Company Name: FedEx Corp
Entry Price: $245
Target Price: $330
Projected Yield: 34.70%
Time Line: 3 to 6 months
About FedEx Corp
FedEx Corp (FDX.US) is a shipping company that provides a wide range of services for delivering goods and parcels in the US and beyond. In addition, FedEx provides additional support for documentation and other related business services.
What's the Idea?
Capitalize on the stock that may rise due to virus recurrence.
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Why Trade FedEx Corp?
Reason 1: New Consumer Habits
The pandemic gave Fedex some advantage, as this boosted ecommerce and online shopping. With on-site shopping restricted, ecommerce became the dominant and, in some places, the only way to shop. This helped FedEx gain a significant increase in demand for its services in 2020. According to EMarketer, the ecommerce market may continue gaining momentum with over 15% growth in the long term. Even thought there might be positive news on the vaccine, this is not going not change the current situation significantly, as many users will continue preferring online shopping. In the meantime, Fedex will be still gaining advantage with the virus recurrence and the lockdown still in place in many countries. This means the company will be able to maintain its current growth rate and continue expanding in the market moving forward.
Reason 2: Better Market Share and Competitive Edge
In late December, FedEx acquired ShopRunner, an ecommerce platform, with no details disclosed. ShopRunner offers merchant services to retail consumers, with over 100 chain partners, including Hudson's Bay Company, Kate Spade & Company, Under Armor, CB2, Cole Haan, and American Eagle Outfitters. ShopRunner will operate as a part of FedEx Dataworks, a new division of FedEx Services dedicated to leveraging FedEx's vast information base to improve digital and physical ecommerce transaction services. ShopRunner offers free two-day shipping, free returns, and other benefits when purchasing from one of the partners (basically, this is the same as Amazon's Prime service). The acquisition is intended to support FedEx ecommerce services and may play a major part in the competition against Amazon.
Reason 3: Good Financial Position and High Value of Current Assets
During the pandemic, FedEx financial results were quite good: in the first six months of FY 2020, the earnings were boosted by 16% to reach $39.90B, while the operating margin increased from 4.56% to 7.66%, and the operating profit amounted to $3.06B. The net profit margin also increased to 6.2%, while diluted EPS changed from $4.97 to $9.26.
In 2020, FedEx increased the amount of cash on its balance sheet to $8.34B, with the debt burden changing insignificantly, as Net Debt to EBITDA is only 1.87x. The company has no liquidity issues, with operating cash flow for the first six months of the year being $5.23B.
In 2020, the company value increased by 65%; however, it is not overvalued, with EV/S, EV/EBITDA, and current PE being at 0.95x, 7.94x, 26.63x, respectively. The stock is trading well for Forward PE and even cheaper than its closest competition, United Parcel Service (FedEx is 13x, while UPS is 18.70x).
In late December, major investment banks also leveled up their outlook for FedEx stock: Goldman Sachs, Credit Suisse, and JPMorgan Chase believe the target price is at $356, $368, and $325, respectively.
How to Use the Idea
- Buy FedEx Corp stock at $245.
- Allocate no more than 2% of your portfolio amount. To build a balanced portfolio, you can use recommendations by our analysts.
- Sell the stock when the price is at $330 per share.
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: Go to the Web Terminal section, type FDX.US (FedEx Corp NYSE ticker) 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 NYSE ticker) in the search box, and select FedEx Corp in the 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.
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