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Poised for Valuation Expansion By TipRanks


© Reuters. FedEx: Poised for Valuation Expansion

FedEx (NYSE:) provides a broad portfolio of transportation, e-commerce, and business services through its various subsidiaries under the respected FedEx brand.

FedEx Express and FedEx Ground are its core businesses. FedEx Freight and FedEx Services make up the remainder of the company. The company offers domestic and international freight and package shipping. The company also provides sales, marketing and information technology services, as well as customer service, billing, collection, and technical support.

The COVID-19 pandemic caused disruptions in global supply chains and created logistical problems. However, this also demonstrated the vitality of FedEx’s operations.

FedEx has enjoyed a boom in the last few years thanks to e-commerce’s rising sales. FedEx’s momentum has been strong, with its latest results showing a strong performance.

However, the shares appear to be significantly undervalued. This is why I believe the stock should be bought. (See FDX stock charts on TipRanks)

Q1: A Solid Quarter

FedEx recently reported its Q1 2022 financial results for the three-month period ending August 31. Comparable quarter one year ago, revenues grew by 14% to $22 million.

Increased package and freight yields and increased export express shipment volumes led to a significant increase in revenue. FedEx Freight’s record operating margins were 17.3% despite higher delivery costs. This was due to better cost management and reduced fuel costs.

However, because of additional costs arising from a restricted labor market, non GAAP EPS was only $4.37, as opposed to $4.87 for Q1 2021.

FedEx plays a crucial role in global economic recovery, while also delivering COVID-19 shots and supplies. FedEx’s continued ecommerce growth should push the company’s financials further.

Management projects FY2022 EBITDA of $18.25 to $9.50 after accounting adjustments for MTM (market–to-market), retirement plan accounting.

If you exclude expenses related to TNT Express’ merger with FedEx, EPS could range from $19.75 to $251. Given the non-recurring nature these outflows, we can estimate that the fair EPS generated by the company is the $20.40 midpoint in the second range. 

The Valuation

Based on the company’s projected EPS, as we just assumed, the stock is trading at a forward P/E of around 10.9, which is amongst the company’s lowest multiples over the past decade.

Given that EPS growth should be steady, this stock is substantially undervalued. FedEx’s rate hikes will drive profitability growth. On January 3, 2022, FedEx will raise its shipping rates on average by 5.9%.

Wall Street’s Take

Turning to Wall Street, FedEx has a Strong Buy consensus rating, based on 17 Buys, and four Holds, and zero Sells assigned in the past three months. At $308.08, the average FDX price target implies 38.9% upside potential.

Disclosure: Nikolaos Sismanis didn’t hold any positions in the securities discussed in this article at the time it was published.

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