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FDX stock is trading at a discount with a forward 12-month P/E of 12.7X compared with the industry’s 14.3X.
Image Source: Zacks Investment Research
FDX is cheaper than its rival, United Parcel Service (UPS - Free Report) , and another industry player, Air Transport Services Group (ATSG - Free Report) . FDX’s cheap valuation is attractive for investors. However, is it worth buying at current prices?
Let’s dig deeper to find out.
Factors Working for FDX
FDX’s endeavors to expand its operations are commendable. Prudent investments enable it to extend services and solidify its comprehensive offerings. To combat demand weakness, FDX is focused on reducing structural costs through its DRIVE program initiatives.
DRIVE initiatives are expected to result in savings worth $4 billion by fiscal 2025 compared with the fiscal 2023 baseline. The company has implemented significant new pricing actions related to both demand and fuel surcharges, whose benefits can be seen in the coming quarters. These cost-reduction initiatives include reducing flight frequencies, parking aircraft and cutting staff.
The company’s efforts to reward its shareholders are commendable. In June 2024, FedEx raised its quarterly dividend by 10% to $1.38 per share (or $5.52 annually). Dividend stocks like FDX are generally safe bets for creating wealth, as these payouts act as a hedge against economic uncertainty.
FDX is also active on the buyback front. Supported by its healthy cash balance and strong adjusted free cash flow, FDX repurchased $1 billion worth of shares in the fiscal first quarter and aims to buy back an additional $1 billion in the ongoing quarter.
FDX's financial metrics indicate that its leverage is not elevated and is a massive positive for its shareholders. The long-term debt burden of the company was $19.7 billion at the end of the first quarter of fiscal 2025 (ended Aug. 31, 2024). FDX’s long-term debt burden at fiscal 2021-end was higher at $20.7 billion.
Long-Term Debt to Capitalization
Image Source: Zacks Investment Research
Dismal Q1 Results & FY2025 View
On Sept. 19, 2024, FedEx reported lower-than-expected earnings per share and revenues. The transportation heavyweight lowered its fiscal 2025 earnings per share outlook, highlighting the weak demand scenario.
Results were hurt by lower demand for higher-margin priority services with market conditions remaining challenging. During the quarter, FDX witnessed a reduction in demand for priority services, and higher demand for deferred services and low yield growth. These factors, apart from higher operating expenses, one less operating day and low U.S. domestic package volumes, negatively impacted the quarterly results. Average daily shipments fell 3% year over year.
Given the weak demand scenario, FedEx expects fiscal 2025 earnings per share (after excluding costs related to business optimization initiatives) in the $20-$21 range, down from the previous guidance of $20-$22. The revenue growth outlook was also adjusted to a low-single-digit percentage (earlier expectation was for a low- to mid-single-digit percentage growth).
Naturally, the lackluster results and the bleak outlook disappointed investors, as reflected in the stock’s price performance since Sept. 19.
Image Source: Zacks Investment Research
Due to the lackluster results and the fiscal 2025 outlook cut, earnings per share estimates have been moving southward.
Image Source: Zacks Investment Research
FDX shares are trading below the 50-day and 200-day moving averages, indicating a bearish trend.
Image Source: Zacks Investment Research
What Should Investors Do With FDX Shares?
For long-term investors, a single quarter’s results are not so important. They would rather base their investment decision on the underlying fundamentals. FDX scores impressively on that front, driven by its strong operating model.
The company’s long-term (3-5 years) earnings growth rate is 12.7%, higher than its industry’s 11.3%. Despite near-term challenges, it’s worth noting that the company has the brand and the network to continue generating steady cash flows in the long run.
There is no doubt that the stock is attractively valued, and shareholder-friendly initiatives attest to FDX’s financial bliss. However, given the headwinds mentioned in the write-up, we believe that it is not at all advisable to buy this Zacks Rank #3 (Hold) stock currently. With declining earnings estimates, the stock is witnessing negative investor sentiments.
Investors should monitor the company’s developments closely for an appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s current Zacks Rank supports our thesis.
Image: Bigstock
FDX Stock Trading Lower Than Industry at 12.7x PE: Time to Buy?
FedEx Corporation (FDX - Free Report) shares are one of the cheaper stocks in the broader Zacks Transportation - Air Freight and Cargo industry with a Value Score of A.
FDX stock is trading at a discount with a forward 12-month P/E of 12.7X compared with the industry’s 14.3X.
FDX is cheaper than its rival, United Parcel Service (UPS - Free Report) , and another industry player, Air Transport Services Group (ATSG - Free Report) . FDX’s cheap valuation is attractive for investors. However, is it worth buying at current prices?
Let’s dig deeper to find out.
Factors Working for FDX
FDX’s endeavors to expand its operations are commendable. Prudent investments enable it to extend services and solidify its comprehensive offerings. To combat demand weakness, FDX is focused on reducing structural costs through its DRIVE program initiatives.
DRIVE initiatives are expected to result in savings worth $4 billion by fiscal 2025 compared with the fiscal 2023 baseline. The company has implemented significant new pricing actions related to both demand and fuel surcharges, whose benefits can be seen in the coming quarters. These cost-reduction initiatives include reducing flight frequencies, parking aircraft and cutting staff.
The company’s efforts to reward its shareholders are commendable. In June 2024, FedEx raised its quarterly dividend by 10% to $1.38 per share (or $5.52 annually). Dividend stocks like FDX are generally safe bets for creating wealth, as these payouts act as a hedge against economic uncertainty.
FDX is also active on the buyback front. Supported by its healthy cash balance and strong adjusted free cash flow, FDX repurchased $1 billion worth of shares in the fiscal first quarter and aims to buy back an additional $1 billion in the ongoing quarter.
FDX's financial metrics indicate that its leverage is not elevated and is a massive positive for its shareholders. The long-term debt burden of the company was $19.7 billion at the end of the first quarter of fiscal 2025 (ended Aug. 31, 2024). FDX’s long-term debt burden at fiscal 2021-end was higher at $20.7 billion.
Long-Term Debt to Capitalization
Dismal Q1 Results & FY2025 View
On Sept. 19, 2024, FedEx reported lower-than-expected earnings per share and revenues. The transportation heavyweight lowered its fiscal 2025 earnings per share outlook, highlighting the weak demand scenario.
Results were hurt by lower demand for higher-margin priority services with market conditions remaining challenging. During the quarter, FDX witnessed a reduction in demand for priority services, and higher demand for deferred services and low yield growth. These factors, apart from higher operating expenses, one less operating day and low U.S. domestic package volumes, negatively impacted the quarterly results. Average daily shipments fell 3% year over year.
Given the weak demand scenario, FedEx expects fiscal 2025 earnings per share (after excluding costs related to business optimization initiatives) in the $20-$21 range, down from the previous guidance of $20-$22. The revenue growth outlook was also adjusted to a low-single-digit percentage (earlier expectation was for a low- to mid-single-digit percentage growth).
Naturally, the lackluster results and the bleak outlook disappointed investors, as reflected in the stock’s price performance since Sept. 19.
Due to the lackluster results and the fiscal 2025 outlook cut, earnings per share estimates have been moving southward.
FDX shares are trading below the 50-day and 200-day moving averages, indicating a bearish trend.
What Should Investors Do With FDX Shares?
For long-term investors, a single quarter’s results are not so important. They would rather base their investment decision on the underlying fundamentals. FDX scores impressively on that front, driven by its strong operating model.
The company’s long-term (3-5 years) earnings growth rate is 12.7%, higher than its industry’s 11.3%. Despite near-term challenges, it’s worth noting that the company has the brand and the network to continue generating steady cash flows in the long run.
There is no doubt that the stock is attractively valued, and shareholder-friendly initiatives attest to FDX’s financial bliss. However, given the headwinds mentioned in the write-up, we believe that it is not at all advisable to buy this Zacks Rank #3 (Hold) stock currently. With declining earnings estimates, the stock is witnessing negative investor sentiments.
Investors should monitor the company’s developments closely for an appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s current Zacks Rank supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.