Choose language

  • cs

  • de

  • el

  • en

  • es

  • et

  • fr

  • it

  • kk

  • lt

  • nl

  • pl

  • pt

  • ro

  • ru

  • uk

  • Čeština

  • Deutsch

  • ελληνική

  • English

  • Español

  • Eesti keel

  • Français

  • Italiano

  • Казақша

  • Lietuvių

  • Nederlands

  • Polski

  • Português

  • Română

  • Русский

  • Українська

How do you prefer to top up your account?

* We don't charge any commission for making deposits into your account

  • Home
  • InvestIdeas
  • FedEx Corp. shares: potential 28% growth alongside a strong demand for delivery services
Max Manturov

Max Manturov

Head of investment research regulated by CySec 05.10.2021

FedEx Corp. shares: potential 28% growth alongside a strong demand for delivery services

Ticker: FDX.US
Current price: $218
Target price: $280
Potential: 28.4%
Time Line: 3 to 6 months
Risk: High
Position Size: 2.00%
Dividend yield: 0.54%

About company

To capitalise on stocks that can grow against the backdrop of the ongoing pandemic and the growing demand for e-commerce.

What's the Idea?

To capitalise on stocks that can grow against the backdrop of the ongoing pandemic and the growing demand for e-commerce.

Buy FedEx Corp. Shares >>

Why do we like FedEx Corp.?

We have previously introduced the FedEx idea, noting the issuer's prospects. At the moment, the yield on the idea was as high as 30%, but fell short of the target of 4%, closing at 22% at the end of the time horizon. We now believe that at current levels, the company is attractive for investment for several reasons.

Reason 1: Emotional sell-off amid poor reporting and low growth forecast for the company

FedEx shares have been in a downtrend since June. The reason for the decline is the weak results for the first quarter of the fiscal year 2022 and the expectation of a further slowdown after the management announced that the annual revenue increase is planned at 7.1%. This figure is significantly lower than the last year's results, when the revenue increased by 21.3%. Alongside this, the company's value has fallen by 31% since June.

In our view, the investors have reacted too impulsively to the reported results and the forecast, as the company remains in a strong financial position, and the 7.1% growth expectation for such a large international company as FedEx is a strong indicator of the stability of the business.

The current drawdown in the company's share price could be a great opportunity to put these shares in the portfolio, as from a fundamental point of view it is in excellent condition and moving in the right direction.

Reason 2: Continued high demand for delivery services and further development of the company

We have previously pointed out that FedEx was one of the beneficiaries of the pandemic, as e-commerce began to see an increased demand amid the resulting restrictions. According to Statista and eMarketer, online retail will continue to grow at a moderate pace in the near term, with CAGR expected to be 11.9%. The relevance of FedEx services will therefore only increase.

At the moment, the delivery industry continues to be under pressure from strong demand. On the one hand, FedEx is successfully expanding its own business and maintaining a high rate of revenue growth. Recently, FedEx Express, a FedEx subsidiary, invested $100 million in Delhivery, an Indian shipping company, as part of its continued growth. The new partner will provide FedEx Express services in India.

On the other hand, the company faces many challenges. The main ones are supply chain issues, labor shortages and rising delivery operating costs. FedEx is steadily addressing the challenges. In June, the company temporarily suspended ocean freight for 1,400 customers. The move has reduced network congestion and helped to streamline the operational process in this area.

In addition, FedEx is actively addressing labor shortages. In particular, it is raising wage rates and paying bonuses. In September 2021, the company announced that it plans to hire 90,000 new employees before the holiday season. In comparison, 70,000 new employees were hired a year ago.

However, FedEx's main problem is the growing operating costs. This is heavily impacted by rising supply chain costs, rising fuel costs and employee wages. As a result, this is having a negative impact on FedEx's overall business margins. To address the problem, the issuer has announced an average 5.9 % increase in rates for its services from 2022, both for domestic US shipments and for exports and imports to the US. United Parcel Service, FedEx's main competitor, has taken a similar decision.

So, while FedEx faces all kinds of challenges, the company is effectively addressing the issues that arise while continuing to be in a good position to be able to maintain a moderate growth rate. This is an excellent achievement for a huge corporation.

Reason 3: Financial situation and valuation of the company

During the last presentation, the investors were disappointed with the last year's results, but FedEx has performed well for a "value company". Since the beginning of the year, the company's revenue has grown by 22% to $66.08 billion, with operating profit margin rising from 5.2% to 6.6% and with the profit margin rising from 2.2% to 5.8%. In the first quarter of 2022, the operating profit margin declined from 8.2% to 6.6% relative to the last year's result. The management attributed the decline to labor shortages reflected in higher employee wages and in the loss of productivity due to supply chain inefficiencies, which together cost FedEx $450 million. Nevertheless, the company is expected to grow business margins again through higher fares.

FedEx is in a strong financial position with a moderate level of debt. FedEx has $20.68bn in debt and $6.85bn in liquidity, with Net Debt/EBITDA and EBIT/Interest Expense being at 1.42x and 8.15x, respectively. FedEx has recently posted a solid positive FCF, with a 2.7 times free cash flow increase year-on-year to $3.5bn.

FedEx currently trades cheaper than its peers on all major multiples: EV/S - 0.78x, EV/EBITDA - 6.38x, PE - 10.49x, P/FCF - 6.58x. The median values of the industry average valuations are as follows: EV/S - 1.84x, EV/EBITDA - 9.85x, PE - 20.68x, P/FCF - 11.36x.

In September, several investment companies and banks set new price targets for FedEx shares:

  • Morgan Stanley — $250;
  • Argus — $270;
  • Deutsche Bank Aktiengesellschaft — $280;
  • Stifel Nicolaus — $283;
  • BMO Capital Markets — $300;
  • Citigroup — $300;
  • Wells Fargo & Company — $314;
  • Loop Capital — $324;
  • KeyCorp — $325;
  • JPMorgan Chase & Co. — $329;
  • Stephens — $330;
  • Credit Suisse Group — $330;
  • Barclays — $345;
  • Berenberg Bank — $350;
  • UBS Group — $369.

How to take advantage of the idea?

  1. Buy shares at a price of $219.
  2. Allocate no more than 2% of your portfolio for purchase. To compile a balanced portfolio, you can use the recommendations of our analysts.
  3. Sell when the price reaches $280.

How to Buy FedEx Corp.?

If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.

After opening an account, you can buy shares in either of the following ways:

Freedom24 Web Platform: In the Web Terminal section, type FDX.US (FedEx Corp. ticker in the NYSE) in the search box, and select FedEx Corp. in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.

Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type FDX.US (FedEx Corp. ticker in the NYSE) and select FedEx Corp. in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.

Buy FedEx Corp. Shares >>

*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Europe Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance Europe Ltd. do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance Europe Ltd. and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.

  • Sources of information

  • Recommendation evaluation methodology in accordance with Terms and Conditions of Market Research Use
    Freedom Finance analysts perform a three-stage analysis. They select a promising industry based on the latest news, statistics and industry-specific metrics. They assess the supply and demand situation and its future development dynamics. Industry’s investment attractiveness is mostly affected by the forecasted market growth rates; total addressable market, player concentration level and likeliness of a monopoly formation, as well as the level of regulation by various entities or associations.

    The assessment is followed by the comparative analysis based on the selected sample. The sample comprises companies with a market capitalization of over USD 1 billion, but there is space for exceptions (when the suitable level of liquidity for company’s securities is available on the stock exchange). The selected companies (peers) are being compared against each other based on multipliers (EV/S, EV/EBITDA, PE, P/FCF, P/B), revenue growth rates, marginality and profitability (operating income margin, net income margin, ROE, ROA), and business performance.

    Having completed the comparative analysis, the analysts carry out a more in-depth research of the news about the selected company. They review company’s development policy, information about its current and potential mergers and acquisitions (M&A activity), and assess the efficiency of company's inorganic growth and other news about it over the past year. The main objective at this stage is to identify the growth drivers and evaluate their stability, as well as the extent of impact they have on the business.

    Based on all the data collected, the analysts determine the weighted forecasted figures of company’s growth rates and proposed business marginality, which are used to calculate the company’s multiplier-based estimated value. The said value enables setting the stock price target and stock value growth potential.

    The expected timing of the idea implementation is set depending on the current market situation, volatility level and available forecasting horizon for industry and company development. The forecasting period is normally set between 3 and 12 months.