Welcome to the Stock of the Day.
Yesterday was Cyber Monday, the day that millions of Americans log on to find bargains on the internet. This also kicks off what will undoubtedly be the busiest week of the year for package shipping companies like Federal Express (FDX)—it expects to handle more than 85 million shipments this week alone! Should you also add FDX to your shopping list?
Let’s discuss our findings.
Company Profile
FedEx is the second largest package delivery company in the world. FedEx is diversified across a variety of logistics services, including ground transportation, freight shipping, airline shipping and printing and copying services. With over 230,000 employees worldwide, FedEx brought in over $44 billion in sales last year. For fiscal year 2014, analysts expect FedEx to see $46.93 billion in revenues, which would represent 3.7% annual sales growth.
Earnings and Dividend Buzz
When it comes to profits, the analyst community is a bit more optimistic. This year, FedEx is headed towards 11.9% bottom-line growth, and that estimate more than doubles to 24.4% annual earnings growth for the following year.
However, the holiday season isn’t expected to be a game changer for FedEx; the company is expected to grow earnings just 4.8% over the year ago quarter. In the meantime, FDX shareholders get a belated Christmas present: Shareholders of record on December 12 will receive a cash dividend of 15 cents per share on January 2.
Industry Breakdown
There are currently 65 companies in the Air Delivery & Freight Services industry, of which FedEx is the largest player. FedEx also scores towards the top in terms of long-term growth rates in the industry (sixth) as well as its 0.4% dividend yield (eighth).
However, when it comes to sales growth, earnings growth and return on equity, FedEx is right around the industry average. FedEx’s main competitor is United Parcel Service (UPS), which is currently a B-rated buy. The fact is that UPS beats out FedEx on top- and bottom-line growth, earnings momentum and return on equity. So it has stronger overall fundamentals; this, coupled with stronger institutional buying pressure backing up the stock makes UPS the better buy.
Current Ratings
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. The past 12 months have been rather lukewarm for this company; FDX has been a hold for much of the past year. That’s mostly due to lackluster buying pressure; FDX receives a C for its Quantitative Grade.
On the fundamentals side, this Conservative stock also receives a C. Of the eight fundamental metrics that I graded FedEx on, it only scored well on return on equity (B). This company receives a C or lower for the other seven fundamental metrics, including sales and earnings growth, earnings surprises, and cash flow.
It would require improvements in both fundamentals and buying pressure to have FDX upgraded to a buy.
Bottom Line: As of this posting, I consider FDX a C-rated Hold.
