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Solid Liquidity Aids FedEx (FDX) Amid High Capital Expenses

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We have recently updated a report on FedEx Corporation (FDX - Free Report) .

FedEx has an impressive Growth Score of B. This style score condenses all the essential metrics from the company’s financial statements to get a true sense of quality and sustainability of growth.

FedEx's liquidity position is strong. The company's current ratio, a measure of liquidity, was pegged at 1.49 at the end of the second quarter of fiscal 2022 compared with the industry's average of 1.47. This liquidity ratio measures a company's ability to pay short-term obligations. The company exited the second quarter of fiscal 2022 with cash and equivalents of $6,833 million, much higher than its current debt of $117 million.

We are also pleased with the company’s efforts to reward its shareholders, despite current uncertainties. In June 2021, FedEx raised its quarterly dividend by 10 cents to 75 cents per share (or $3 annually). In December 2021, FedEx's board cleared a new share buyback scheme worth $5 billion. As part of the buyback program, FedEx entered into an accelerated buyback agreement with Goldman Sachs. Per the agreement, FedEx agreed to buy back $1.5B of its common stock from Goldman, with an initial delivery of approximately 4.8 million shares based on current market prices.

In second-quarter fiscal 2022, capital expenditures increased 12% from the prior-year period’s levels to $1.57 billion due to the company’s increased spending on package handling equipment, information technology and aircraft. The company expects capital expenditures to be $7.2 billion in fiscal 2022, higher than $5.88 billion incurred in fiscal 2021. The capital spending will primarily be aimed at capacity expansion, fleet and facility modernization and increased automation. The increase in capital spending in fiscal 2022 is likely to dent profit margins.

Zacks Rank & Stocks to Consider

FedEx currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Transportation sector are J.B. Hunt Transport Services, Inc. (JBHT - Free Report) , Union Pacific Corporation (UNP - Free Report) and Triton International Limited .

The long-term expected EPS (three to five years) growth rate for J.B. Hunt is pegged at 15%. JBHT is benefiting from strong performances across all its segments. While the Dedicated Contract Services (DCS) unit is being aided by fleet-productivity improvement and a rise in average revenue-producing trucks, the Integrated Capacity Solutions (ICS) unit is gaining from favorable customer freight mix as well as higher contractual and spot rates.

JBHT’s measures to reward shareholders are encouraging. Driven by the tailwinds, the stock has increased 31.3% in the past year. J.B. Hunt currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term expected EPS (three to five years) growth rate for Union Pacific is pegged at 10%. With economic activities gaining pace, freight revenues (accounting for a bulk of the top line) are improving. Freight revenues increased 11% year over year in 2021. Segment-wise, freight revenues in 2021 increased 12%, 11% and 11% in the bulk, industrial and premium units, respectively.

Driven by the tailwinds, the stock has increased 17.8% in the past year. UNP currently carries a Zacks Rank #2 (Buy).

The long-term expected EPS (three to five years) growth rate for Triton is pegged at 10%. Gradual increases in trade volumes and container demand bode well for the company. With easing coronavirus-led restrictions in the United States and Europe, the company saw a strong rebound in its business in the third, the fourth of 2020 and in each of the four quarters of 2021.

Driven by the tailwinds, the stock has increased 16.2% in the past year. TRTN currently carries a Zacks Rank #2.
 


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