FedEx Corporation (FDX) unveiled its fiscal 2024 second-quarter results on December 19, 2023. Despite a solid year-over-year increase, the company’s reported earnings per share fell short of street estimates by 5%. In addition, its revenue witnessed a marginal decline compared to the same period last year.
However, in spite of the slight decline in its topline, FDX’s operating income from its Ground and Freight segments experienced impressive 51% and 11% year-over-year increases, respectively, attributed primarily to enhancements in yield, cost reductions and increased volumes.
Moreover, the company executives continue to exhibit bullish sentiment. For instance, during the second-quarter earnings call, FDX’s CEO Raj Subramaniam highlighted the company’s ability to achieve higher profitability even in periods of suppressed demand.
Subramaniam further emphasized that despite lower revenue, FDX has achieved an unprecedented two consecutive quarters of operating income growth and margin expansion. This serves as clear evidence of the company's progress in its transformation amid an uncertain demand environment.
Additionally, In the second quarter, the company concluded a $500 million Accelerated Share Repurchase (ASR) transaction, resulting in the delivery of approximately 2.0 million shares under the ASR agreement.
The year-to-date reduction in outstanding shares positively impacted the second-quarter results by $0.05 per diluted share. FDX anticipates further repurchases of $1 billion in common stock throughout fiscal 2024.
FDX’s shares have surged 43.2% over the past year and 45.5% year-to-date to close the last trading session at $252.99.
Here are the financial aspects that could affect FDX’s performance in the near term:
Strong Financials
For the second quarter of fiscal 2024, which ended on November 30, 2023, FDX’s total revenue amounted to $22.20 billion, while its total operating income rose 8.5% from the year-ago value to $1.28 billion. Moreover, the company’s non-GAAP net income and non-GAAP EPS came in at $1.01 billion and $3.99, up 23.2% and 25.5% from the prior-year quarter, respectively.
Also, during the same period, FDX’s total current assets stood at $19.12 billion, increasing 2.7% compared to $18.61 billion as of May 31, 2023.
Positive Analyst Forecasts
Analysts predict FDX’s EPS for the fiscal third quarter (ending February 2024) to increase 6.1% year-over-year to $3.62, while its revenue for the same quarter is expected to come in at $22.10 billion. Furthermore, the company has an impressive earnings surprise history, surpassing the EPS estimates in three of the trailing four quarters.
Solid Historical Growth
Over the past three years, FDX’s revenue and EBIT have grown at CAGRs of 5.6% and 17.8%, respectively. In addition, the company’s net income, EPS, and levered FCF have improved at CAGRs of 20.5%, 22.2%, and 138.1% during the same period, respectively.
High Profitability
The stock’s trailing-12-month cash per share of $26.93 is significantly higher than the $2.10 industry average. Likewise, its trailing-12-month CAPEX/ Sales of 6.40% is 114.7% higher than the industry average of 2.98%. Furthermore, FDX’s trailing-12-month Return On Common Equity (ROCE) of 16.83% is 37.6% higher than the 12.23% industry average.
Discounted Valuation
In terms of forward non-GAAP PEG, FDX is trading at 1.00x, 45.5% lower than the industry average of 1.84x. Likewise, its forward Price/Cash Flow multiple of 6.64 is 53.5% lower than the industry average of 14.27. Furthermore, its forward Price/Sales multiple of 0.70 is 50.8% lower than the industry average of 1.43x.
POWR Ratings Exhibit Solid Prospects
FDX’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. FDX has a B grade for Growth in sync with the solid historical growth over the past three years. Moreover, the stock’s B grade for Quality is consistent with its higher-than-industry profitability metrics.
Within the Air Freight & Shipping Services industry, FDX is ranked first out of the 15 stocks.
Beyond what we’ve stated above, we have also rated the stock for Value, Momentum, Stability, and Sentiment. Get all FDX ratings here.
Bottom Line
While the company’s earnings failed to surpass street estimates, FDX stands out as a compelling investment opportunity, supported by its impressive financial performance in the second quarter, consistent historical growth, and high profitability. The added factor of an attractive valuation further solidifies its appeal as a sound investment choice.
How Does FedEx Corporation (FDX) Stack Up Against Its Peers?
While FDX has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Air Freight & Shipping Services industry: Radiant Logistics, Inc. (RLGT), AerCap Holdings N.V. (AER), and Deutsche Post AG (DPSGY), with a B (Buy) rating. For exploring more Air Freight & Shipping Services stocks, click here.
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FDX shares were trading at $252.86 per share on Wednesday afternoon, up $0.87 (+0.35%). Year-to-date, FDX has gained 49.06%, versus a 26.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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