FedEx, a renowned shipping company, has endured a challenging period lately, resulting in a significant blow to its stock value. However, there is reason to believe that the worst is behind them, making it an opportune time to consider investing in the company.
In the closing months of the previous year, FedEx witnessed a disheartening decline in its stock, plummeting by 11% to $250 since December 19. This decline was primarily attributed to the company’s announcement that its sales for fiscal year 2024 would experience a low single-digit decrease, deviating from their prior projection of maintaining steady growth. The management attributed this setback to a reduction in the number of shipments, despite mitigating factors such as increasing prices.
Amidst this downturn, there are still positive aspects to consider. Although the sales forecast has been adjusted downwards, the profit outlook remains unchanged. The management expects earnings per share to reach $17.75, falling within the range estimate for the year. This resilience is partly due to FedEx’s strategic efforts to revamp its cost structure throughout 2024. As a result, financial analysts anticipate a boost in the operating margin from this year’s 6.5% to a projected 7.5%.
Greg Branch, founder and managing partner at Veritas Financial, maintains that it is crucial to give FedEx the benefit of the doubt during this period and trust their assurance that a cost-cutting plan is already underway. The successful execution of this plan holds the key to capturing a substantial opportunity for progress moving forward.
In conclusion, amidst recent challenges, FedEx’s stock valuation seems to have bottomed out. With constructive efforts to optimize costs and maintain profitability, investors should seriously consider seizing this moment to capitalize on FedEx’s potential for future growth.
FedEx’s Resilience in Challenging Times
Despite facing economic headwinds, FedEx has proven its ability to maintain profitability. Analysts have only slightly adjusted their earnings estimates for fiscal 2024, reducing them by less than 3%. With the help of strategic buybacks, it is expected that the company will earn $20 per share. This demonstrates the resilience of FedEx even in a turbulent market.
Looking Towards the Future
In the long term, FedEx aims to sustain higher margins by efficiently meeting the demands of its customers while reducing costs. By 2026, they anticipate an operating margin increase of nearly 9%. Additionally, if sales can reach $99 billion by 2026 (compared to the estimated $88.3 billion in 2024), earnings could rise to nearly $28.
Melius Research analyst Conor Cunningham is optimistic about the company’s prospects. He recently upgraded FedEx’s stock from Hold to Buy. Cunningham emphasizes the importance of sustained confidence in driving volumes, which can lead to increased leverage in the company’s earnings model. He believes that the focus on cost reduction and network simplification is contributing to stronger margins and offers significant upside potential if volumes recover faster than anticipated.
A Potential Boost for Investors
Despite its promising future, FedEx’s stock is currently undervalued. Trading at only 12 times the expected earnings per share for the year, it represents a 40% discount compared to the S&P 500’s average of roughly 19 times. This is one of the lowest discounts historically seen for FedEx stock. However, as the company executes its growth plans, there is potential for the market’s perception to shift. As a result, the stock’s valuation is likely to rise over time.
Cunningham argues that as FedEx achieves higher margins in the long term, the stock’s multiple should move closer to that of United Parcel Service, reaching 16 times expected earnings. This would unlock additional gains for investors in FedEx.
In conclusion, FedEx’s ability to maintain profitability during challenging economic conditions, coupled with its strategic plans for growth, position the company for success. With analysts recognizing its potential and the possibility of its stock valuation increasing, FedEx is a compelling investment opportunity.
But let’s not get ahead of ourselves just yet. For now, it should be enough to acknowledge that FedEx stocks have experienced a significant decline, which creates an opportunity for potential improvement. Cunningham, a trusted analyst in the industry, believes that the recent pullback in FedEx, following the release of their 2Q results, is excessive and unjustified. In fact, he is confident enough to raise his price target to $310, indicating a potential 24% upside from its current level.