About FedEx

It will be a very strange day when I don’t see my school’s campus filled with FedEx vehicles. From regular-sized trucks to smaller vans driving up and down the campus walkways and side streets, someone should pinch me if I don’t see a FedEx vehicle at some point one day walking to and from classes.

Although the university I attend seems to do a lot of business with FedEx (among other major carriers), the iconic American company that is FedEx started with a college student’s paper allegedly receiving a “C.”

While attending Yale University, Frederick Smith, the founder of FedEx wrote out the general business idea of what he envisioned to be a more efficient and cost-effective shipping strategy. Subsequently his professor graded his paper a “C” and Smith’s fire to try out the concept was initially sparked.

While this short story isn’t meant to be construed as a “hey, even if you get mediocre grades in school, you can start the next FedEx,” it can be construed as a testament to the troves of entrepreneurial opportunity in America. It’s mind boggling to think that one student’s incredibly average paper was the beginning of one of the world’s largest transport and logistics companies.

I’ll never see a FedEx truck the same ever again!

Hopefully by now you’ve realized that the stock we’ll be analyzing is Memphis-based, Arkansas-founded Federal Express.

As heartwarming and encouraging as the founding story may seem, our team at MacroHint isn’t really interested in nice stories or much of the past. We’re interested in the company’s numbers, finances, present, future, and ultimately whether or not it’s a stock worth considering investing in or not.

FedEx’s stock financials

Keeping in line with what we’re really interested in, the company is currently trading at a share price of around $244, has a market capitalization of around $58 billion, an annual dividend of $4.60 and a price-to-earnings (P/E) ratio of 15.53.

There appears to be nothing but good stuff so far as the company’s dividend is a relatively high one and the stock appears to be modestly undervalued given that a P/E ratio of 20 is generally indicates the share price is trading at fair value (what it’s worth) and above 20 implies its overvalued.

Diving a bit deeper into FedEx’s financials, according to the company’s balance sheet, management oversees nearly $86 billion in total assets and just north of $61 billion in total liabilities. Given the cost-heavy nature of the transport and shipping industries, the company’s balance sheet appears quite strong with total assets outweighing total liabilities by a comforting margin.

Onto the company’s income statement, their total revenue has skyrocketed in recent years. Specifically, their total revenue in 2018 stood at around $65 billion, stayed at around $69 billion for the next two years, and leaped to nearly $84 billion in 2021 and continued up to around $93.5 billion in 2022.

This is incredibly strong revenue growth.

While 2021 and 2022 can be seen somewhat as anomalies given the massive demand for logistics companies and their capabilities (due to the supply chain mayhem), the jump in revenue in recent history is, by no means, nothing to scoff at. Furthermore, we don’t see much in the way of preventing FedEx from continuing to grow revenues (maybe not as rapidly as in recent years) moving forward.

FedEx’s stock fundamentals

In addition to the company’s strong revenue numbers, FedEx’s trailing twelve month (TTM) net profit margin is slightly higher than that of the industry, standing at nearly 4.1% to the industry’s 3.87%, according to TD Ameritrade’s platform.

It should be understood that this is a very competitive industry, especially given the stiff competition from their formidable foe, United Parcel Service, better known as UPS.

While they are pretty much the closest thing to direct competition, one of the key differences between the companies is their logistics model. One example of this is that UPS is well-known for its local delivery capabilities whereas FedEx is more known for its more global presence, especially through its large fleet of aircraft. However, our team thinks it’s necessary to note that UPS also operates and uses airplanes as well.

We also found it interesting that when performing research on each company’s relative market share, UPS maintains around 40% market share while FedEx only has just north of 37%.

Nevertheless, while both companies employ different approaches to winning customers, we see UPS and FedEx as direct competition; if FedEx can gain any inch of profitability from the competition, we see that as a very good sign.

While there’s a lot to like about FedEx and its stock so far, solely on a returns basis, the company is lacking.

Specifically, the company’s TTM returns on equity, asset and investment are all lower than that of the industry, however this makes sense given the larger amount of transportation equipment (trucks, planes etc.…) they operate and manage. However, our team isn’t going to cut the company too much slack given that UPS’ returns are all higher than that of the industry average. While we’re not exactly sure why this is the case, it’s interesting and necessary to note this, nonetheless. Hopefully, over time, FedEx will be able to get closer and closer to achieving at least industry average returns as it continues to expand and mature as a business globally.

Should you buy FedEx stock?

Given all of the information we’ve gathered and analyzed regarding FedEx and its stock, it seems like a solid pick for the future, especially given its recently announced higher expectations for the future. While the stock and company overall seem strong, both FedEx and UPS appear to have solid financials and a lot to gain going forward.

However, given that FedEx is objectively undervalued as of this writing, has a strong balance sheet, incredibly robust revenue growth and that it generally stands to benefit from supply chain issues, we give the company a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.