There’s been a lot of chatter in the market that delivery stocks like FedEx Corporation (NYSE:FDX) and United Parcel Service, Inc. (NYSE:UPS) are in trouble because Amazon.com, Inc. (NASDAQ: AMZN) is going to enter the delivery business or may be able to offload a lot of its delivery to third-party carriers.
I don’t really think that’s going to have a material impact on FDX stock. Amazon makes up a very tiny percentage of FedEx’s revenue. Overall, FDX is likely to have many good years ahead because it is part of an oligopoly.
Let’s take a look at the earnings report from the most recent quarter that I think will demonstrate how FDX holds a unique position in this industry.
FDX stock earnings were $3.72 per share, crushing the $3.08 estimate, and that means a whopping 59% net income increase, coming on a 10.2% year-over-year revenue increase to $16.5 billion.
Operating income bumped up about 1% YOY to $1.11 billion, but margins fell to 6.7% from 7.4%. Still, there was improvement across all divisions.
FedEx Express revenue grew 9.3% to $9.37 billion, thanks to higher prices and fuel charges. Those offset the 1% decline in total package volume, although average daily freight pounds rose 3%.
FedEx Ground revenue increased 11% to $5.22 billion. This segment did incredibly well, with average daily volume up 6%, operating income up 23% to $634 million, and operating margins up 110 basis points to 12.1%.
FedEx Freight revenue had an excellent quarter, up 14% to $1.7 billion.
Out of all of this, Amazon’s revenue represented about 3% of the total revenue for FedEx. Not only that, but Amazon has been able to strong-arm delivery services like United States Post Office into giving it better rates. So I don’t imagine the margins for Amazon deliveries via FedEx are all that terrific. I’m sure FDX management would not be heartbroken if that business went away.
It’s also not like Amazon is the only e-commerce player in town. Were seeing almost every major retail outlet, from discount stores to home improvement, move increasingly to e-commerce. I think were going to see any loss in volume from Amazon eventually be replaced by these other retailers.
Meanwhile, FedEx Corporation is in a fairly strong financial position. It has $2.8 billion in cash and just over $16 billion in long-term debt, which costs it a mere $500 million annually in debt service. It traditionally produces about $1 billion in free cash flow, although the past four quarters have resulted in negative free cash flow. That is one red flag to keep an eye on.
Bottom Line on FDX Stock
FDX stock is now 15% off its all-time high, and it sits about 13 points above its 50-week exponential moving average and a mere eight dollars above its 200-day exponential moving average. Notably, it has fallen below its 50-day exponential moving average.
I think if you’re looking to buy FDX stock for the long term, meaning a holding period of at least 10 years, you’re probably fine buying here. If your time horizon isn’t that long, you may want to nibble here and set a stop loss at $229 and/or $223. If the stock breaks through the support levels, it could go significantly lower.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance, and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at [email protected].