Categories Analysis, Industrials

FedEx (FDX): Three factors that could drive growth going forward

FedEx believes the domestic parcel market volume in the US will be 72 million packages a day in FY2022

Shares of FedEx Corp. (NYSE: FDX) have gained 118% over the past 12 months and 13% since the beginning of the year. The company reported better-than-expected results for the fourth quarter of 2021 and there is a bullish sentiment in general surrounding the company and its growth prospects. Here are three areas that provide growth potential for FedEx going forward:

Ecommerce

The surge in ecommerce proved extremely beneficial for FedEx over the past year. The company witnessed strong parcel volume across its e-commerce solutions during FY2021 with growth in average daily volume across all its customer segments. FedEx also saw a year-over-year growth of 28% in its returns business through April thanks to ecommerce.

FedEx expects the momentum to continue in FY2022 with enterprise growth mainly driven by growth in US domestic ecommerce. On its quarterly conference call, the company said that the domestic parcel market in the US is anticipated to exceed 107 million packages a day in calendar year 2022, with 88% of the total market growth coming from ecommerce.

Excluding the volume from Amazon, FedEx believes the domestic parcel market volume in the US will be 72 million packages a day in FY2022. Looking ahead, the company projects the US domestic parcel market to reach 172 million packages a day in calendar year 2026.

Digital growth

FedEx is investing in improving its digital capabilities and infrastructure to improve its services. During FY2021, the company rolled out sensor-based technologies which proved beneficial during the transportation of COVID-19 vaccines.

The company will continue these investments through FY2022 and as part of these plans, it will add 16 new automated facilities to increase capacity as well as implement other technological enhancements.

International expansion

FedEx has significant opportunity in driving international growth. Global trade volume has surpassed pre-pandemic levels and the momentum is expected to continue. In FY2021, the company grew its ecommerce parcel volume out of Asia and Europe by over $1 billion compared to the previous year.

In the fourth quarter, FedEx launched an overnight service from Europe that connects 90% of European businesses to major US markets. This is expected to drive good growth for the international business. The restructuring in the company’s European business is expected to yield $275-350 million in benefits on an annual basis from FY2024.

According to TipRanks, the majority of analysts have given FedEx a strong Buy rating. The stock has a target price of $356.79, which reflects an upside of 21% from the current price level.

Click here to read the full transcript of FedEx Q4 2021 earnings conference call

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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