Categories Analysis, Industrials

FedEx Stock: FDX looks set to regain altitude after recent dip

Contributions from TNT Express, which has joined the FedEx fold, are expected to continue driving growth

The acceleration in the adoption of e-commerce during the pandemic came as a boon not only for retail companies but also for other businesses like FedEx Corporation (NYSE: FDX). As the COVID situation improves, the cargo giant is busy implementing various measures to maintain volume growth, while tackling cost pressures and supply chain issues.

Last week, FedEx’s stock made one of the biggest daily gains after the company reported fourth-quarter results and issued guidance. The market was particularly impressed by the management’s bullish outlook for the current fiscal year. After the recent gains, FDX is once again hovering near its long-term average but the valuation looks just right.

The Memphis-headquartered package delivery company’s growth initiatives like strategic acquisitions and expansion into new markets should have a positive effect on the business going forward. Its performance in the stock market should get a push from the encouraging forecast and positive investor sentiment.

A Good Buy?

In short, the pros outweigh the cons when it comes to investing in FedEx, which is comfortably positioned to set new records this year. Recently, the management brought cheer to shareholders by hiking the dividend by more than 50%. It is one of the least risky stocks, thanks to the company’s strong fundamentals and healthy balance sheet. It would not be wrong to say that this is a golden opportunity to own the stock — one that serious investors wouldn’t want to miss.

Read management/analysts’ comments on quarterly results

A key factor that is expected to contribute to growth is revenue from TNT Express, which has joined the FedEx fold. By integrating TNT fully, the company will significantly expand its presence in Europe where the former is a leading player. Right now, the focus of the management’s growth plan is to ensure revenue quality, expand margins, and implement capital allocation by giving priority to shareholder value.

FedEx Q4 2022 earnings infographic

The Cons

That doesn’t mean the company is immune to the macroeconomic uncertainties and COVID-related supply chain issues that remain a drag on operations, though to a lesser degree compared to last year. The other issues that need the management’s attention are rising operating costs amid elevated gasoline prices and labor shortages.

From FedEx’s Q4 2022 earnings conference call:

“Ground operating expenses continued to be pressured by higher purchase transportation and wage rates, although we see these pressures stabilizing. We continue to proactively address labor availability head on through multiple levers as we increase the frontline retention and refined the recently launched package handler scheduling tool, will not only ensure we have the right level of staffing for every sort based on volume, will ensure a workforce that is safe, efficient and highly engaged to stay and grow with the company.”

Earnings: UPS Q1 2022 profit beats estimates; revenue up 6%

FedEx ended fiscal 2022 with impressive numbers, marked by broad-based growth in the fourth quarter. Adjusted earnings increased sharply to $6.87 per share reflecting an 8% growth in revenues to $24.4 billion. But the bottom-line missed estimates, as it did in the previous quarter.

After ending last week sharply higher, FDX is currently trading down 23% from last year’s levels when it reached an all-time high. It maintained the post-earnings uptrend early Monday but traded sideways in the latter part of the session.

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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