{"id":1450,"date":"2023-01-30T12:56:17","date_gmt":"2023-01-30T12:56:17","guid":{"rendered":"https:\/\/tradersontrend.com\/?p=1450"},"modified":"2023-01-30T12:56:17","modified_gmt":"2023-01-30T12:56:17","slug":"still-no-reason-to-buy-fedex","status":"publish","type":"post","link":"https:\/\/tradersontrend.com\/h\/2023\/01\/30\/still-no-reason-to-buy-fedex\/","title":{"rendered":"FedEx: An Analysis of the Company&#8217;s Potential and Risks"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"1450\" class=\"elementor elementor-1450\" data-elementor-post-type=\"post\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-15d7f91b elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"15d7f91b\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-43e3ecb0\" data-id=\"43e3ecb0\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-60a24439 elementor-widget elementor-widget-text-editor\" data-id=\"60a24439\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<style>\/*! elementor - v3.21.0 - 26-05-2024 *\/\n.elementor-widget-text-editor.elementor-drop-cap-view-stacked .elementor-drop-cap{background-color:#69727d;color:#fff}.elementor-widget-text-editor.elementor-drop-cap-view-framed .elementor-drop-cap{color:#69727d;border:3px solid;background-color:transparent}.elementor-widget-text-editor:not(.elementor-drop-cap-view-default) .elementor-drop-cap{margin-top:8px}.elementor-widget-text-editor:not(.elementor-drop-cap-view-default) .elementor-drop-cap-letter{width:1em;height:1em}.elementor-widget-text-editor .elementor-drop-cap{float:left;text-align:center;line-height:1;font-size:50px}.elementor-widget-text-editor .elementor-drop-cap-letter{display:inline-block}<\/style>\t\t\t\t<p>FedEx&#8217;s (<a href=\"https:\/\/www.google.com\/finance\/quote\/FDX:NYSE\">NYSE: FDX<\/a>) stock has largely recovered from its September lows and is poised to benefit from a few tailwinds, including a burgeoning e-commerce industry. <br \/><br \/>However, I believe that the obstacles and risks that FedEx faces outweigh any potential benefits from purchasing, leading me to recommend a HOLD in FDX.<br \/><br \/><strong><span style=\"font-size: 24.5px; font-family: inherit;\">Benefits<br \/><br \/><\/span><\/strong><span style=\"font-family: inherit;\">FedEx, as previously indicated, has a few advantages. Package volume is expected to rise as the e-commerce business expands. <br \/><br \/>According to Forbes, package volume tends to expand at a pace proportional to GNP, implying a relatively consistent increase in revenue in perpetuity. <br \/><br \/>Morningstar&#8217;s assessment of FedEx&#8217;s infrastructure suggests that it is more than capable of handling increased volume with minor adjustments.<\/span><\/p><p>FedEx Express <a href=\"http:\/\/investors.fedex.com\/news-and-events\/investor-news\/investor-news-details\/2022\/FedEx-Corp.-Reports-Fourth-Quarter-and-Full-Year-Results\">package and freight revenue increased<\/a> from 2021 to 2022 (package revenue increased from $32.48 billion to $35.69 billion, while freight revenue increased from $8.18 billion to $8.71 billion). <br \/><br \/>The total operating income rose by 6.5%. However, the average daily package volume declined by 7% from 2021 to 2022, while freight volume decreased by 5%. Improved yield per package boosted revenue. <br \/><br \/>However, this trend remains somewhat concerning to me since prolonged volume drops pose a danger to FedEx&#8217;s revenue base because there is only so much space for margin increases to compensate for volume decreases.<br \/><br \/><strong><span style=\"font-size: 24.5px; font-family: inherit;\">Logistics<br \/><br \/><\/span><\/strong><span style=\"font-family: inherit;\">FedEx&#8217;s infrastructure, as I mentioned before, is another promising aspect of the company&#8217;s business; their massive fleets and package sortation footprint function as a narrow moat.<\/span><\/p><p>FedEx has also demonstrated its longevity over the course of its long history. FDX has historically sustained growth despite financial crises and unusual conditions. <br \/><br \/>While they may have problems in the short term, I do not expect FDX to have many fundamental concerns in the long run.<\/p><p>FedEx&#8217;s valuation is reasonable. FedEx currently trades at a P\/E and FWD P\/E that are significantly lower than the sector, and its P\/B is likewise excellent. FDX also has an EV\/Sales ratio of.87 and a very promising Price\/Cash Flow ratio of 5.42.<\/p><p>FedEx is worth $195, according to FactSet analysts. Given the proximity of FDX to this pricing, it is hard to argue that FedEx is cheap.<\/p><p>One other point to add is that FedEx pays a quarterly dividend of $1.15 per share, resulting in a 2.2% dividend yield.<br \/><br \/><strong><span style=\"font-size: 24.5px; font-family: inherit;\">Downside<br \/><br \/><\/span><\/strong><span style=\"font-family: inherit;\">FDX has its fair share of issues. The broad transition to <\/span><a style=\"font-family: inherit;\" href=\"https:\/\/www.investopedia.com\/terms\/b\/btoc.asp\">business-to-consumer (B2C)<\/a><span style=\"font-family: inherit;\"> shipping, as opposed to the formerly dominating business-to-business (B2B) shipping, has put pressure on package carrier profitability. Amazon&#8217;s (<\/span><a style=\"font-family: inherit;\" href=\"https:\/\/www.google.com\/finance\/quote\/AMZN:NASDAQ\">AMZN<\/a><span style=\"font-family: inherit;\">) development of last-mile capabilities indicates the possibility of new competition. <br \/><br \/>FDX has also suffered wage pressure and a tight labor market, both of which are expected to raise operating expenditures and eat into profits. <br \/><br \/>Finally, FedEx&#8217;s business is particularly susceptible to economic downturns, and macroeconomic issues such as a projected 2023 recession may have an immediate detrimental impact on FDX.<\/span><\/p><p>Let&#8217;s look at each of these things separately. Residential deliveries have a lower yield than business deliveries because the per-package margins do not compensate for the additional expense of many stops. <br \/><br \/>While FDX has lowered its cost per package in recent years, I expect B2C shipping will continue to account for a growing share of FedEx&#8217;s income, and sustaining profitability on such shipments would almost certainly necessitate significant investment on FedEx&#8217;s behalf.<br \/><br \/><strong><span style=\"font-size: 24.5px; font-family: inherit;\">Against the Competition<br \/><br \/><\/span><\/strong><span style=\"font-family: inherit;\">While there is no assurance, I believe Amazon will start leasing its last-mile shipping to shippers outside of its own network. If this happens, FDX and UPS (UPS) may lose market share, which would be disastrous for obvious reasons.<\/span><\/p><p>FedEx&#8217;s operational expenses climbed by 8% between 2021 and 2022, owing primarily to higher fuel costs and staff wage hikes. Given the current state of the labor market, I believe FedEx&#8217;s operating expenses will continue to rise, cutting into earnings for the foreseeable future.<\/p><p>FedEx&#8217;s September drop was triggered by the company&#8217;s acknowledgment that macroeconomic trends are acting as substantial headwinds for its delivery volume. <br \/><br \/>Given the likelihood of a recession due to a variety of macroeconomic variables such as inflation or high-interest rates, FedEx&#8217;s business is likely to suffer in the short term as volume shrinks.<br \/><br \/><strong><span style=\"font-size: 24.5px; font-family: inherit;\">Financial and Competitive Analysis<br \/><br \/><\/span><\/strong><span style=\"font-family: inherit;\">The statistics do not bode well for FedEx. Despite having a similar size to DHL and UPS, FDX is behind the other shipping behemoths in practically every other category.<\/span><\/p><p>First and foremost, consider profitability. FDX trails its competitors in terms of <a href=\"https:\/\/www.investopedia.com\/terms\/r\/returnonequity.asp#:~:text=What%20Is%20Return%20on%20Equity%20(ROE)%3F,the%20return%20on%20net%20assets.\">ROE<\/a> and margins. <br \/><br \/>Looking deeper, FedEx&#8217;s net profit margin has actually dropped since its peak in 2021, and with a probable recession on the horizon, it is unlikely to recover quickly. FedEx&#8217;s earnings volume is also disappointing.<\/p><p>FedEx&#8217;s P\/E ratio, while still affordable for the industry, is average among the transport behemoths, as is its EPS. <br \/><br \/>The competitive research reveals that many of FedEx&#8217;s alleged strengths, such as its affordable valuation, are not unique to FDX. <br \/><br \/>Analyzing this data shows that UPS, FedEx&#8217;s most important competitor, has the advantage in size and profitability despite trading at similar P\/E multiples.<\/p><p>FedEx lacks a distinct and persistent qualitative advantage over its competitors. FDX is far from the industry leader, despite its transportation infrastructure serving as a kind of tight moat against new competition. <br \/><br \/>These characteristics, combined with FedEx&#8217;s somewhat inferior financial performance when compared to DHL and <a href=\"https:\/\/www.google.com\/finance\/quote\/UPS:NYSE\">UPS<\/a>, lead me to feel that it is not the finest investment in the business.<br \/><br \/><strong><span style=\"font-size: 24.5px; font-family: inherit;\">In Conclusion<br \/><br \/><\/span><\/strong><span style=\"font-family: inherit;\">Selling FDX would be an overreaction, in my opinion. Despite all of the disadvantages I&#8217;ve mentioned, FDX has enough upside potential to justify the hold. As previously indicated, FedEx&#8217;s transportation infrastructure, the rise of the e-commerce business, and the relatively reasonable valuation all contribute to the position&#8217;s strength. <br \/><br \/>Other considerations not highlighted in this piece that bode positively for FedEx include the final integration of TNT. However, when compared to its competitors, particularly UPS, I believe FDX falls short. <br \/><br \/>Furthermore, I perceive margins to be under pressure from a variety of sources, including expense increases and B2C shipping increases. When combined with unfavorable macroeconomic conditions, this makes me concerned about FedEx&#8217;s prospects in the short term. <br \/><br \/>As a result, I&#8217;m calling FDX, a HOLD.<\/span><\/p><p><em>For More Stocks And Investment Related News, Click\u00a0<a href=\"https:\/\/tradersontrend.com\/\" target=\"_blank\" rel=\"noopener\" data-saferedirecturl=\"https:\/\/www.google.com\/url?q=https:\/\/tradersontrend.com\/&amp;source=gmail&amp;ust=1675158142465000&amp;usg=AOvVaw3kY1f4wk96V7ME9UX98zwg\">Here<\/a>.<\/em><\/p><p>\u00a0<\/p><p>\u00a0<\/p><p>\u00a0<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>FedEx&#8217;s (NYSE: FDX) stock has largely recovered from its September lows and is poised to benefit from a few tailwinds, including a burgeoning e-commerce industry. However, I believe that the obstacles and risks that FedEx faces outweigh any potential benefits from purchasing, leading me to recommend a HOLD in FDX. Benefits FedEx, as previously indicated,&#8230;<\/p>\n","protected":false},"author":1,"featured_media":1451,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[182,242,246,618],"class_list":["post-1450","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-newsletter","tag-dhl","tag-fdx","tag-fedex","tag-ups"],"_links":{"self":[{"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/posts\/1450","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/comments?post=1450"}],"version-history":[{"count":0,"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/posts\/1450\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/media\/1451"}],"wp:attachment":[{"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/media?parent=1450"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/categories?post=1450"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/tags?post=1450"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}