues advanced fundamentally amid increased package and freight yields, and elevated international export express shipments. Additionally, despite increased costs to cover the grown demand for deliveries, due to effective cost management and lower fuel costs, FedEx Freight posted record operating margins of 17.3%.

Nonetheless, due to additional expenses related to a constrained labor market, non-GAAP EPS came in at $4.37 versus $4.87 in Q1 2021.

FedEx continues to execute a critical role in worldwide economic recovery while delivering COVID-19 vaccines and relief supplies. In addition, the continuous e-commerce rush should continue pushing the company's financials to new highs.

Specifically, management estimates FY2022 EPS of $18.25 to $19.50 before the MTM (market-to-market) retirement plan accounting adjustments.

If we are to exclude the predicted expenses associated with TNT Express' integration with FedEx, EPS should land anywhere from $19.75 to $21. Recognizing the non-recurring nature of these outflows, the company's fair EPS generation can be estimated to be the midpoint of the second EPS range, which is $20.40. 

The Valuation

Based on the company's projected EPS, as we just assumed, the stock is trading at a forward P/E of around 10.9, which is amongst the company's lowest multiples over the past decade.

For this reason, the stock is significantly undervalued, considering that EPS should grow at a decent rate. Specifically, profitability growth should be powered by FedEx's upcoming rate increases. The company announced it will increase its shipping rates by an average of 5.9%, effective January 3, 2022.

Wall Street's Take

Turning to Wall Street, FedEx has a Strong Buy consensus rating, based on 17 Buys, and four Holds, and zero Sells assigned in the past three months. At $308.08, the average FDX price target implies 38.9% upside potential.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

FedEx: Poised for Valuation Expansion
 

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Lee Reynolds
Lee Reynolds Sep 28, 2021 7:46PM ET
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Fedex has to dramatically improve service from where it is today.
 
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