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Here's Why Investors Should Retain FedEx Shares for Now
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FedEx Corporation’s (FDX - Free Report) bottom line is bolstered by robust cost-saving initiatives, resulting in improved operational efficiency. A shareholder-friendly approach bodes well for the company. However, FDX grapples with weakness in the FedEx Express segment due to lower international yields.
Factors Favoring FDX
FDX’s multi-year plan, Network 2.0, announced in April 2023, is improving its performance by simplifying routes, lowering costs and increasing efficiency. Network 2.0 is already active in more than 50 locations, with plans to expand to dozens more by the end of 2024. FDX will continue its transformation in fiscal 2025, aiming for adjusted EPS growth between 12% and 24%.
FedEx’s DRIVE program is continuing to improve operational efficiency despite industry-wide revenue challenges. The program saved the company $1.8 billion in fiscal 2024, including $500 million from air and international operations, $550 million from administrative costs through centralized procurement and $750 million from surface networks by increasing rail usage. Management is aiming for $4 billion in cost savings in fiscal 2025 and an additional $2 billion from Network 2.0 in fiscal 2027.
FDX’s shareholder-friendly approach is encouraging. During fiscal 2024, FedEx returned approximately $3.8 billion to stockholders by repurchasing $2.5 billion worth of stock and paying $1.3 billion in dividends. In June 2024, FDX increased its quarterly dividend by 10% to $1.38 per share (or $5.52 annually). For fiscal 2025, the company expects to repurchase $2.5 billion of common stock, including $1.0 billion during the first fiscal quarter.
FedEx's fleet upgrade efforts are commendable. In the fourth quarter of fiscal 2024, the company permanently retired 22 Boeing 757-200 aircraft and seven related engines as part of its strategy to modernize its air fleet, enhance global network efficiency and better align air network capacity with current and future demand. Capital expenditures for fiscal 2024 totaled $5.2 billion, reflecting a 16% year-over-year decrease, as FedEx continues to optimize its investments while advancing its operational goals.
Shares of FedEx have rallied 13.7% in the past year compared with its industry’s decline of 10.2% in the same period.
Image Source: Zacks Investment Research
FedEx: Risks to Watch
Soft demand market conditions in FedEx's Freight and Express segments are a major headwind, particularly in the international air freight sector. The company faces pressure on international yields due to a combination of increased global air cargo capacity, tapering export demand surcharges, and a shift toward deferred services. These factors could potentially hamper the company’s bottom line and weigh on its overall financial performance.
Capital spending for fiscal 2024 was $5.2 billion, down 16% year over year, but still remained at an elevated level.High capex in times of weak demand is undesirable. Moreover, the volatility of FDX shares further makes it an unappealing investment option for investors.
Zacks Rank
FDX currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include C.H. Robinson Worldwide (CHRW - Free Report) and Westinghouse Air Brake Technologies (WAB - Free Report) .
The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 7.3%. Shares of CHRW have risen 17.5% in the past year.
WAB carries a Zacks Rank #2 (Buy) at present and has an expected earnings growth rate of 26% for the current year.
The company has a discouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters. The average beat is 11.8%. Shares of WAB have climbed 49.8% in the past year.
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Here's Why Investors Should Retain FedEx Shares for Now
FedEx Corporation’s (FDX - Free Report) bottom line is bolstered by robust cost-saving initiatives, resulting in improved operational efficiency. A shareholder-friendly approach bodes well for the company. However, FDX grapples with weakness in the FedEx Express segment due to lower international yields.
Factors Favoring FDX
FDX’s multi-year plan, Network 2.0, announced in April 2023, is improving its performance by simplifying routes, lowering costs and increasing efficiency. Network 2.0 is already active in more than 50 locations, with plans to expand to dozens more by the end of 2024. FDX will continue its transformation in fiscal 2025, aiming for adjusted EPS growth between 12% and 24%.
FedEx’s DRIVE program is continuing to improve operational efficiency despite industry-wide revenue challenges. The program saved the company $1.8 billion in fiscal 2024, including $500 million from air and international operations, $550 million from administrative costs through centralized procurement and $750 million from surface networks by increasing rail usage. Management is aiming for $4 billion in cost savings in fiscal 2025 and an additional $2 billion from Network 2.0 in fiscal 2027.
FDX’s shareholder-friendly approach is encouraging. During fiscal 2024, FedEx returned approximately $3.8 billion to stockholders by repurchasing $2.5 billion worth of stock and paying $1.3 billion in dividends. In June 2024, FDX increased its quarterly dividend by 10% to $1.38 per share (or $5.52 annually). For fiscal 2025, the company expects to repurchase $2.5 billion of common stock, including $1.0 billion during the first fiscal quarter.
FedEx's fleet upgrade efforts are commendable. In the fourth quarter of fiscal 2024, the company permanently retired 22 Boeing 757-200 aircraft and seven related engines as part of its strategy to modernize its air fleet, enhance global network efficiency and better align air network capacity with current and future demand. Capital expenditures for fiscal 2024 totaled $5.2 billion, reflecting a 16% year-over-year decrease, as FedEx continues to optimize its investments while advancing its operational goals.
Shares of FedEx have rallied 13.7% in the past year compared with its industry’s decline of 10.2% in the same period.
Image Source: Zacks Investment Research
FedEx: Risks to Watch
Soft demand market conditions in FedEx's Freight and Express segments are a major headwind, particularly in the international air freight sector. The company faces pressure on international yields due to a combination of increased global air cargo capacity, tapering export demand surcharges, and a shift toward deferred services. These factors could potentially hamper the company’s bottom line and weigh on its overall financial performance.
Capital spending for fiscal 2024 was $5.2 billion, down 16% year over year, but still remained at an elevated level.High capex in times of weak demand is undesirable. Moreover, the volatility of FDX shares further makes it an unappealing investment option for investors.
Zacks Rank
FDX currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include C.H. Robinson Worldwide (CHRW - Free Report) and Westinghouse Air Brake Technologies (WAB - Free Report) .
C.H. Robinson Worldwide currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. CHRW has an expected earnings growth rate of 25.2% for the current year.
The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 7.3%. Shares of CHRW have risen 17.5% in the past year.
WAB carries a Zacks Rank #2 (Buy) at present and has an expected earnings growth rate of 26% for the current year.
The company has a discouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters. The average beat is 11.8%. Shares of WAB have climbed 49.8% in the past year.