FedEx Corporation Confirms Price Reversal
Shares of FedEx (NYSE:FDX) are up more than 5% in premarket trading because the company is proving its value to investors. Perfectly situation for the pandemic as a go-to logistics service for eCommerce portals of all variety, FedEx used those tailwinds to lever a turnaround plan that has the company on track for sustained growth. Now, with double-digit revenue increases still in the forecast the company is proving to be a value as well as giving value and that could easily drive share prices up by double-digits. Trading at only 15X this year’s earnings it is a value compared to the broad market, American’s largest logistics companies, and its closest rival UPS.
FedEx Beats, Raises, And Results Could Have Been Better
FedEx reported a great fiscal 3rd quarter in which revenue accelerated sequentially for the 4th quarter, grew 23% YOY to a new all-time high and beat the consensus estimates by 780 basis points. The $21.5 billion in net revenue was driven primarily by strong volume growth in the U.S. residential market (thanks to eCommerce) coupled with an ongoing round of price increases and strength in the International market as well.
As strong as these figures are, we think it is important to note that results, especially at the operating level, were “severely impacted” by adverse weather conditions during the quarter and would have been even better.
Moving down, the combination of volume and higher prices helped the company lever its costs to wider margins. The operating margin grew more than 200 basis points to 4.9% to drive operating income to $1.06 billion or up 1,120 basis points from last year. The impact from the weather is worth another $0.35 billion or 700 basis points in YOY growth and those impacts are not expected in the fiscal 4th quarter. On the bottom line, the GAAP $3.30 in EPS beat the consensus by $0.21 while the adjusted $3.47 beat by $0.23.
Looking forward, the company is guiding for EPS in the range of $16.80 to $17.40 but the figures may not be comparable to last year’s results. The guidance is excluding the impact of year-end accounting details including mark-to-market impacts on retirement plans. Regardless, the guidance is good and underscores the analyst’s consensus estimate for 14% YOY revenue growth and a near-doubling of earnings that we think is too conservative.
“The significant improvement in our third quarter results highlights the momentum in our business which continued through an unprecedented peak season,” said Michael C. Lenz, FedEx Corp. executive vice president and chief financial officer. “Our growth in fiscal 2021 has identified opportunities for investments that further position us for sustained long-term growth in earnings and cash flows as we move into fiscal 2022 and beyond.”
The FedEx Dividend Delivers
FedEx isn’t a high-yielding dividend payer at only 1.0% but it is a safe and steady payout that investors can count on quarter after quarter. There is some history of increases and we think another one is in the cards but it’s not something we want to count on just yet. Until then, investors can sleep sound at night knowing the company is paying out a mere 15% of its earnings and has a relatively sound balance sheet. The company is sitting on a moderate amount of debt and FCF is a little tight but revenue growth, margin growth, and earnings growth help alleviate our concerns.
The Technical Outlook: FedEx Breaks Out And Confirms Reversal
Shares of FedEx have been consolidating and bottoming over the past few months and look ready to resume the long-term uptrend. The post-release action has share price moving higher, up more than 5% and trading above resistance at the previous all-time high where it is confirming a reversal. We are now looking for price action to move up to retest the most recent all-time high and eventually move up to new highs.
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