The growth of what is now the country’s second-leading retailer (after Walmart (NYSE:WMT)) continues to make traders quake in their blue suede shoes. (That’s your reminder that FedEx is based in Memphis.)
You can buy FedEx today for less than 12 times last year’s earnings and get a $2.60 per share dividend that yields 1.69%. The market cap is now $41 billion, against 2018 revenue of $65.5 billion.
You may have to wait for the market to wake up, but your patience should be rewarded.
FDX Stock Is Still Growing
Despite any appearance to the contrary, FedEx continues to grow.
FedEx is due to report its fourth quarter on June 25. Analysts are expecting earnings of $4.89 per share on revenue of $18.04 billion.
That would put revenue for the full year at $69 billion, about $4 billion ahead of last year. It would more than cover the dividend and could spark a hike.
Investors were spooked by a miss on the third quarter, earnings falling 7 cents short of estimates at $3.03 per share. CEO Fred Smith admitted they were below expectations, blaming the company’s investments in network infrastructure and automation.
He also could have blamed TNT Express, acquired for $4.8 billion in 2016. Integration costs on the European-based company were 21 cents per share.
Matching Amazon Stock
But the stock has since fallen below the level it was at after those earnings came out.
There’s one thing wrong with this picture, as it relates to FedEx. That is, Amazon infrastructure serves AMZN stock, and its re-sellers. Amazon may have half the e-commerce market, but that still leaves half that’s not Amazon, and there is more to delivery than e-commerce.
It is more reasonable to be concerned about whether the trade war will kick FedEx out of China, or the cost of expanding ground service, or how managers might react to the end of cash bonuses.
If anyone should worry about Amazon, and its knock-on effects in the delivery business, it should be the U.S. Postal Service. They just lost FedEx’ SmartPost business. FedEx’ expansion of Ground delivery to Sunday, matching Amazon, means it’s entering a niche that had been keeping the USPS competitive.
FedEx is also working closely with Amazon rivals like Walmart and Walgreens (NYSE:WBA) on next-day delivery. It’s even turning Target (NYSE:TGT) stores into local shipment hubs, matching a deal Amazon recently signed with Kohl’s (NYSE:KSS).
Wherever Amazon innovates in delivery, FedEx does too, keeping its service competitive on behalf of all of Amazon’s competitors. Economically it’s a win-win.
The Bottom Line
Because Amazon’s recent innovations are all on the fast side of delivery, long considered FedEx’ niche, the impact on FedEx stock has been twice what it was on that of rival UPS (NYSE:UPS), down 15% over the last year.
Trade war fears have exacerbated that fear.
As the old saying goes, when the going gets tough the tough get going. That doesn’t mean the tough abandon the field. It means they compete harder. That’s what FedEx is doing, and the whole economy is the beneficiary.
At its current levels, given its continuing profitability and investments in the business, it’s hard to see FedEx as anything but a buy for a long-term investor.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.