Should You Buy the Dip in FedEx Stock?

Due to the boom in e-commerce sales, FedEx’s (FDX) shipping volumes are hitting record levels. The company is playing a crucial role in the distribution of COVID-19 vaccines. This won’t meaningfully affect its bottom-line but it symbolizes the company’s importance. Shares are down nearly 10% following its recent earnings report, should you buy the dip?

FedEx Corporation (FDX) is a leading multinational delivery services company, operating through segments such as FedEx Ground segment, FedEx Express segment, and FedEx Freight segment. The company also offers FedEx Mobile, a suite of solutions to track packages, create shipping labels, view account-specific rate quotes, and access drop-off location information.

The number of packages being delivered across the country this year will likely hit record highs, due to the ongoing pandemic. As online shopping sales reach unprecedented levels amid the holiday season, FDX should witness stellar growth in revenue and earnings. Moreover, the company’s rigorous planning to transport COVID-19 vaccines globally, safely and on time, will give a substantial boost to its unmatched global network.

FDX’s broad portfolio of services and growth in the global delivery network has allowed it to gain 78.5% over the past year. This impressive performance combined with several other factors has helped FDX earn a “Buy” rating in our proprietary rating system. 

Here’s how our proprietary POWR Ratings system evaluates FDX:

Trade Grade: B

FDX is currently trading lower than its 50-day moving averages of $280.57, but higher than its 200-day moving average of $193.47, indicating that the stock is in a slight uptrend. Also, the stock gained 12.1% over the past three months, reflecting a short-term bullishness.

FDX’s revenue increased 19% year-over-year to $20.56 billion in the fiscal second quarter ended November 2020. The increase in revenue is primarily attributable to the significant increase in the services segment of the company. Operating income increased 164% from the year-ago value to $1.47 billion, while EPS rose 114% from the prior-year quarter to $4.55 over this period.

On December 19th, the company announced that operations to transport Moderna, Inc.’s (mRNA) COVID-19 vaccines for McKesson Corp. across the United States, are in motion. The company is also set to begin vaccine shipments throughout Canada and is preparing to begin delivering vaccines to other countries. This will help FDX meet the increased demands for residential delivery using its diverse network and expertise.

On December 15th, FDX and the world’s largest express transportation company announced the delivery of the first ATR 72-600F aircraft to its feeder aircraft network. This will allow FDX to expand its global footprint while serving more customers in locations that aren’t always accessible by their larger jet fleet.

Buy & Hold Grade: B

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, FDX is well-positioned. The stock is currently trading 11.4% below its 52-week high of $305.66, which it hit on December 9th.

The company’s net revenue grew at a CAGR of 6.2% over the past three years. This can be attributable to the company's strong global express network and volume growth in International Priority and US domestic residential package services.

Peer Grade: C

FDX is currently ranked #5 out of 9 stocks in the Air Freight & Shipping Services industry. Other popular stocks in this industry are United Parcel Services, Inc. (UPS), Expeditors International of Washington, Inc. (EXPD), and Hub Group, Inc. (HUBG)

UPS, EXPD, and HUBG gained 45.2%, 23.2%, and 12.1% over the past year, respectively. This compares to FDX’s 78.5% returns over this period.

Industry Rank: B

The Air Freight & Shipping Services industry is ranked #53 out of the 123 industries. The companies in this industry are involved in the shipping of domestic and international packages. They also offer international trade services specializing in customs brokerage, and ocean and air freight forwarding services. A sustained surge in e-commerce has increased the shipping volume in both the domestic as well as international markets.

Overall POWR Rating: B (Buy)

FDX is rated “Buy” due to its impressive financials, short-and-long-term bullishness, solid price momentum, and underlying industry strength as determined by the four components of our overall POWR Rating.

Bottom Line

FDX is well-positioned to soar despite gaining 78.5% over the past year. The company should witness enormous strides in the upcoming months as it is in the middle of the holiday delivery season, while at the same time, hauling COVID-19 vaccines around the world.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is pretty impressive for FDX. It has an average broker rating of 1.52, indicating favorable analyst sentiment. Out of 25 Wall Street analysts that rated the stock, 9 rated it a “Strong Buy.” The consensus EPS estimate of $3.33 for the current quarter ending February 2021 indicates a 136.2% improvement year-over-year. Moreover, FDX has an impressive earnings surprise history with the company beating the EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $19.86 billion for the current quarter indicates a 13.6% increase from the same period last year.

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FDX shares were trading at $269.55 per share on Thursday morning, down $1.16 (-0.43%). Year-to-date, FDX has gained 80.94%, versus a 16.56% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.


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