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FedEx based in Tennessee (FDX) provides expedited package delivery services to businesses and residences. I am bullish on the stock.
Throughout the first half of 2022, inflation and supply chain bottlenecks were frequent topics of conversation in the financial media. For essential and discretionary items, many people rely on FedEx to get orders fulfilled in a timely manner.
Given the aforementioned macroeconomic challenges, potential investors might assume that FedEx financial data would be disappointing this year. Still, FedEx might surprise you with its resilience and the company’s optimistic outlook for an admittedly difficult year.
Overall, savvy investors should find FedEx to offer decent yield and attractive value with its stock. The shipping industry may continue to be under pressure for some time, but FedEx should be able to manage its issues and deliver results for business stakeholders.
Stuck in neutral
If there’s a term that can describe FedEx action, it’s “limited by range.” Throughout 2022 so far, the stock does not appear to be above $250, but it also refuses to stay below $200.
Even though stock price appreciation is elusive with FedEx stock, at least the company’s long-term investors can reap decent dividend payouts. Currently, FedEx offers a forward annual dividend yield of 2%. Knowing this, income-oriented investors may consider reinvesting dividends to take advantage of the compounding principle.
Prior to a recent earnings event, FedEx had a 12-month P/E ratio of around 12, which is quite reasonable. This number could change if the value of FedEx stock increases over the next few days, but even if the P/E ratio hits the teens or 20s, the stock should still offer good value.
Still, it would be nice to see FedEx stock finally break through its range. If anything could make that happen, it would be a solid financial report. So, let’s check it out and see how FedEx fared in the fourth fiscal quarter of 2022.
Freight was great
Make no mistake: FedEx is fully aware of its problems. The company specifically cited some familiar issues many businesses face today, including “decline in shipping demand due to slowing economic growth and supply chain disruptions, as well as the increase in transport purchased and wage rates”.
Thus, any quarterly results must be understood in this problematic context. In other words, investors shouldn’t expect FedEx to knock it out of the park with the company’s quarterly data.
The first piece of good news is that FedEx managed to post moderate revenue growth. Specifically, the company posted revenue of $24.4 billion in the fourth quarter of fiscal 2022, compared to $22.6 billion in the prior quarter. Analysts polled by FactSet had modeled $24.5 billion in revenue, so we can call the actual result in line with expectations.
As for net results, FedEx reported diluted/adjusted GAAP earnings of $6.87 per share. That result was roughly in line with analysts’ estimate of $6.88 per share, and it showed an improvement over the prior year’s result of $5.01 per share.
Perhaps the most notable result of the quarter was FedEx Freight’s operating margin improvement of 570 basis points to 21.8%. According to the company, “the improved results were due to a 28% increase in revenue per shipment thanks to the continued focus on revenue quality and profitable growth.”
Ted Up for a Happy New Year
While FedEx’s Freight segment has certainly performed well, the real star of the show might have been FedEx’s forecast for fiscal year 2023. To quote Argus Research President John Eade, “their forecasts are aggressive, far superior to Street’s expectations for next year. They are therefore ready to have a good year in their fiscal year 2023.”
Before various adjustments, FedEx expects diluted EPS for the full year of $22.45 to $24.45. That’s above what analysts had expected, as they braced for fiscal 2023 EPS of around $22.21. The company’s upbeat outlook may be the catalyst that caused FedEx’s stock price to surge after hours trading following the earnings release.
Clearly, FedEx Executive Vice President and Chief Financial Officer Michael C. Lenz is gearing up to end the year strong. “We expect further momentum in fiscal 2023 and beyond as we execute our initiatives to increase profitability and returns,” Lenz said.
On top of all this, FedEx is engaged in an aggressive stock buyback program. In fiscal 2022, FedEx repurchased $2.2 billion of common stock from the company. Additionally, in the first half of fiscal 2023, FedEx plans to repurchase $1.5 billion of its common stock.
The Taking of Wall Street
As far as Wall Street is concerned, FDX is showing as a strong buy, based on 12 buy ratings and three hold ratings. The average FedEx price target is $293.86, implying an upside potential of 20.8%.
There are plenty of reasons to love FedEx now. The company buys back its own shares, which is a sign of self-confidence. Additionally, the stocks are trading at a low valuation and investors can expect to receive regular dividend payments over the long term.
So don’t worry if FedEx’s results were only “compliant”. The company’s ambitious forward-looking directions — and its ability to deliver decent results under tough conditions — should offer plenty of encouragement to FedEx shareholders today.