FedEx Corp. (FDX, Financial) shocked the market last week when it missed its first-quarter 2023 earnings target by a sizable $1.70 per share. Many investors remain undecided on the stock after its 21% one-day drop.
While the Memphis,Tennessee-based transportation and logistics company posted unimpressive preliminary quarterly results, its drawdown could mean it is an oversold stock with an attractive dividend yield.
Whether you believe the stock is worth the risk or not is entirely up to you; however, there are a few factors to consider.
Earnings miss and macroeconomic headwinds
FedEx did not only suffer from the global common denominator, which is increasing input costs, but also lagged its revenue target by approximately $300 million amid a slowdown in trade volume in the eurozone and Asia.
Although China's bound for a recovery, matters in Europe are grim with an energy crisis and geopolitical risk dominating business activity in the region. As a major courier company, FedEx is directly exposed to trade volumes, meaning it is a cyclical stock bound to economic contractions.
Will global trade recover anytime soon?
Global trade might proliferate from a supply-side vantage point. However, there are two sides to the coin, and global demand is slowing considerably. For instance, the pending recession in the United States and multiyear high inflation in emerging markets have coalesced to diminish supply chain value arbitrage, in turn driving down core demand.
While FedEx is a powerhouse with cash flow from operations of nearly $10 billion, the signs are that its medium-term prospects are bleak and unlikely to reach pre-pandemic levels.
Valuation and dividend analysis
Based on a holistic valuation, GuruFocus data implies FedEx is fairly valued currently. Even though the stock's price-sales ratio conveys an absolute valuation of $320 (approximately twice the stock's traded price), other metrics such as the discounted cash flow suggest it is overvalued.
Furthermore, FedEx's most recent drawdown has amplified its forward dividend yield to 2.86%, which is well covered by robust cash flows. However, a dividend-based investment decision might not be sensible at the moment as the stock's value at risk clearly exceeds its dividend prospects.
Source: Macroaxis
Concluding thoughts
Although FedEx's stock does show some signs of value, it is likely a value trap as ongoing macroeconomic headwinds could stall the company's progress. Furthermore, the forward dividend yield of 2.86% is attractive, but the stock's value at risk could trump its income-based prospects.
