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Here's Why You Should Hold on to FedEx (FDX) Stock Now
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FedEx Corporation’s (FDX - Free Report) cost-cutting initiatives are commendable. The announcement of DRIVE, a comprehensive program to improve the company’s long-term profitability, is impressive. However, weakness in FDX's largest segment, the Express unit, owing to volume-related woes is a major headwind.
Factors Favoring FDX
FedEx's efforts to control costs in the face of persistent revenue weakness are impressive. The announcement of DRIVE is expected to result in permanent savings of $1.8 billion this fiscal year and $2.2 billion in fiscal 2025. We expect adjusted operating costs to fall 3.7% year over year in fiscal 2024.
Despite near-term challenges, FedEx is actively rewarding its shareholders through dividends and buybacks, leveraging its strong brand and extensive network to sustain steady cash flows over the long term. In 2023, the company increased its quarterly dividend by 10% to $1.26 per share ($5.04 annually) and repurchased $1.5 billion worth of shares. In 2024, FedEx plans to repurchase $2.5 billion in shares and distribute $1.3 billion in dividends.
FedEx has a robust liquidity position. FDX's current ratio (a measure of liquidity) was pegged at 1.31 at the end of the third quarter of fiscal 2024. A current ratio of more than 1 indicates that the company's assets will be able to cover its short-term obligations that fall due before the end of the year. The reading also compares favorably with its industry's 1.14.
Key Risks
The underperformance of the Express Unit resulted in a significant decline of 6% year over year in the first nine months of fiscal 2024 in segmental revenues amid geopolitical uncertainty and higher inflation. This decline impacted FedEx's top line, which decreased by 4% in the same period.
Moreover, FedEx’s Freight revenues experienced an 8% decline during this period. The company anticipates a further decrease in fiscal 2024 revenues in the low single digits.
In fiscal 2024, the company anticipates approximately $5.4 billion in capital spending. High capital expenditures during revenue or demand weakness are undesirable. Moreover, the volatility of FDX shares further makes it an unappealing investment option for investors.
Shares of FedEx have risen 11.2% over the past year compared with its industry’s 23.5% appreciation.
WAB has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering an average surprise of 11.5%. Shares of Wabtec have surged 69.6% in the past year.
KEX currently sports a Zacks Rank #1 and has an expected earnings growth rate of 42.2% for the current year.
The company has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 10.3%. Shares of KEX have surged 59.3% in the past year.
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Here's Why You Should Hold on to FedEx (FDX) Stock Now
FedEx Corporation’s (FDX - Free Report) cost-cutting initiatives are commendable. The announcement of DRIVE, a comprehensive program to improve the company’s long-term profitability, is impressive. However, weakness in FDX's largest segment, the Express unit, owing to volume-related woes is a major headwind.
Factors Favoring FDX
Key Risks
Image Source: Zacks Investment Research
Zacks Rank
Stocks to Consider
Some better-ranked stocks from the Zacks Transportation sector are Wabtec Corporation (WAB - Free Report) and Kirby Corporation (KEX - Free Report) .
WAB currently sports a Zacks Rank #1 (Strong Buy) and has an expected earnings growth rate of 22.6% for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.
WAB has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering an average surprise of 11.5%. Shares of Wabtec have surged 69.6% in the past year.
KEX currently sports a Zacks Rank #1 and has an expected earnings growth rate of 42.2% for the current year.
The company has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 10.3%. Shares of KEX have surged 59.3% in the past year.