FedEx a Package Worth Holding

FedEx FDXLast earnings season, FedEx (NYSE:FDX) was able to more than double its profits thanks to record holiday package shipping. Now that we’re in the dog days of summer, this transportation company is working double time to buy up smaller international couriers, installing multi-million dollar distribution centers and increasing shipping rates. Will these efforts deliver profit to investors? Let’s find out.

Company Overview

With over $25 billion in annual sales and 290,000 employees under its belt, FedEx Corp. 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. This company has been on an international buying spree, in talks to acquire Brazilian transportation firm Rapidao Cometa Logistica, French express transportation company TATEX, and Polish courier company Opek.

Expansion Strategy

FedEx is definitely taking advantage of the lull between earnings season to do some (very late) spring cleaning. First, a few weeks ago the company announced that it is retiring 24 of its aircraft, adding on to the five it has already retired this year in an effort to modernize its fleet. The company will take an $84 million charge this round and will buy new aircraft from Boeing (NYSE:BA) next year. The next day, the company broke ground on a $15 million distribution center near Cincinnati; this facility should create 120 jobs and have an annual payroll of $2 million. To finance these initiatives, FedEx’s Freight business announced that it will increase its shipping rate to 6.9% starting July 9.

Industry Breakdown

There are currently 44 companies in the Air Delivery and Freight Services Industry, of which Bunzl  (LON:BNZL) is the largest player. FedEx ranks fifth in terms of market capitalization. FedEx has one of the highest long-term growth rates in the industry (fifth) as well as earnings growth (sixth). This company’s 0.60% dividend yield also stands out, ranking at sixth.

However, when it comes to sales growth and return on equity, FedEx is right around the industry average, weighing in at 23rd and 24th respectively. FedEx’s main competitor is United Parcel Service  (NYSE:UPS), which it outpaces in terms of sales growth and gross margin, but falls behind in terms of operating margin.

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 either a hold or a sell for the past year. What’s interesting, though, is that FedEx is B-rated in terms of its Fundamental Grade. Its earnings and operating margin growth are very strong and it scores well on earnings momentum, analyst earnings revisions and return on equity. The only real areas of improvement are FedEx’s cash flow and sales growth. What is keeping FDX in hold territory is its lackluster buying pressure; this stock receives a C for its Quantitative Grade.

Bottom Line

As of this posting, June 14, I consider FDX a hold. Although these developments are generating some interest, they aren’t quite enough to get buying pressure up to a level where I want to buy this stock. I’d like to look for more visibility from FDX in its next earnings announcement, which is scheduled for next Tuesday.

Recommendation: Hold

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