FedEx Corporation (NYSE:FDX) reported excellent results Tuesday night. The company identified the strong U.S. economy and U.S. tax reform as positive catalysts. The accelerating European economy and the exponential growth of e-commerce going forward should also boost FedEx. All these factors make FDX stock a good growth at a reasonable price (GARP) buy.
As I predicted at the beginning of this year, the European economy has really begun to take off. According to research firm Markit, the eurozone’s business activity grew at the fastest rate in nearly seven years, boosted by “the best factory output and order book gains since 2000.” The bloc’s service sector didn’t do too badly either. In December, its growth reached the highest level since 2011.
Luckily for owners of FedEx stock, the company has a large amount of exposure to Europe through its TNT unit, acquired last year. TNT has “an unparalleled European road network.” Logistics Management reported that TNT is “the fourth largest global parcel operator.”
Integrating TNT is expected to cost FedEx a total of $1.4 billion over four years. While a cyberattack that the unit suffered last summer has hurt its results, FedEx expects the cost TNT’s recovery to decrease in coming quarters.
Long-Term Economic Conditions Look Good for Fedex Stock
Over the longer term, economic reforms will take hold in many large European countries. And as Germany continues to be an economic powerhouse, the European economy should get a tremendous boost. TNT and FedEx should as well. Since Europe’s economic rebound has lagged that of the U.S., the EU’s recovery could last longer than America’s expansion, providing a cushion to FedEx’s results and FDX stock.
Another main driver for FedEX is e-commerce. FedEx CEO Frederick Smith stated on last night’s conference call that the company is “quite confident that we can handle vastly larger amounts of e-commerce packages in the future at profitable rates because of the investments we’ve made.”
Amazon.com, Inc (NASDAQ:AMZN) continues to grow exponentially, and large retailers are selling an ever higher percentage of their products online and then shipping those products to their customers. Because of this, FedEx’s profits will continue to rise, causing FDX stock to rally.
Although Amazon is exploring its own delivery service, any such service will supplement deliveries by FedEx and United Parcel Service, Inc. (NYSE:UPS), rather than replace them. Moreover, Amazon will be rolling out its delivery services very gradually. The continuing expansion of e-commerce operations by major brick and mortar retailers such as Target Corporation (NYSE:TGT) and Wal-Mart Stores Inc (NYSE:WMT) should more than offset any encroachment by Amazon delivery onto FedEx’s turf. However, investors who hold FDX stock should definitely keep an eye on Amazon’ s shipping initiative.
Bottom Line for FDX Stock
For the foreseeable future, the structural improvements of the European economy and the exponential growth of e-commerce will boost FedEx stock going forward. These strong positive catalysts, along with the acceleration of the U.S. economy and U.S. tax reform, make FedEx a quintessential GARP stock going forward. Investors who are looking for a good GARP name should buy FedEx stock at current levels.
As of this writing, Larry Ramer did not hold any shares in the aforementioned securities.
