FedEx FDX opened trading down $10 (5.75%) this morning on the New York Stock Exchange, all because it revised earnings to a slightly lower expectation and told the truth about the global economic slowdown.
Granted, some of that slowdown for the company itself has to be due to the rise in last-mile delivery services that have cropped up all over the world. To reiterate my article from December, FedEx below $200 is a good place to buy the stock.
Start with the raw numbers. FedEx had GAAP earnings of $2.80 per share in its fiscal third quarter on revenue of $17 billion, which was up 3% year-over-year. However, even though the company’s revenue decreased in the international express business during the quarter in part because of weaker global trade growth, it is still looking for 2019 earnings to be in the $15.10 to 15.90 range versus $15.50 to $16.10 in its prior outlook. In other words, a 2.5% revision has the stock down over 6% today. What’s more is that most analysts still have consensus earnings estimates north of $18 per share for 2020.
FedEx CEO and Founder Fred Smith had this to say: “Our investments in innovation, network infrastructure and automation will increase our competitiveness and drive long-term earnings growth. FedEx built and operates the preeminent global parcel and logistics network, and we have a lengthy track record of success.” He’s right, even if the statement is somewhat boilerplate.
At this valuation, the stock trades under 10x forward earnings, and the company isn’t going out of business. In 2008, during the housing crisis, FedEx’s market cap was cut in half, but its revenue dipped only slightly. In this case, total revenue is up and so is operating income. While the next correction is probably on the horizon, it’s unlikely that FedEx is front running some massive collapse in global shipping.
Long term, FedEx will still be one of the few go-to sources for package delivery. It operates at scale worldwide, generates upwards of 30% returns on a growing equity position and has enough brand power to withstand this short-term price fluctuation.
Disclosure: I am not longor short FedEx.
